Spain says ‘no’ to imminent bailout; The RBA’s ‘half empty’ glass

There was little to encourage a bounce across the risk spectrum overnight with moderate weakness from US equities alongside easing expectations Spain will imminently seek financial aid. The euro earlier shot to highs of 1.2970 before settling lower after Spanish Prime Minister rejected reports a bailout request may come as soon as this weekend.

Reacting 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." Nevertheless, Rajoy's comments failed to significantly dampen expectations a request for financial aid is on its way, with many investors considering a bailout the only viable options for a country mired in debt and unemployment. There's a sense that a request is near given the release of last week's budget reforms and bank stress test results, both of which are considered critical housekeeping before Spain can formally request financial aid, in-turn key requirement to unlock the ECB's bond market intervention program. Its abundantly clear Spain's path of least resistance will be to make a formal request for aid in the near-term. Should Spain show further reluctance it will no doubt see Spanish debt markets punished, ultimately leading to the same conclusion. Another potential theme which could hurry the proceedings is a Moody's review which is tipped to see the ratings firm downgrade Spain to Junk status.

Meanwhile, the Australian dollar took a hit after the RBA cut the cash rate by 25 bps to 3.25 percent. The ensuing statement featured a rather colourless assessment of global economic conditions, noting the risk remain to the downside while acknowledging uncertainty surrounding China's growth prospects is "greater than it was some months ago." The statement also reiterated the peak in resource investment is "likely to occur next year" and may be at a lower level than earlier expected." Once again the high Australian dollar received a mention but failed to expand on their well known views the exchange rate has remained higher than expected, given the decline in commodity prices and weaker global outlook. Markets have been quick to pencil in further rate cuts but despite the statements lack of colour, there's little to suggest the RBA will begin an aggressive period of easing with the final paragraph noting the board considered it appropriate for the policy to be "a little more accommodative." Nevertheless, the Aussie dollar took a hit in the ensuing period with earlier slide capped at 103 US cents later broken as a new wave of sellers entered the market. The local unit slide to 1-month lows of 102.51 US cents with moderate greenback strength in US trade exacerbating the fall. Key economic feedback on today's docket includes Chinese services PMI, HIA new home sales, trade balance, and retail sales data.