Intraday Market Thoughts

Awaiting Trade Data, Berlusconi Faces Confidence Vote

by Patrik Urban
Oct 13, 2011 12:20

Swiss deflationary pressures on the rise, German CPI confirmed at three year high; UK trade deficit narrows. Market turns to US and Canadian Trade balance, jobless claims and federal budget deficit. Premium Intermarket Insights are due at the US opening bell.

USD has had a bid tone since London open as risk aversion re-emerged, sending European equity indices into the red. JPY is also stronger across the board but far from erasing all of yesterday's losses.

Swiss Producer and Import prices fell -0.1% in September (-2% y/y) confirming SNB fears that strong franc could contribute to deflationary pressures. Lower price level gives credibility to the rumor that SNB plans to increase the price floor that is set for EURCHF from present 1.2 to 1.25 or maybe even 1.30. However, EURCHF trades lower as it is pulled back by falling EURUSD.

In the UK, August trade deficit narrowed to GBP -7.8 bln from GBP -8.2 bln as export reached record levels.

Also on the UK front, Sky News said Fitch rating agency planned to issue a statement on UK.banks, "warning of a sector-wide downgrade". There has been no such statement since.

Italy sold almost EUR 6.2 billion worth of bonds today in the first auction since last week's downgrade, somewhat lower compared to a target EUR 6.5 billion. Surprisingly, the yield on the 5 year bond was lower compared to a previous auction. Situation in Italy could become complicated as PM Berlusconi faces a confidence vote. The ECB is said to be buying Italian as well as Spanish bonds today.

In other news, the ECB October monthly bulletin described that economic outlook continues to be a subject to uncertainty and that downside risks have intensified. CPI should stay elevated above the ECB target 2% but is expected to fall. German September CPI was confirmed at 0.1% (2.6% y/y) which is unchanged from the initial estimate. Annual CPI continues to stay near three years high.

The NY session will start at 8:30 am ET with August Trade deficit that is seen wider at USD -46 bln from previous USD -44.8 bln. Jobless claims are expected to tick up to 406K from last week's 401K.

Canadian trade balance that is also due at 8:30 am is seen only slightly changed at CAD -0.9 bln in August from CAD -0.8 bln in July.

Federal budget deficit due at 2:00 pm ET is anticipated at USD -65 bln in September from USD -134.2 bln in August.


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