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FX Day Trading - 22 November 2011
Incoming Spanish PM faces market test
Treasury bill auction imminent
UK public sector borrowing figures this morning
Australia's parliament has passed a new law on tobacco sales. When it comes into force, all cigarettes will have to be packaged identically in generic olive green packs covered in graphic health warnings.
Tobacco producers are up in arms. They say buyers might not be able to distinguish Rothmans from Benson & Hedges. Maybe so, but if they are correct there could be the seeds of an idea here for a solution to the Euroland debt crisis.
If Eurozone sovereign borrowers were to package their bonds identically in generic gilt-edged packs covered in graphic wealth warnings, buyers might not be able to distinguish French bonds from Greek ones. It would not do much for German government bond sales, but could do wonders for Spain's ability to borrow at affordable rates of interest.
That ability will be tested today when Spain auctions three- and six-month treasury bills. Last week the country had to pay 6.98% interest on a ten-year issue and 5.02% on 12-month bills. Since then there has been a landslide election victory for Mariano Rajoy, who says he will do all that is necessary to restore his country's creditworthiness.
Ideally, that promise ought to oil the mechanism of Spain's bond and bill issuance. But in Spain, as in the United States, an election does not mean an immediate change of management.
Sr Rajoy will not take the helm for another month. In the geological timescale of Euroland decision-making that is no more than the blink of an eye, but financial spread betting markets are rather lighter on their feet. If there is distrust in the ability of the new regime to sort things out, investors will not postpone judgment.
So again it will be the bond market that sets the tone for currency spreads today. A good result for Spain would be a good result for the euro. Strong demand at acceptable prices would help dispel the climate of fear. And it is not impossible to imagine.
On Monday, with a few exceptions (shorter-maturity Spanish obligations, unfortunately), government bill, note and bond yields edged lower. If that more positive mood survives into today a successful Spanish auction could pave the way to renewed confidence in Italian and other Euroland debt and a revival of the euro's fortunes in the longer term.
Oh come on, who do we think we're kidding?
At a more prosaic level, there are a few interesting statistics due for release today. Most of Scandinavia publishes unemployment rates. Norway, Mexico and the States update third-quarter gross domestic product growth.
The Richmond Fed announces its manufacturing index for November and the Federal Open Market Committee (America's MPC) releases the minutes of this month's meeting.
UK figures for public sector net borrowing are likely to provide a reminder that Mr Osborne's deficit-reduction plan is being hampered by slow economic growth.
Sterling lost ground to the euro yesterday mainly for technical reasons. There could be more of that today in the GBP/EUR spreads unless the Spanish auction tanks.
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'GBP/EUR Spreads Lower Ahead of Spanish Bond Auction', Article by Moneycorp, last update: 22-Nov-11
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