RBA Cuts, Swiss CPI Deflates Further, Ezone GDP Due

Standard and Poors muddies European waters, Eurozone GDP set to stay stagnant, RBA cuts rates by 25 basis points, Swiss CPI confirms more deflation, UK sales slump. Latest Premium Intermarket Insights are below including the triggered short in AUDNZD issued prior to the RBA cut.

Last nights decision by Standard and Poors to put fifteen Eurozone nations on downgrade watch including all six triple A nations threw a spanner in the works after an initially positive reaction to yesterdays Merkozy press conference. While it is unlikely that Germany could lose its rating it is becoming increasingly likely now that France probably will, given that S&P suggested they could be downgraded two notches. This throws the viability of the EFSF into serious doubt and the funds own triple A rating.

S&P cited concerns about the sustainability of debt to GDP ratios set against a backdrop of deteriorating growth and a lack of decisive decision-making reflecting structural weaknesses in within the Eurozone and European Union.

Eyes turn to Eurozone growth when the Q3 Eurozone GDP is due out at 10:00 GMT, expected to show growth of 0.2% q/q and 1.4% year y/y.

The Reserve Bank of Australia duplicated last months 25 basis-point cut to bring rates down to 4.25%, reflecting deepening concern about the continued uncertainty prevailing in Europe. With Chinese data also showing signs of weakness the bank obviously feels it is prudent to try and get ahead of any ill winds that could blow ashore from Europe and China, as any inflation threat diminishes.

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In Switzerland, evidence of more deflation was shown in the 0.5% y/y decline in Nov CPI from previous -0.1% vs exp -0.3%. This strengthens the argument for further intervention by the Swiss National Bank to fight off the effects of deflation.

UK BRC like for like sales showed a sharp decline of 1.6% in November. GBP had been surprisingly lifted by better than expected services PMI, which ended up netting a slightly unchanged result for GBPUSD.