World Week Ahead: Spain, central bankers, US jobs

Monday 1st October 2012

Spain will again be at the forefront of investors' minds in the coming days amid hopes the country will finally relent and make a decision to seek financial help, though a formal request to its EU partners might not happen until later this month.

Separately investors will eye minutes from the latest meeting of the US Federal Reserve, while awaiting word from policy makers at the European Central Bank who are scheduled to meet on Thursday. The Reserve Bank of Australia, the Bank of England and the Bank of Japan also will hold meetings in the next few days.

Last week's reading on the state of the US economy, while positive on the housing front, failed to inspire much optimism about the immediate overall outlook. On Friday, for example, a report showed that the pace of consumer spending eased last month.

"Consumers are supporting the recovery, but they are just not able to lead it because of the soft jobs market and little income," Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, told Reuters.

A whole slew of manufacturing data in the US and Europe this week will hopefully provide further clues on the momentum of the respective economies amid signs of increasing weakness on both sides of the pond. The week begins with news from China that manufacturing there has shrunk for an eleventh month in a row in September.

At the end of the week, there is the September US employment report. Non-farm payrolls are forecast to have risen by 115,000, while the US unemployment rate is forecast to have edged up 0.1 percent to 8.2 percent, according to Reuters.

This week also brings the first of three presidential debates between President Barack Obama and Republican candidate Mitt Romney, on Wednesday. Obama is managing to hold a slight advantage in the polls despite the economy's lingering weakness.

In the past five days, the Standard & Poor's 500 Index slid 0.5 percent. The benchmark gained 2.4 percent in September, while rising 5.8 percent in the past three months.

Europe's Stoxx 600 Index shed 2.7 percent last week, while the euro weakened against the greenback, declining almost 1 percent.

Spain remains a key factor. An independent report on Friday said Spanish banks face a capital shortfall of 59.3 billion euros, slightly less than the 62-billion-euro deficit the auditor had expected. The audit of 14 lenders by Oliver Wyman allows the debt-laden country to ask for European Union assistance, and came a day after Spain's cabinet approved a 2013 budget that pleased investors -- and also checked most of the boxes that would accompany a request for outside assistance.

Spain said it will ask the EU for 40 billion euros in financial help. Next in line in terms of budgets are both Italy and Greece. France detailed its budget on Friday, following through on plans to increase taxes on both businesses and the rich.

In terms of fixed-income markets, the appeal of US Treasuries remains strong; the yield on the 10-year bond fell 12 basis points last week, according to Bloomberg. For all of 2012, Treasuries returned 2.3 percent as of Thursday, while bonds in an index of US investment-grade and high-yield company debt gained 9.5 percent, Bank of America indexes show.

"The sovereign debt crisis and concern that global growth is waning are propelling Treasuries," David Coard, head of fixed-income trading in New York at Williams Capital Group, a brokerage for institutional investors, told Bloomberg News.

BusinessDesk.co.nz

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