Risk Trends Turn Positive on China, Spanish Budget

Spain remained a key directive for global markets overnight with investors reacting positively to Spain's economic reforms, designed to cut spending rather than heavily targeting revenue. Cuts to spending will equate to 0.77 percent of GDP, while revenue based cuts will account for a smaller 0.56 percent, in what many see as an effort to pre-empt EU demands needed to secure a sovereign bailout. Investors are looking at the reforms in the context of Mario Draghi's bond-buying plan, which will require Spain to formally seek a bailout to be eligible for direct debt market intervention. To qualify, a country must meet "strict and effective conditionality in line with the established guidelines." While markets may have responded in kind, it's clear any short-term positivity is tentative at best as investors wait for Friday's Banking stress test results to further ascertain how dire the condition of Spain's banking sector. With a quarter of the population unemployed, the governments 'means to an end' reforms won't be viewed as such by the people, with further austerity threatening to pull many below the poverty line.

Across the Atlantic, investors found solace in Spain's reforms which negated a round of mostly uninspiring data amid speculation China may take steps to rejuvenate growth keep momentum to the upside. Durable goods orders fell 13.2 percent in August down from a previous rise of 3.3 percent and in excess of the expected fall of 5 percent. US GDP was revised lower from 1.7 to 1.3 percent growth in the second-quarter, to represent growth of 1.6 percent in yearly terms. A drop in the weekly jobless claims was a concession to the negative round of data with claims rising by 359,000 in the week ending Sept 22, outpacing estimates of 375,000.

The greenback fell against major counterparts with risk trends favoring high-beta currencies such as the Aussie and Kiwi, while the Euro managed to hold above its 200 DMA, once against breaking the upside of 1.29-figure. After falling to lows 103.27 earlier this week, the Aussie dollar resumed a northern trajectory on speculative flows after yesterdays disappointing industrial production data added weight to reports China may soon unveil stimulus measures designed to prop up equities markets. Local data under the microscope today will be private sector credit for August, while further conjecture over the likelihood of near-term stimulus from China will remain a key directive with the HSBC manufacturing PMI scheduled for release at 12.30 AEST.

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