Markets remained transfixed on Europe overnight, and true to form, Spain was front row and centre. After weeks of speculation a Spanish downgrade is on the cards, yesterday, ratings agency Moody's upheld Spain's Baa3 debt rating. Although Moody's maintained their negative outlook, Spanish debt is still considered a low class of 'investment grade.' Markets had largely anticipated a ratings cut to Ba1 or lower, which would essentially place Spanish debt in the speculative investment or 'junk' category, in-turn sparking a fire-sale of Spanish debt given quality requirements of fund managers overseeing investment portfolios. The ensuing period saw an immediate relief rally across the board yesterday's and continued to underpin risk currency gains overnight. Spanish debt yields dropped across the curve in response to the Moody's news and Euro long's increased and short positioning squeezed, prompting a move to highs of $US1.3141. Hopes of a near-term Spanish bailout continued to underpin gains across the risk spectrum.
Across the Atlantic, corporate earnings remained the key focal point and although the balance of reports have outpaced expectations there's was little overnight to encourage another leg-up across equity markets. The macro picture, however, was much more encouraging with US housing data outstripping expectations. Housing starts climbing 15 percent in September from an upwardly revised 4.1 percent in August. US building permits also jumped 11.6 percent in September from a fall of 1.2 percent in August. Despite the strength in housing data, US stocks failed to maintain the upside momentum seen Tuesday with the S&P500 crossing the line 0.4 percent in the black.
The commodity bloc led the offensive against the perceived safety of the US dollar and Yen with the Kiwi, CAD and Aussie dollars rallying in unison. After a period of weakness recently, we've seen the appeal of the Aussie dollar somewhat rejuvenated with price action moving to highs of 103.87 against the greenback and near 1-month highs of Y82.10.
Key to the Aussie's fortunes today will be the release of Chinese Gross Domestic Product, which is expected to show 7.4 percent growth in the third quarter, from 7.6 percent in the second-quarter. The latest GDP result, alongside data on Industrial Production, Retail Sales and Fixed Asset Investment will be released at midday AEST. Given Australia's heavy reliance on China's thirst for local resources, today's result is a top-tier market moving theme for the Aussie dollar, which has in recent times fallen under the weight of growth concerns from the region. Nevertheless, the recent macro picture appears to be looking slightly more positive, with trade data released over the weekend showing a rebound in exports and stronger domestic demand. At the time of writing the Australian dollar is buying 103.8 US cents.
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