Spain’s budget triggers market optimism

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The new Spanish budget which makes austerity rather than tax cuts a priority has been well received by markets. The MSCI-index for South East Asia Pacific rose with 0,7 percent. Brent crude registered its highest level in weeks and jumped above USD 112 a barrel.  The Euro and commodities drifted higher with USD on the defensive. Euro/USD is trading at 1.2935. Also smaller and more risky currencies opted up. The New Zealand KIWI and the Indian rupee are among the winners over the last weeks. The Japanese yen continues up. USD/JPY is at 77,55.

The Spanish government announced Thursday a detailed timetable for economic reform with sharp spending cuts and no tax hikes. Today president Francois Hollande will present his austerity budget for France, punishing the rich. Spain is simultaneously conducting negotiations with European Union authorities on the terms for a possible aid package. A successful conclusion of these talks shall pave the way for European Central Bank bond-buying and easing of Spain and Italy’s borrowing strains. 

The US Finance Secretary, Timothy Geithner, stated yesterday that Europe still was the weakest link in the global economy, but the last measures taken by the European Central Bank, ECB, had given ammunition which made Europe’s situation far better than it was three months ago.  Early Asian trade also saw a spike in Chinese shares triggered by speculation on further Chinese economic stimulus. Risk seemed primed for a comeback, and in such a scenario Australian dollar may be one of the biggest beneficiaries. 

As the Yen continues to strengthen numbers for Japan’s industrial output in August was very disappointing. Industrial production is down, and all the big Japanese car makers presented negative growth figures.  With central banks printing more money, gold is on the offensive and reached a week’s high yesterday with 1777. The big precious metals winner is, however, silver which traded close to months high on 34,70, jumping more than 30 % since early summer.

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