EU Morning Report - Spain retunes its deficit objective

The euro commenced the week with no significant changes from Friday’s close. The previous week saw the European Central Bank (ECB) completing its second round of long-term refinancing operation (LTRO). There were 800 banks absorbing EUR 530 billion of cheap money, compared to 523 banks and EUR 489 billion during the first LTRO in December last year. Spain’s Prime Minister Rajoy reset the nation’s deficit-to-GDP target from 4.4% to 5.8% for 2012. Analysts interpret this as an effect of the softening eurozone bond yields, with perceived urgency dissipating. Following this, Spanish 10-year debt yield momentarily stepped above the Italian 10-year counterpart for the first time in seven months. As a response to this, the European Council President von Rompuy reiterated the risks of loosening budgetary targets, noting that there is a very real danger that the financial markets will not tolerate inconsistencies.

The US dollar appears weak as the markets open following the weekend break. On Thursday, Federal Reserve Chairman Bernanke cited high unemployment and subdued inflation to complement his intention to keep interest rates low. The central bank’s head commented on developments in the labour market describing them as positive, but nevertheless noted that conditions are far from normal.

The Australian dollar carries on weakening following Friday’s dive to 1.0731 from 1.0810. The Reserve Bank of Australia will announce its Cash Rate for March, tomorrow at 03:30 AM GMT. The market consensus is that the central bank will leaves rate unchanged and a different outcome will affect the currency heavily.

Oil opened higher at 106.23 dollars a barrel from 105.83. Gold opened lower at 1719.93 US dollars an ounce from 1711.95. Gold opened at 1297.80 euro an ounce from 1297.18. Silver opened at 34.7150 dollars an ounce from 34.7575.