Euro optimism following stress-test results

<p>Friday was quarter-end, and we therefore saw quite aggressive moves attributed mainly to rebalancing around 4pm. However, we also received news of the Spanish banks’ […]</p>

Friday was quarter-end, and we therefore saw quite aggressive moves attributed mainly to rebalancing around 4pm. However, we also received news of the Spanish banks’ stress tests as well as Spain’s budget review. According to the tests, Spain’s banks are currently running a capital deficit of just under €60bn, with Bankia contributing over €24bn towards the imbalance. Rumours had begun to circulate that Spanish banks may require considerably more than previously forecasted to satisfy their capital deficit and so the markets found relief when the official figure came in-line with expectations. This morning the euro has advanced from three-week lows against the US$ fuelled by glimmers of optimism following Friday’s stress-test results. However following September’s euro rally, and stronger than expected eurozone confidence figures, October will be pivotal in determining a longer term perspective. As well as increasing pressure on Rajoy to request financial assistance for Spain, we will see the first of three ‘crucial’ economic summits to begin this month, the first of which to take place in Brussels on 18th October.

Economic data-wise, European Manufacturing PMI was marginally better than expected this morning at 46.1, previously 46. We also had the release of UK Manufacturing PMI which was weaker than expected at 48.4, forecasted 49.5, and the eurozone unemployment rate was at 11.4% as expected. The weaker UK manufacturing figure was a result of falling output for the third month in a row, weakening export demand and increased pressure on input prices. This afternoon we have Manufacturing PMI data from the US and Construction spending both at 3.00pm.

Looking forward, we will have busy end to the week with rate decisions from MPC and ECB on Thursday, Monetary Policy statement from Japan and Non-farm payrolls from the US on Friday (expected to increase by 100k).



Support 1.2805 | Resistance 1.2945


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