Stress Tests Results Next
Data releases in the US were weak on Thursday with Q2 GDP revised down to 1.3% from 1.7%, durable good orders falling sharply by 13.2% m/m (consensus: -5.0%) and pending home sales dropping by 2.6% (consensus: 0.3%) in August. Last week jobless claims printed on slightly more positive note, falling to 359k (consensus: 375k). Earlier, the ECB’s bank deposit data showed Spanish bank deposits dropping 1.1% m/m in August (their lowest since April 2008), serving a timely reminder of the problems facing the banking system ahead of today’s release of bank stress tests results. Spanish budget plan for 2013 approved on Thursday did not throw any major surprises as Spain stuck to its deficit targets of -6.3% and -4.5% for 2012 and 2013 respectively. The government presented a “new” package of reforms that would cut overall spending by EUR40 bn. EU’s Rehn remarked that the reform plan “goes beyond” the EU recommendations. Spanish Finance Minister Montoro remarked that the government aims to make 2013 “the last year of recession” – projecting 2013 GDP to fall only by 0.5% (UBSe: -1.7%, consensus: -1.5%). Our economists note that the budget was essentially in line with what was already announced in July and think that the deficit targets are quite unrealistic and likely to be missed. The positive commentary from the EU leaders, nevertheless, supported risk assets and EURUSD rallied above 1.29. In the UK, Q2 GDP was revised slightly up to -0.4% q/q (prior: -0.5%). However, the Q2 current account deficit of GBP20.8 bn, (5.4% of GDP), is up sharply from GBP15.4 bn in Q1. BoE member Fisher said he expects very strong UK GDP number for Q3, while CPI inflation should stay around the current rate of 2.5% for 2-3 years. He added that the Funding for Lending Scheme is uncapped and likely to pump GBP60-100 bn into the UK economy. Lots of data on tap ahead today, but the focus will still remain on Spain as it releases the bank stress tests results.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank