Spain's Ruling Party Ousted In Weekend Elections; EUR Steady

Asia saw a relatively calm start to the week, though undercurrents of “risk-off” were manifestly evident.

The weekend’s news that the US Budget “Super-Committee” discussions on ways to reduce the deficit were making no progress ahead of Wednesday’s deadline saw risk currencies under pressure from the start, though losses were mild and well-contained. The announcement that Spain’s centre-right People’s party had crushed the ruling Socialist Party at the weekend elections had little impact with the result more-or-less expected, according to the opinion polls. It now rests on the incumbent government to prove it can do what it said it would do for any hope of calming restless periphery markets.

On the data front, Japan’s merchandise trade data showed its first deficit in two months as exports failed to maintain any upward trajectory and fell a more-than-expected 3.7 percent y/y as global demand falters. Exports to Asia fell 6.6 percent y/y while those to China (Japan’s largest trading partner) fell 7.7 percent y/y. Exports to the US and Europe fell 2.3 percent and 2.9 percent y/y respectively. Internal post-quake demand for goods and higher fuel prices led to imports rising a hefty 17.9 percent y/y resulting in a deficit of ¥273.8 bln.

Singapore’s economic rebound in Q3 was confirmed by an upward revision to provisional data with the island-state economy growing 1.9 percent q/q and 6.1 percent y/y, broadly in line with market expectations. A strong performance by the manufacturing sector, up 8.3 percent y/y, helped the final data (though this was predominantly from the biomedical sector, electronics still contracting) while services growth held steady at +5.2 percent y/y. That said, exports shrank 0.3 percent y/y in the quarter while private consumption and investment were strong at +7.1 percent y/y and +6.3 percent y/y respectively.
 
Ahead of the data, the MAS published its inflation forecasts for 2012 which it sees falling to 2.5-3.5 percent from an average of about 5 percent this year, with price pressures from cyclically-sensitive items seen abating. It also expects core inflation to rise 1.5-2.0 percent in 2012, down from the 2.16 percent seen in Q2 this year. Meanwhile the Ministry of Trade and Industry expects growth of between 1 percent and 3 percent in 2012 as a result of external weakness and its impact on the export sector, down from the current forecast of 5 percent in 2011. USDSGD crawled its way back above 1.30 for the second time since 7 October.
 
The EUR looked to be heading into the weekend on a calmer footing with some short-covering the order of the day during the European session. SMP aggressive bond buying continued giving the pair support, though reports that Germany was considering more orderly Eurozone defaults and talk Russia had no plans to buy Europan Financial Stability Facility debt took some of the shine off the rally and we closed mid-range. Oil prices slid further pushing commodity currencies lower with the CRB commodity Index falling to a fresh weekly low.
 
Friday’s NY session was also relatively tight ranged once Europe left for the weekend. US data releases were limited to October’s leading indicators which posted their biggest jump since February with a 0.9 percent increase as 9 out of 10 components contributing to the uptick. US stocks were mixed in a choppy session with the DJIA finishing up 0.22 percent, S&P down 0.04 percent and the Nasdaq down 0.6 percent. We were already seeing heightened concerns that the US budget Super-Committee was struggling to reach an agreement on at least $1.2 tln of federal budget savings before Wednesday’s deadline (and more likely confirmed in weekend press reports.

Economic Data Highlights

* CA Oct. CPI out at +0.2% m/m, +2.9% y/y vs. 0.1%/2.8% expected and 0.2%/3.2% prior resp.
* CA Oct Leading Indicators out at +0.2% m/m vs. 0.1% expected and revised 0.1% prior
* US Oct. Leading Indicators out at +0.9% vs. 0.6% expected and revised 0.1% prior
* JP Oct. Merchandise Trade Balance out at -¥273.8b vs. +¥39.9b expected and revised +¥296.2b prior
* JP Oct. Trade Exports out at -3.7% y/y vs. -0.3% expected and revised +2.3% prior
* JP Oct. Trade Imports out at +17.9% y/y vs. 15.1% expected and 12.1% prior
* SI Q3 Final GDP out at +1.9% q/q, +6.1% y/y vs. 2.0%/6.1% expected and +1.3%/+5.9% previously resp.
* UK Nov. Rightmove House Prices out at -3.1% m/m, +1.2% y/y vs. 2.8%/1.2% prior resp.
* NZ Oct. Credit Card Spending out at +2.6% m/m, +7.9% y/y vs. revised 1.3%/5.3% prior resp.