Global investors remained transfixed on Europe overnight with Spain’s economic fortunes front row and centre. Although there’s a sense a Spanish bailout is near, markets are waiting in anticipation for further news to surface, with tonight’s ECB policy meeting tipped to be the next major directive. Tuesday Spanish Prime Minister Mariano Rajoy rejected reports a bailout request may come as soon as this weekend. Responding to a report by Reuters quoting European officials as saying a bailout request was imminent, Rajoy stated “If a news agency reports that we’ll ask for aid this weekend, there can only be two explanations; that the agency is right, and knows more than I do, which is possible, or that they are not right.” But, if it helps, and you accept that what I say is more important than this leak, I say no we won’t ask for aid this weekend.”
Investors also weighed a host of mixed economic reports from both sides the Atlantic, but ultimately both European and US equity markets reflected a largely risk-neutral session. In Europe the data pulse remained supportive of the downside with German services PMI falling into contraction territory in September with the index revised to 49.7 from 50.6. Euro-Zone services PMI remained firmly in contraction at 46.1. A concession was a rise in Euro-Zone retails sales which grew 0.1 percent in August to represent a 1.3 percent fall in yearly terms. Economists’ had anticipated a greater decline of 1.9 percent decline.
US stocks managed to scrape some gains by the close with the S&P500 closing 0.36 percent higher. Nevertheless, moderate gains failed to spill over to risk currencies with greenback gaining the upper hand against its high-beta counterparts. Amid the usual risk-on/risk-off directives guiding the greenback’s fortunes, we saw positive US data and a drop in crude oil fuel greenback strength which was best expressed through the USDJPYpair which was pushed to highs of 78.6 US cents. It’s apparent despite moderately better data from a US perspective, there’s little in the way of inspiration to carry risk sentiment materially higher, with the Fed’s latest stimulus venture seemingly out of frame. ADP private sector employments gauge saw 162,000 new jobs added in September, in excess of the 140,000 expected. ISM services rose to 55.1 in September against a previous 53.7 – economist’s had anticipated a fall to 53.4. Both releases are considered positive precursors ahead of Friday’s monthly payroll data.
The Australian dollar took a leg lower in yesterday’s domestic session after China’s services PMI and a much greater than expected trade deficit. Overnight commodity moves confirmed the trend with a steep drop in crude oil promoting a stronger greenback across the board at the expense of commodity counterparts the Kiwi, Aussie and CAD. The local unit’s decline was met with support just below 102-figure but its clear the Aussie is on tenterhooks ahead key retail sales and housing data in local trade. While today’s retail sales data has the ability to counter the trend, the A$ is vulnerable to the downside with a strong chance of a move back to early September lows of 101.65. While this may act as tentative support in the domestic session, the local unit will once again be at the mercy of broader risk trends to guide the way.