Spanish Regional Elections
Elections in the Spanish regions, Galicia and the Basque country, were completed on Sunday. According to exit polls, Spanish Prime Minister Rajoy’s Popular Party extended its majority in Galicia (Rajoy’s home region), offering some respite to the central government as it pushes through an ‘unpopular’ austerity programme. However, the rise of the Basque Nationalist Party in the Basque country, though expected, presents challenges to the government as it heads into the elections in Catalonia on November 25, amid calls for greater autonomy to the region. Earlier, USD and JPY gained across the board as risk appetite suffered on Friday. The EU summit concluded on Friday with an agreement to have a legislation on the single supervisory mechanism by the year-end (with implementation set to happen “in due course” in 2013). The summit, however, revealed strains in the Franco-German relationship. German Chancellor Merkel cautioned against hasty implementation of the supervisory mechanism, noting that bank supervision will be “pointless if not done correctly”. She also noted that the ESM will not be used for “retroactive direct recapitalizations” – echoing the guidelines that were earlier put forward by the German, Dutch and Finnish Finance Ministers. Germany’s call to allow individual nation budgets to be vetoed by the European Commission was pushed back by France and other Eurozone countries. Spanish yields were slightly up on Friday but still quite benign to push the Spanish government into requesting for an EU aid anytime soon. The lack of decisions on Greece or Spain will likely put EUR on the defensive in the near-term. In the US, existing home sales dropped by 1.7% m/m (consensus: -1.6%) in September after a 8.1% rise in August. Q3 earnings disappointments of some major US firms pulled down S&P500 by 1.7% which added to the negative risk sentiment on Friday. Inflation in Canada came in soft at 0.2% m/m (consensus: 0.3%) in September. The BoC’s core CPI was also below consensus (growing by 0.2% m/m and 1.3% y/y), fueling expectations that the central bank could tone down its hawkish stance in its policy meeting on Tuesday. USDCAD rallied by about 80 pips on Friday and by about 150 pips since BoC Governor Carney’s speech last Monday. Central bank meetings in Canada, the US, New Zealand and Sweden will be in focus this week. Besides, Q3 GDP data in the US and the UK, PMI numbers in the Eurozone and inflation reports in Japan and Australia will offer further guidance on future currency price action. Ahead today, BoJ minutes for October 4-5 meeting, BoJ Governor Shirakawa’s speech and SNB’s monthly bulletin are due.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank