Unrest in Spain Pressures Global Markets; Kiwi Bucks the Trend

Global markets remained under pressure overnight with the focus once again on peripheral Europe, with Spain and Greece in the firing line. Civil unrest in Spain over economic reforms appears to be spooking markets amid continued rioting and social dismay in Greece.  The Bank of Spain issued a statement overnight noting third-quarter growth is likely to continue to carry the country deeper into recession, with output falling at a "significant rate." To add fuel to the fire, the politically autonomous region of Catalonia will hold elections on November 25, in what is effectively a referendum on independence from flagship Spain. Catalonia's leader, Artur Mas stated in a news conference last week, "The people and society of Catalonia are on the move, as we have seen on Sept. 11, and not willing to accept that our future will be gray when it could be more brilliant."

After a period of relative calm, markets are beginning to price-out some of the optimism seen in recent weeks with 10-year Spanish debt yields back above the 6-percent region in response to this latest series of negative themes. The safe-haven trade remained in play with the greenback maintaining gains against its major counterparts, with still little in the way of post-QE3 optimism to negate a risk-off market demeanor.

The Japanese Yen remained the preferred safe-haven destination despite the Bank of Japan announcing a new round of monetary easing last week. Past BoJ efforts to dim the Yens appeal have proven less-than-decisive, and despite flooding the market with an additional 10 Trillion Yen, (US$126 billion) this latest effort, once again, appears to have provided little respite. Bank of Japan board member Takehiro Sato comments yesterday also failed to take some of the sheen off the Yen despite stating the BoJ "won't hesitate" in taking further monetary easing initiatives. While its possible markets will continue to test the banks resolve, we're likely to see reluctance from investors to carry the USDJPY pair below the 77-handle given the threat of further intervention.

The kiwi outpaced its commodity counterparts while taking the lead against the greenback despite general risk aversion across global markets. There's a sense the NZ economy is well placed to deal with these global pressures, while the interest rate outlook far more stable than that of Australia, with expectations the RBA may ease as soon as October. The Aussie dollar made a decisive break to the downside of 104 US cents yesterday, and downside momentum carried the local unit to lows of 103.27 US cents before finding moderate support throughout U.S trade. Data on today's docket includes August Job vacancy numbers with China's industrial profits both scheduled for release at 11.30am AEST.