Spain To Play For Time?
The euro softened a little during the Asia session after the El Economista newspaper claimed over the weekend that Spain may wait until after regional elections on Oct 21 before making a formal application for EFSF aid. If true, this would mean there is little prospect of ECB bond purchases via Outright Monetary Transactions anytime soon, given the ECB’s insistence on conditionality. Chinese trade data for August brought further bad news for the Australian dollar as did news of another Australian mine closure. Although China’s trade surplus was wider than expected, imports contracted. More specifically, the value of imports from Australia fell back to a 7-month low (back to levels last seen during the Lunar New Year holiday when trade volumes are seasonally subdued). In Japan meanwhile, Q2 GDP was revised down. In theory this raises the risk of further BoJ easing when the policy board next meets on Sept. 19, although what the Fed announces on Thursday will likely be a far more crucial factor. In the wake of Friday’s soft payrolls report, our US economists now think the Fed will announce another round of asset purchases this week, and will also extend the commitment to keep the Fed funds rate exceptionally low into 2015. We consequently expect the dollar to trade heavy as Thursday’s FOMC meeting approaches. Today, Nordic economic data will be the focus, and we remain on alert for Chinese lending data, which is due at some point over the coming days.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank