Spanish Budget Due
The euro managed to stay aloft overnight despite Spanish yields rising over 30 bp on Wednesday as concerns grew about the developing fiscal, political, and social situation in the country. Renewed doubts about who will ultimately bear the cost of recapitalising the Spanish banking system have not helped sentiment. The decision to hold elections in Catalonia has also injected a dose of political instability. Meanwhile, street protests opposing austerity measures continued for a second day in Madrid as the Spanish government prepares to submit a structural reform plan to the EU and to approve the 2013 budget later today. The government hopes that a “pre-approval” of its reform plan could help avoid tougher austerity measures when it finally requests EFSF/ESM aid. Elsewhere, the Australian dollar help up quite well despite a major Chinese steel manufacturer announcing its decision to close a loss-making steel mill. We note that if other steel producers follow suit, national steel production levels would likely suffer a material decline, which would ultimately lead to falling Australian iron ore export volumes. Meanwhile, news reports indicate that iron ore prices are now so weak, 40% of Chinese iron ore mines have suspended operations. The Eurozone M3 number is due today and could provide further insights into commercial bank lending habits throughout the region.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank