Euro Looks to French Budget, Spanish Stress Tests for Direction Cues

2012-09-28 06:18:00 Ilya Spivak, Head Strategist, APAC

The Euro may pull back into the end of the trading week as governments’ deficit-fighting efforts and slower inflation spur expectations for additional ECB stimulus.

Talking Points

Euro May Falter if Fiscal Consolidation, Disinflation Spur ECB Stimulus Bets
US Dollar Sold Overnight as Spanish Budget Optimism Lingers in the FX Space

The economic calendar is relatively tame in European hours, with the spotlight likely to remain on Spain as the country releases bank stress test results. These will help price the assets to be transferred to so-called “bad banks” as part of the EU bailout of the country’s lenders. Traders will look to the release to gauge whether the €100 billion pledged by the regional bloc to rescue effort will prove sufficient.

France is also due to release the details of its 2013 budget. Economists expect the government will run a deficit equivalent to 4.6 percent of GDP this year, the highest among the core members of the Eurozone. With that in mind, President Francois Hollande and company may be forced to press on with tax hikes and/or spending cuts, both of which amount to a further headwind for already anemic growth.

A particularly punishing budget may begin to feed expectations for ECB stimulus to offset retrenchment on the fiscal side of the policy landscape, weighing on the Euro. A softer Eurozone CPI reading could reinforce such a dynamic. Expectations call for the headline inflation rate to slow to 2.4 percent in September from 2.6 percent in the prior month.

The US Dollar declined against its top counterparts in overnight trade as the risk-on mood seen in US hours carried into the Asian session. The chipper tone followed news the release of Spain’s 2013 budget, with the administration of Prime Minister Mariano Rajoy announcing an ambitious set of measures to bring the nation’s fiscal house in order. The New Zealand Dollar outperformed, adding as much as 0.4 percent on average against the majors.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:45	NZD	Building Permits (MoM) (AUG)	1.9%	3.0%	2.0%
23:01	GBP	GfK Consumer Confidence Survey (SEP)	-28	-28	-29
23:15	JPY	Nomura/JMMA Manufacturing PMI (SEP)	48	-	47.7
23:30	JPY	National CPI (YoY) (AUG)	-0.4%	-0.5%	-0.4%
23:30	JPY	National CPI Ex Food, Energy (YoY) (AUG)	-0.5%	-0.5%	-0.6%
23:30	JPY	National CPI Ex-Fresh Food (YoY) (AUG)	-0.3%	-0.3%	-0.3%
23:30	JPY	Tokyo CPI Ex Food, Energy (YoY) (SEP)	-1.1%	-0.9%	-0.9% (R-)
23:30	JPY	Tokyo CPI Ex-Fresh Food (YoY) (SEP)	-0.4%	-0.3%	-0.5%
23:30	JPY	Tokyo CPI (YoY) (SEP)	-0.7%	-0.6%	-0.7%
23:30	JPY	Jobless Rate (AUG)	4.2%	4.3%	4.3%
23:30	JPY	Job-To-Applicant Ratio(AUG)	0.83	0.83	0.83
23:30	JPY	Household Spending (YoY) (AUG)	1.8%	1.1%	1.7%
23:50	JPY	Retail Trade s.a. (MoM) (AUG)	1.5%	-0.3%	-1.5%
23:50	JPY	Industrial Production (MoM) (AUG P)	-1.3%	-0.5%	-1.0%
23:50	JPY	Industrial Production (YoY) (AUG P)	-4.3%	-3.4%	-0.8%
23:50	JPY	Large Retailers' Sales(AUG)	-0.9%	-1.7%	-4.4%
23:50	JPY	Retail Trade (YoY) (AUG)	1.8%	-0.3%	-0.7% (R+)
1:30	AUD	Private Sector Credit (MoM) (AUG)	0.2%	0.3%	0.2%
1:30	AUD	Private Sector Credit (YoY) (AUG)	4.1%	4.3%	4.2%
1:35	CNY	MNI September Business Sentiment Indicator	51.35	-	47.54
3:00	NZD	Money Supply M3 (YoY) (AUG)	7.2%	-	7.1% (R-)
4:00	JPY	Vehicle Production (YoY) (AUG)	4.5%	-	16.7%
5:00	JPY	Annualized Housing Starts (AUG)	0.888M	0.872M	0.870M
5:00	JPY	Construction Orders (YoY) (AUG)	8.7%	-	8.0%
5:00	JPY	Housing Starts (YoY) (AUG)	-5.5%	-7.5%	-9.6%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
5:30	EUR	French Gross Domestic Product (QoQ) (2Q F)	0.0%	0.0%	Medium
5:30	EUR	French Gross Domestic Product (YoY) (2Q F)	0.3%	0.3%	Medium
6:00	EUR	German Retail Sales (MoM) (AUG)	0.2%	-1.0%	Medium
6:00	EUR	German Retail Sales (YoY) (AUG)	-0.9%	-1.0%	Medium
6:45	EUR	French Consumer Spending (YoY) (AUG)	-0.7%	0.2%	Low
6:45	EUR	French Consumer Spending (MoM) (AUG)	-0.3%	0.1%	Low
6:45	EUR	French Producer Prices (MoM) (AUG)	0.6%	-0.9%	Low
6:45	EUR	French Producer Prices (YoY) (AUG)	2.0%	1.3%	Low
7:00	CHF	KOF Swiss Leading Indicator (SEP)	1.50	1.57	Medium
8:00	EUR	Italian PPI (YoY) (AUG)	2.5%	2.4%	Low
8:00	EUR	Italian PPI (MoM) (AUG)	0.3%	0.4%	Low
8:30	GBP	Index of Services (MoM) (JUL)	1.5%	-1.7%	Low
8:30	GBP	Index of Services (3Mo3M) (JUL)	0.1%	-0.1%	Low
9:00	EUR	Euro-Zone CPI Estimate (YoY) (SEP)	2.4%	2.6%	Medium
9:00	EUR	Italian CPI - EU Harmonized (YoY) (SEP P)	2.7%	2.7%	Low
9:00	EUR	Italian CPI - EU Harmonized (MoM) (SEP P)	1.3%	0.0%	Low
9:00	EUR	Italian CPI (NIC incl. tobacco) (MoM) (SEP P)	-0.1%	0.4%	Low
9:00	EUR	Italian CPI (NIC incl. tobacco) (YoY) (SEP P)	3.1%	3.2%	Low