Spanish GDP provides PM with breathing space

Official figures yesterday
suggested the Spanish economy shrank during the last quarter,
confirming the fifth successive quarter of negative growth. The
on-going issues of a growing budget deficit and property crisis
have left their banks exposed to a huge pile of bad loans. In turn,
huge austerity measures in the form of spending cuts and tax rises
have stifled investment and have left consumers without the money
or the will to spend. The numbers did not make pretty reading
showing the economy contracted 0.3% QoQ, however this was slightly
better than the expectation of 0.4% figures widely tipped by
commentators. So this number was arguably the most important
release outside of the US employment data later this week as it
provides a clue as to whether the Spanish PM Mariano Rajoy will
seek a full-blown sovereign bail-out. This number will certainly
provide him with a little more breathing space for sure, however
one feels that this is delaying the inevitable. Spain will now turn
to the ECB and specifically Mario Draghi to discuss a possible
bond-buying programme to help ease the country’s debt
problems.  The numbers have certainly boosted the Euro despite
slightly weaker than expected German unemployment figures with the
Euro trading close to 1.30 against the US Dollar at 1.2997 at the
time of writing.

Over to the US and the markets are
expected to re-open this afternoon and it will be an interesting
watch to see how the Greenback performs. Despite Hurricane Sandy
and what appears to close election the USD has actually weakened
despite uncertainty on both stories. As ever we will be closely
looking into the ADP jobs number on Thursday for guidance as to how
the Non-Farm Payroll numbers will be on Friday. All indications are
pointing towards a positive number of 125,000 new jobs, following
the stronger than expected GDP last week alongside better than
expected Personal Consumption data on Tuesday. Sterling has
recovered from early week flirts with 1.60 and now up to 1.6112
with a quiet day of UK data ahead.

As for the rest of the week we have
a couple of key UK data releases starting with Nationwide House
price tomorrow morning where month on month they are expecting a
small increase of 0.1%. This comes before Purchasing Mananger Index
where we get a monthly gauge of manufacturing activity and future
outlook, where a month on month decline of 48 from 48.4 is
expected.