Risk Appetite Steady
USD and JPY gained across the board during the New York session as risk appetite remained steady. Spanish bond market rallied, with 10y yields dropping by about 35bp after Moody’s affirmation of Spain’s rating yesterday. Spanish government spokeswoman noted that Spain’s bailout stance remains unchanged, rejecting speculation of an imminent request. EURUSD was undeterred gaining about 70 pips on Wednesday, marking a total gain of about 200 pips this week. Considering that the Moody’s decision relieved pressure on Spain to make a EU request sooner and given the events risk heading into the EU summit today, we will be wary of further chasing the upside. EU spokesman Bailly commented that no decisions will be made on Greece or Spain in the summit – rather banking supervision and proposals for a fiscal union seem to be on the agenda. The Troika committee concluded its Greek visit on Wednesday. In a statement, the committee noted that talks with the Greek government were productive and an agreement was reached on most of the “core measures”. However, the statement noted that financing issues are yet to be settled . Risk sentiment was further supported by better than expected housing data in the US. Housing starts jumped by 15% to 872k (consensus: 770k), highest level since July 2008, and building permits were up by 11.6% to 894k (consensus: 810k) in September. Positive US data pushed USDJPY above 79.0, the highest level in about a month. GBPUSD rallied following a better than expected employment report which showed that jobless claims were down by 4.0k (consensus: 0.0k). The BoE minutes showed that the MPC voted unanimously to keep QE at GBP375 bn and interest rate at 0.5% in October. Some members saw ‘considerable scope’ for more QE, which fits in line with UBS view that the central bank will expand its QE programme by GBP50 bn in its next meeting on November 8. Besides the EU summit, unemployment report in Sweden and jobless claims in the US are due today.
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UBS Investment Bank