Eurozone’s Financial Turmoil Continues to Weigh on Economic Growth

The United States Presidential election is approaching and as no one seems to know who is going to be the next president, the markets are cautious. Polls show the two candidates are very close to each other and this is creating a lot of uncertainty. Concerns over the massive U.S. budget deficit and health of the economy have been weighing on the American dollar lately. However, recent data indicates that economic growth in the United States was stronger than predictions in the third quarter, propelled by gains in consumer spending and homebuilding. Mortgage rates driven to record lows by Federal Reserve asset purchases are stoking demand for housing.
This week the markets will focus on the U.S. Non-Farm Payrolls and Manufacturing figures. However, if we see signs the U.S. economy is holding up well but Spain disappoints investors, we might see sharp movements. It is a fact that The European Union has done very little to actually solve underlying problems and the markets have been very forgiving. Now we wonder how long the patience will continue. After all, this debt crisis has been going on for well over three years now.
The markets are now bracing for the possibility that Spain will not ask for aid for another month. The European Central Bank and the European Commission said in a joint statement that Spain was on track to correct the problems in its financial sector, but needs more decisive action to deal with challenges facing some banks. Additionally, the International Monetary Fund said important progress was being made in reforming Spain’s financial sector. Some European officials believe Spanish Prime Minister Mariano Rajoy wants to delay asking for a bailout until after regional elections in November.
Meanwhile, the Japanese yen weakened against the greenback after some reports said the Bank of Japan will ease monetary policy on its next meeting (October 30) by expanding asset purchases by at least ¥10 trillion and may commit to injecting cash until 1% inflation is achieved.
Data from the Commodity Futures Trading Commission showed that speculative traders added 3% to their short EUR position to reach a net of $9 billion. Commitments of Traders data also showed that speculative traders shifted their JPY position to a net short with a total bet of $2.9 billion. Traders also increased their open long AUD position by 19% from a week earlier to reach a net of $4.7 billion, CFTC’s data also showed.