EUR/USD
Spain risks seeing its borrowing costs rise closer to those of Italy as European Central Bank buying fails to cap yields and slowing growth threatens to make its deficit-reduction targets unachievable. The gap between 10-year Spanish and Italian yields rose to more than 150 basis points early last week as Spain’s borrowing costs held below 6 percent, while investors drove Italy’s to a euro-era record of more than 7.48 percent. Since Nov. 9, the spread has narrowed to about 60 basis points, with Italian securities rallying to yield 6.5 percent and Spain paying 5.9 percent, up from as low as 5 percent five weeks ago.“There’s a high probability of Spain following Italy, “said Phyllis Reed , head of fixed-income research at Kleinwort Benson Bank in London. “In the very short term, the trigger is just the fact that we’re getting close to the edge of the abyss with the euro.”Europe is battling a debt crisis that so far has cost five leaders their jobs, including Italian Prime Minister Silvio Berlusconi. Spanish voters will elect a government this week that will have to slash the deficit by about a third and finance bond redemptions of about 50 billion euros ($68.7 billion) next year, with the European Commission forecasting that the nation will miss its growth and deficit goals.“The markets’ attitude towards Spain is quite sanguine compared to Italy at the moment, but we think that this could potentially change in the coming months, if not weeks,” Stephane Deo, chief European economist at UBS AG in London, said in a research note. The prospects of a “deep recession,” plus the potential cost of bank bailouts, are reasons to be “increasingly concerned about the Spanish situation,” he wrote.
GBP/USD
U.K. inflation may have slowed in October as food costs fell and retailers offered discounts, signaling that the squeeze on family budgets may begin to ease. Consumer prices rose an annual 5.1 percent after a 5.2 percent gain in September, according to the median estimate of 33 economists in a Bloomberg News survey. The Office for National Statistics in London will publish the data at 9:30 am on Nov. 15. A day later, the Bank of England will release its latest quarterly economic and inflation forecasts, which Governor Mervyn King will present at a press conference. The data may force King to write his eighth consecutive letter to Chancellor of the Exchequer George Osborne explaining why policy makers have kept interest rates at a record low, tolerating inflation at more than double their 2 percent target. Bank of England officials last month pledged 75 billion pounds ($120 billion) of bond purchases to fight the threat of a recession and predicted that price growth will slow next year.“If the September inflation figure wasn’t the peak, then October will be,” said Peter Dixon, an economist at Commerzbank AG in London. “Between now and January and February time, we expect inflation to fall very quickly. King might have to write one more letter after this, with an outside chance of two, but by the spring of next year, his letter-writing days will be behind him.”The governor must write to the chancellor every three months when the inflation rate strays more than a percentage point from the bank’s target, as required by law. Any letter from King will be published with Osborne’s response.
USD/JPY
Japanese stock futures and Australian shares rose amid optimism new governments in Greece and Italy will help contain Europe’s debt crisis, boosting investor confidence in riskier assets. American depositary receipts of Toyota Motor Corp., the world’s biggest carmaker by market value, rose 0.8 percent from the closing share price in Tokyo. Those of Komatsu Ltd., a Japanese machinery maker that gets 23 percent of its sales in China, gained 1 percent after two of China’s best-known economists said the country’s economy will have a “soft landing.” BHP Billiton Ltd., Australia’s No. 1 mining company, rose 0.7 percent. Futures on Japan’s Nikkei 225 Stock Average expiring in December closed at 8,595 in Chicago on Nov. 11, up from 8,500 in Osaka, Japan. They were bid in the pre-market at 8,600 in Osaka, at 8:05 a.m. local time. Australia’s S&P/ASX 200 Index climbed 0.3 percent today. New Zealand’s NZX 50 Index rose 0.6 percent in Wellington. “The situation in Greece has dramatically improved with the appointment of a unity government out there, and Italy looks like it’s getting close to a resolution,” said Angus Gluskie, who manages more than $350 million at White Funds Management in Sydney. “Two of the largest concerns of the market are being partially taken off the table.”
USD/CAD
Canada’s dollar rose as Italy and Greece eased concern that European debt turmoil will undermine the global economy, boosting higher-yielding assets. The loonie, as the currency is also known, was the best performer this week against the U.S. dollar among major currencies after the yen as Canada reported its first trade surplus in eight months and crude oil rallied. The Italian Senate’s approval of debt-reduction measures moved the country closer to a new government, while Greece’s Lucas Papademos was sworn in as prime minister. The Canadian government will release its inflation report next week. “The European political developments appear to be moving in a favorable way,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “It does appear that we’re now going to be getting a more orderly transition of government in both Greece and Italy. More than anything, that’s why we’ve seen the Canadian dollar stabilize and the slight gain on the week.”The Canadian currency appreciated 0.8 percent to C$1.0104 per U.S. dollar after touching C$1.0266 on Nov. 10, its weakest level since Oct. 13. One Canadian dollar buys 98.97 U.S. cents. Implied volatility for three-month options in the Canadian dollar versus the greenback reached 13.77 percent two days ago, the highest level in more than a month. The average over the past five years is 11.65 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.
Spain risks seeing its borrowing costs rise closer to those of Italy as European Central Bank buying fails to cap yields and slowing growth threatens to make its deficit-reduction targets unachievable. The gap between 10-year Spanish and Italian yields rose to more than 150 basis points early last week as Spain’s borrowing costs held below 6 percent, while investors drove Italy’s to a euro-era record of more than 7.48 percent. Since Nov. 9, the spread has narrowed to about 60 basis points, with Italian securities rallying to yield 6.5 percent and Spain paying 5.9 percent, up from as low as 5 percent five weeks ago.“There’s a high probability of Spain following Italy, “said Phyllis Reed , head of fixed-income research at Kleinwort Benson Bank in London. “In the very short term, the trigger is just the fact that we’re getting close to the edge of the abyss with the euro.”Europe is battling a debt crisis that so far has cost five leaders their jobs, including Italian Prime Minister Silvio Berlusconi. Spanish voters will elect a government this week that will have to slash the deficit by about a third and finance bond redemptions of about 50 billion euros ($68.7 billion) next year, with the European Commission forecasting that the nation will miss its growth and deficit goals.“The markets’ attitude towards Spain is quite sanguine compared to Italy at the moment, but we think that this could potentially change in the coming months, if not weeks,” Stephane Deo, chief European economist at UBS AG in London, said in a research note. The prospects of a “deep recession,” plus the potential cost of bank bailouts, are reasons to be “increasingly concerned about the Spanish situation,” he wrote.
GBP/USD
U.K. inflation may have slowed in October as food costs fell and retailers offered discounts, signaling that the squeeze on family budgets may begin to ease. Consumer prices rose an annual 5.1 percent after a 5.2 percent gain in September, according to the median estimate of 33 economists in a Bloomberg News survey. The Office for National Statistics in London will publish the data at 9:30 am on Nov. 15. A day later, the Bank of England will release its latest quarterly economic and inflation forecasts, which Governor Mervyn King will present at a press conference. The data may force King to write his eighth consecutive letter to Chancellor of the Exchequer George Osborne explaining why policy makers have kept interest rates at a record low, tolerating inflation at more than double their 2 percent target. Bank of England officials last month pledged 75 billion pounds ($120 billion) of bond purchases to fight the threat of a recession and predicted that price growth will slow next year.“If the September inflation figure wasn’t the peak, then October will be,” said Peter Dixon, an economist at Commerzbank AG in London. “Between now and January and February time, we expect inflation to fall very quickly. King might have to write one more letter after this, with an outside chance of two, but by the spring of next year, his letter-writing days will be behind him.”The governor must write to the chancellor every three months when the inflation rate strays more than a percentage point from the bank’s target, as required by law. Any letter from King will be published with Osborne’s response.
USD/JPY
Japanese stock futures and Australian shares rose amid optimism new governments in Greece and Italy will help contain Europe’s debt crisis, boosting investor confidence in riskier assets. American depositary receipts of Toyota Motor Corp., the world’s biggest carmaker by market value, rose 0.8 percent from the closing share price in Tokyo. Those of Komatsu Ltd., a Japanese machinery maker that gets 23 percent of its sales in China, gained 1 percent after two of China’s best-known economists said the country’s economy will have a “soft landing.” BHP Billiton Ltd., Australia’s No. 1 mining company, rose 0.7 percent. Futures on Japan’s Nikkei 225 Stock Average expiring in December closed at 8,595 in Chicago on Nov. 11, up from 8,500 in Osaka, Japan. They were bid in the pre-market at 8,600 in Osaka, at 8:05 a.m. local time. Australia’s S&P/ASX 200 Index climbed 0.3 percent today. New Zealand’s NZX 50 Index rose 0.6 percent in Wellington. “The situation in Greece has dramatically improved with the appointment of a unity government out there, and Italy looks like it’s getting close to a resolution,” said Angus Gluskie, who manages more than $350 million at White Funds Management in Sydney. “Two of the largest concerns of the market are being partially taken off the table.”
USD/CAD
Canada’s dollar rose as Italy and Greece eased concern that European debt turmoil will undermine the global economy, boosting higher-yielding assets. The loonie, as the currency is also known, was the best performer this week against the U.S. dollar among major currencies after the yen as Canada reported its first trade surplus in eight months and crude oil rallied. The Italian Senate’s approval of debt-reduction measures moved the country closer to a new government, while Greece’s Lucas Papademos was sworn in as prime minister. The Canadian government will release its inflation report next week. “The European political developments appear to be moving in a favorable way,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “It does appear that we’re now going to be getting a more orderly transition of government in both Greece and Italy. More than anything, that’s why we’ve seen the Canadian dollar stabilize and the slight gain on the week.”The Canadian currency appreciated 0.8 percent to C$1.0104 per U.S. dollar after touching C$1.0266 on Nov. 10, its weakest level since Oct. 13. One Canadian dollar buys 98.97 U.S. cents. Implied volatility for three-month options in the Canadian dollar versus the greenback reached 13.77 percent two days ago, the highest level in more than a month. The average over the past five years is 11.65 percent. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.
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