Contagion expands as Euro bond yields continue to increase

The outcome of the Spanish and French bond auctions today will elaborate on the condition of these economies and the severity of the Eurozone crisis, confirming the market contagion impacting the Euro. We expect the Euro to decline slightly against the dollar today, which has been predicated based upon the fact that Italian, French, Spanish and Austrian bond yields increased significantly yesterday.

The Bank of England’s quarterly inflation report released yesterday highlighted that inflation is set to remain high next year, but will begin a rapid decline in 2013. UK unemployment is at a 15 year high which will result in further uncertainty towards the market. The majority of the sterling’s volatility is due to the uncertainty of events abroad, both in the US and Eurozone, events which are beyond the control of the Monetary Policy Committee. Despite this, the Sterling is predicted to have an advantage over the Euro, due to the European Sovereign Debt situation which remains unresolved.

In the interim, UK ILO unemployment rate grew at 8.3% in the three months leading to September, which exceeded the expected level of 8.2%.

Today's Fundamental

  • The results for the UK Retail Sales Index (MoM) are predicting a -0.2% decline this month, whereas there was slight growth last month of 0.6%.
  •  UK Retails Sales Index (YoY) are similarly predicting a -0.1% decline for the year based on current data available, once again down from 0.6% growth.
  • US Building Permits improved from -5.0% last month to+ 2.4% for the October period, indicating renewed consumer confidence and credit accessibility.

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