- After the release of the Spanish budget yesterday, focus remains on the country as today sees the release of Oliver Wyman's audit on the sector; expected to show a capital shortfall of EUR 60bln.
- The European morning sees light volumes and little price action as participants look ahead to month- and quarter-end.
- French budget provides few surprises, as the Socialist government looks to the highest earners in order to boost tax revenue, and forecasts 0.8% growth in 2013.
The "mañana" approach to fiscal management, that Spain is known for, presented what is generally perceived as overly optimistic growth forecasts for 2013 and lacked details on structural reform resulted in another risk off session. As a result, Spanish stocks continued to underperform (IBEX seen lower by over 5% on the week), with 10y bond yield spread wider by around 12bps as market participants adjusted to higher risk premia. The state is due to sell 2s and 5s next week, which may also have contributed to higher yields. As a reminder, Moody’s review on Spain is set to end today, however there is a chance that the ratings agency may extend the review for another couple of months or wait until the stress test results are published to make an announcement. In other news, according to sources, Greece could return to its European partners for a Spanish-style rescue of its banking sector, as the country is looking to ease the burden via another writedown of its debts or a strong recapitalisation of its banks (no official response as yet). Going forward, the second half of the session sees the release of the latest PCE data, as well as the Chicago PMI report for the month of September.
As China heads into it's golden week market holiday, the Shanghai Composite closed higher by 1.5%, alongside the Hang Seng Index in Hong Kong, as participants seem satisfied with the PBOC's recent liquidity operations ahead of the trading break. On the other hand, the Nikkei 225 in Tokyo closed lower by 0.9% as the ongoing disputes over the Senkaku islands weigh upon exporters along with the continued elevated JPY strength. (RANsquawk)
EU & UK Headlines
The French 2013 budget has been released, showing little in the way of surprises, as the first socialist budget in 10 years shows an increase in real taxation on the higher earners.
French budget forecasts 0.3% GDP growth in 2012 and 0.8% GDP growth in 2013. (Newswires)
- French budget raises taxes on companies by EUR 8.8bln.
- French budget raises taxes on individuals by EUR 4.7bln.
Euro-Zone CPI Estimate (Sep) Y/Y 2.7% vs Exp. 2.4% (Prev. 2.6%)
- Driving factors are the increased inflation came from an increase in Spanish VAT and increasing the energy prices.
France and Germany are to present joint proposals to European commission on new financial transactions tax plan, and are seeking 9 EU nations to take part in the plans. (Newswires)
Core European bourses trade lower heading into the North American crossover, as markets look ahead to both month- and year-end at the today's close. Focus across the European asset classes remains on the Spanish banking sector, currently lower by around 1.5% in the IBEX-35, as the Oliver Wyman audit is still set for release today, expected to show a capital shortfall of EUR 60bln. US stock futures, after benefiting from yesterday's Spanish budget release, have erased much of the gains, indicating a lower open on Wall Street today.
According to an internal letter, Deutsche Lufthansa's CEO has said the company's savings programme will likely fall short, with the weaker global economy, higher fuel costs and the Eurozone crisis as the main catalyst for the forecast. Following the release, Deutsche Lufthansa shares trade lower by 1.5%, and have weighed upon the other European airliners, with IAG in the FTSE down 0.6%. However, after seeing initial downside, sector related stock Air France KLM trade higher after being upgraded to buy from neutral at UBS.
GBP/USD trended lower throughout the session, largely driven by EUR/GBP cross which edged up to the 80.00 level on the back of touted month end demand from a European central bank. EUR/USD failed to top offers above 1.2960, but remains in positive territory and trade in close proximity to an intraday option expiry at 1.2910. (RANsquawk)
Following the European open, WTI crude futures were trading higher inline with the Chinese stock rebound, however the energy complex has erased much of its gains to trade relatively flat heading into today's NYMEX pit open, moving in line with current European risk sentiment. Despite the recent weakness in the energy complex, spot gold and silver prices are retaining their value, assisted by the weaker USD-index today. (RANsquawk)