httpvh://www.youtube.com/watch?v=1wpTh7McrRo

Spain’s Partido Popular won an absolute majority in yesterday’s general election to
move the ruling socialists out of power, the last of the centre-left
governments in the EU’s larger countries. While new Prime Minister Mariano
Rajoy will not be sworn into his office for another couple of week’s it is not
like he will any semblance of honeymoon period when it comes to the country’s
finances. In his acceptance speak he used the old political cliché of “Tonight
we can celebrate, but tomorrow we have to work”, never has it been truer than
in Spain’s case. The election will not stop the short-term volatility in the
European bond markets however and we still expect the ECB to remain active to
attempt to cut down yields over the coming weeks.

According
to the Dow Jones newswire European officials are looking at opening talks with
the IMF about how the ECB could lend to the IMF so that more money and more
support could be given to those sovereigns that need assistance without the ECB
breaking European law. The talks could result in an announcement at the EU
Summit on Dec. 9, then again they could not. Just to ram home the German
opposition stance to the ECB running its printing presses, Chair Weidmann of
the Bundesbank, said that just because of a lack of success in dealing with the
EZ debt crisis does “not justify overstretching the mandate of the central bank
and making it responsible for solving the crisis”. A no-go then.

In
other European news, Mario Monti won the confidence vote against him
comfortably in the Italian lower house. He will have to bring productivity back
to Italy quickly though as we, alongside most forecasters, believe that Italy
is already in recession. Industrial production collapsed by 8.3% in September
which was the largest fall since August 2009 with sales of industrial goods
slipping by 5.4% in the same month.

A
lot more focus will be on the US this week, probably the most since August’s
debt ceiling negotiations. Out of those (dis)agreements came a resolution that
a cross-party super committee would meet and decide on a $1.2trn debt reduction
package. It is expected that that same committee will come out this afternoon
and say that they are unlikely to come to an agreement by the deadline date
(this Wednesday). Failure to agree on these measures would trigger automatic
government spending cuts due to start in January of 2013 and would impact
significantly on things such as social security and Medicare. Failure to agree
also means that another congressional ding-dong battle over raising the debt
ceiling next year will have to take place. We expect most movements in cable
and EURUSD over the next week to be put down “fears over the super-committee’s
decision”.

News
from the UK was few and far between and sterling has started the week roughly
where it ended ahead of a fairly quiet week.

Today’s
data calendar is also quiet with only US existing home sales due at 15.00.
France also goes into the debt markets with a EUR7bn bond issuance.

Latest
exchange rates at time of writing