European Crisis Shifts Back to Banks, RBA Minutes Next

Italys Unicredit missed its earnings estimate by 17 billion and German leaders continued to muse about ways for countries to leave the currency union. JPY and USD were the top performers while EUR and CHF lagged. The RBA minutes are the top release of the upcoming session.

The European crisis continues to be waged in five countries (the PIIGS) and on four fronts: bond yields, credit ratings, politics and banking stability.

The combination means that on any day, one of 20 things could go wrong for the euro. On Monday, it was Italy and banks after Unicredit lost 10.6 billion in the quarter and halted its dividend. Ratings agencies also factored in as Moodys put Credit Suisse on review for a downgrade.

At the same time, the battle lines are growing more clear on hopes for the ECB to make unsterilized purchases of government debt. German fin min Schaeuble said there can be no financing of states by central banks but noted that Germany appears to be fairly alone in this thinking. Schaeuble also talked about changes to the Lisbon Treaty, i.e. allowing countries to leave the euro area.

The S&P 500 fell 1% to 1252.

CFTC Commitment of Traders

The COT report was delayed until Monday due to a holiday. It showed the net USD long cut back to $6.3B from $9.9B as euro and sterling shorts were trimmed. The net euro short slide to -54K from -60K and the net sterling short fell to -29K from -47K. Other changes were all less than 3K with net JPY, AUD and NZD longs expanding.

Asia-Pacific Preview

The minutes of the Nov 1 RBA meeting will be released at 0030 GMT. The central bank lowered rates by 25 bps to 4.50% and said it was moving to a more neutral stance. The timing of the next cut is far from certain but the minutes probably wont provide a clear answer. Look for more colour about the outlook for the Asian and European economies, as that seems to be a major factor the RBA is considering.

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