Data Firming
The EUR has managed to hold on to most of its gains this week despite some dashed expectations of an aid request by the Spanish government yesterday. Although the EPP Congress was well attended by the key players in the current crisis, calls for unity were the order of the day, though today’s summit may yet lay bare some degree of acrimony as crunch talks for countries’ various aid programmes resume. There appears to be a growing sense of realisation or even encouragement amongst Eurozone lawmakers that any conditionality sought by Spain would be at a bare minimum, but activation of the security blanket in the OMT programme is far more pressing. We still do not expect any decisions to be made over the coming days – EU spokesman Bailly commented that 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 traded firmly overnight on the back of much 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. During the Asia session, Chinese figures came in line with expectations at 7.4%y/y, and other figures such as industrial production and the crucial fixed asset investment component, in addition to retail sales all surprised slightly to the upside. Although the Eurozone is managing to move ahead without much incident, we believe the material change in data over the last month has been the critical catalyst for an improvement in market sentiment and regardless of the structural faults, this move should have legs as investors are still under pressure to perform. Besides the EU summit, unemployment report in Sweden and jobless claims in the US are due today. Overnight EURUSD traded 1.3089-1.3123 and USDJPY 78.93-79.20.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank