Weekend Developments

  • ECB Asmussen: Europe has done enough on firewall, IMF members should increase contributions
  • ECB Asmussen: Spain is repairing market confidence
  • Spanish PM Rajoy seen supported by regional leaders for more austerity
  • PBoC/Chinese government increases CNY trading band to 1% per day
  • US 1Q earnings start next week, major financials reporting throughout week

Concerns stemming from the European sovereign debt crisis extending into Spain continued to affect markets in early trading. As Spanish 5 year CDS, a measure of insurance costs against Spanish default, traded near its all-time high again, Spanish leaders are continuing to push through additional budget cuts to bring its debt down from 68.2% currently. Although market reaction is relatively muted due to the safeguard provided by the ECB's LTRO lending earlier this year, traders will continue to actively monitor the situation in Spain to gauge possible contagion effects. Spain is scheduled to sell 2014 and 2022 bonds on April 19th at 0830GMT.

Weekend_04152012_Markets-watching-Spain-China_body_Picture_4.png,

-Data Bloomberg/Markit

The Australian and New Zealand dollars led gainers higher against the dollar this morning on the heels of the People's Bank of China and State Bureau of Foreign Exchange's decision this weekend to increase the trading band for USDCNY from 0.5% to 1.0% per day. As the Chinese government continues to fine-tune its economic policy to keep inflation low and growth stable, it has been more willing to use exchange rate policies to reach its goal.

Following recent commentary from Premier Wen Jiabao that the USDCNY exchange rate may be nearing equilibrium, USDCNY's tight range in 2012 and this weekend's move, markets may see China as less willing to only let the Yuan appreciate, choosing instead a more liberalized policy. The lack of expected continued RMB gains combined with current capital controls may start a shift of capital into higher yielding, more liquid assets denominated in Australian and New Zealand dollars, supporting this morning's move.

Weekend_04152012_Markets-watching-Spain-China_body_Picture_5.png,

-Data Bloomberg

At the time of writing, the Euro is leading losers, followed closely by the Swiss Franc. The New Zealand dollar is leading gainers on higher expected data.

Weekend_04152012_Markets-watching-Spain-China_body_Picture_6.png,

-By David Liu, DailyFX Research