The Aussie dollar has remained heavy in afternoon trade with price action currently forging new intra-day lows around 103.2 US cents. The local unit has been under mild pressure for much of the session with this morning’s trade data helping the Aussie ease lower. The Australian trade surplus fell a seasonally adjusted 2.564 billion in September, down from Augusts’ surplus of 3.1 billion. Economists had anticipated a smaller decline to a surplus of 3 billion. Nevertheless, Australian businesses have responded positively to easing interest expectations with the latest NAB survey suggesting a slight rise in both business conditions and confidence.
In tune with the recent theme, the primary driver across global markets continues to spawn from the Euro-zone - with both Greece and Italy in the firing line. Markets appear to be taking the Greek PM’s demise as a step toward political stability; nevertheless a generally cautious demeanor continues to govern markets with concerns mounting over Italy’s economic health. Italian bond yields remain near Euro era highs with 10 yr yields moving closer to the 7 percent region – a level which has marked the bailouts of Greece, Portugal and Ireland. It’s a question of sustainability – continued economic and political uncertainty will translate directly to increased borrowing costs, in turn fueling further speculation of the demise of a country ‘too big to fail’ or more worryingly too big to save. In an effort to promote transparency and progress on their debt woes, Italian Prime Minister Silvio Berlusconi has made the unprecedented move by inviting the IMF to review and supervise efforts to reduce the Euro-zones second largest debt burden. Italy has a staggering 1.9 Trillion debt burden more than twice that of its annual output. The political environment in Italy also remains a major point of contention with the political future of Berlusconi hanging by a thread. His leadership continues to be marred by string of personal scandals but remains defiant to the end, overnight using social media to dispel the latest rumours of his leadership departure.
Meanwhile, this general lack of confidence across the Euro-zone has manifested in disappointing retail sales result with Septembers number falling 0.7 percent. In keeping with the theme of negativity, German Industrial production slipped 2.7 percent - the worst since January 2009.
Looking ahead, we expect the events of Europe to remain the primary driver of sentiment with Greece expected to announce a new leader this evening, with EU officials expected to give the tick of approval to Greece’s next bailout installment. Italy’s plight to regain economic composure will no doubt also continue to govern market movements and threatens to offset any good news we hear on the Greece front. At the time of writing the Euro is buying US$1.3750.