Market Drivers October 17, 2012
Euro rallies post Moody’s hold on Spain but off the highs
UK labor data lifts pound
Nikkei up 1.21% Europe up 0.31%
Europe and Asia:
CHF ZEW Survey (Expectations) -28.9 vs. -34.9
GBP BOE Minutes
GBP Jobless Claims Change -4K vs.0K
GBP AVG Weekly Earnings 1.7% vs. 1.6%
GBP Employment Change 7.9% vs. 8.1%
USD Building Permits 8:30
USD Housing Starts 8:30
Its been an uneventful night of trade in Europe with EURUSD consolidating its gains made in early Asian session after the pair took out the key 1.3100 level. A hold by Moodyâ€™s on Spanish debt rather than an expected downgrade helped to spur a rally in euro just as markets were transitioning from North America to Asia yesterday.
The decision to keep Spanish debt investment grade reflects the better funding conditions for Spain ever since the ECB revealed its plans for the OMT program. Although the ECB has yet to implement the program or buy even one Spanish bond, the mere suggestion of such policy has greatly reduced the stress in the Spanish sovereign debt market and lowered its funding rates substantially.
The financial markets still expect Spain to formally ask for a bailout from EU, but in the meantime the reduction in Spanish rates has created a virtuous cycle for the Spanish sovereign as the lower funding costs will now make it easier for Spanish government to meet its budget targets.
Elsewhere in UK labor data printed better than expected sending pound through the 1.6150 level in early London trade as both claimant count and unemployment improved. The claimant count fell ny -4K vs. 0K eyed dropping for the third month in a row, while the unemployment rate declined to 7.9% – it lowest level since June 2011.
The better than anticipated labor numbers suggest that UK economic growth may be picking up after recording two consecutive quarters of contraction. The news should allay fears that UK economy may continue to contract into the year end, as the ILO jobless rate has now shown a fall of 50,000 unemployed over the past three months.
Overall the surprisingly strong economic data should prove supportive for the pound in todayâ€™s trade. The pair has been a laggard in this weekâ€™s rally in risk as investment sentiment towards the unit has been decidedly guarded . However, if equities remain well bid in the North American session sterling could make a run towards the key 1.6200 level as the day proceeds.
In North America today the eco calendar only carries building permits and housing starts data with the market anticipating a very small improvement in both. Recent news from the housing front has shown improvement so the data could surprise to the upside which could help buoy risk as the day proceeds. Still market remain guarded as to the strength of the US recovery as evidenced by the persistent failure of USDJPY to clear the 79.00 level. The pair remains mired in a very tight range just below the figure, but if it manages to stage a breakout it would suggest that investor doubts are beginning to dissipate.