The focus remained squarely on peripheral Europe overnight with social unrest in Spain and Greece weighing on global markets. As Spain prepares to announce a series of economic reforms, demonstrators in Madrid have used the opportunity to voice oppositions on what will essentially come at the expense of the people. Spain’s Central Bank issued a statement overnight noting third-quarter growth is likely to continue to carry the country deeper into recession, with output continuing to fall at a “significant rate.” To make maters worse, the politically autonomous region of Catalonia has also called elections on November 25, in what is effectively a referendum on independence from flagship Spain. Catalonia’s leader, Artur Mas stated in a news conference last week, “The people and society of Catalonia are on the move, as we have seen on Sept. 11, and not willing to accept that our future will be gray when it could be more brilliant.”
After considerable progress in recent weeks on the back of Mario Draghi’s grand bond buying proposal, markets are begging to price-out some of the optimism seen in recent weeks with 10-year Spanish debt yields back above the 6-percent region. The perceived safety of the Greenback and Yen remained the place to be, with still little in the way of post-QE3 optimism to negate the latest downturn.
The Yen remained the safe-haven destination of choice despite recent efforts by the Bank of Japan devalue the currency through monetary easing. Past BoJ efforts to dull the Yens appeal have proven unsuccessful, and despite flooding the market with an additional 10 Trillion Yen, this latest effort, once again, appears to have provided little respite. BoJ board member Takehiro Sato comments yesterday also failed to take some of the sheen off the Yen despite stating the bank “won’t hesitate” in taking further monetary easing initiatives. While its possible markets will continue to test the banks resolve, we’re likely to see reluctance to carry the USDJPY pair below the 77-handle given the threat of monetary and currency intervention.
The Australian dollar continued to underperform in early Europe, but managed to regain some composure throughout U.S trade, returning from lows of 103.27 US cents. Economic data due in domestic trade includes August Job vacancy numbers with China’s industrial profits - both are scheduled for release at 11.30am AEST.