Spain waivers on bailout request; IMF offers, but other creditors say they must accept hard conditions if they take it

By Mike Jones

NZD

In the end the NZD is little changed overnight, trading either side of the US 82cent level.

Our flows again show some paring of holdings by macro and trading accounts with appetite from domestic, commercial names providing support.

For the technically biased trading books there is attention on a potential double top at the 0.8350 level shaped over the past month, and key support is pegged near overnight lows at 0.8170.

A sustained break of that support opening up the possibility of a deeper retreat to the US 80 cent level.

Majors

Overnight attention was on the FOMC, ECB and BOE – the latter as expected leaving rates and their QE programme untouched at 0.5% and GB £375 bln.

The ECB surprised no one as they left the main 7-day Refi Rate unchanged at 0.75%.

There was little drama in Draghi’s subsequent press conference, constructive comments about the ECB being ready to start buying the bonds of the stressed nations as soon as the necessary conditions of their OMT are met.

He did take the chance to specify that the ECB has no single special target that would trigger intervention under OMT such as a specific spread or yield but is rather looking at a range of indicators.

Draghi clarified that the programme is not available for nations already under a full bailout programme, and is only for countries that still have full market access. Portugal, which is gingerly re-entering the public debt market, is still not eligible but may be once again soon.

------------------------------------------------------------------------------------------------------------------

To subscribe to our free daily Currency Rate Sheet and News email, enter your email address here.

------------------------------------------------------------------------------------------------------------------

Hard not to write a commentary and not mention Spain and overnight her bond market was a shade weaker as the auction of 2014, 2015 and 2017 bonds was again weighted towards the shorter maturities which would be covered by the ECB's OMT bond buying programme.

Worryingly in the 2015 tranche Spain paid a higher yield versus the prior auction held in late September. Headlines from Greece also leant on European sentiment, equity markets paring light gains amid renewed concerns that Greece's next aid payment could be delayed until November. The usual financial press covers all sides of the debate in Europe, noting that officials from certain AAA-rated euro zone countries have warned Spain that national parliaments will demand tough conditions for any bailout.

Showing his political bias the President of the Catalonia region says that a “…sovereign bailout for Spain is inevitable…”.

The IMF's Lagarde quoted in French press that she is prepared to help Spain if a request is made of the IMF. Later headlines from Economy Minister, de Guindos, “…Spain doesn’t need a bailout at all”.

European equity markets ended the day close to par, but FX markets found some favour, squeezing out this weeks “short” trading bias with the EUR above the 1.3000 level. The pressure of recent days that has weighed on the AUD and NZD reduced temporarily and both currencies climbed half a cent of more off London session lows, opening here this morning at the 1.0250 and 0.8210 levels. Supposedly encouraging the brighter (albeit limited) market sentiment were US data updates.

Weekly Jobless Claims were marginally better than forecast, allowing the Continuing Claims update to flat line at 3,281k. The August Factory Orders fell by the most since January 2009, however, they’re being written up as not that bad if you strip out the slump in demand for transport equipment.

The FOMC minutes have just hit the wires, and first commentary notes that the Fed says they could change the size of the monthly purchases to reduce risks associated with QE such as market disruption or rising inflation. The committee can make changes in response to economic developments or changes in its assessment of QE’s efficacy and costs, according to the minutes from their September 13th meeting. At the table, there are dissenters who note that QE could “complicate the committee’s efforts to withdraw monetary policy accommodation when it eventually became appropriate to do so”.

So on to the end of our week; which will be a lighter day of no NZ updates and only the AiG’s Performance of Construction Index from Australia. The focus in Asia will be on the BOJ, who face increased pressure to step up easing in coming weeks as political changes and manufacturers’ pessimism fuel calls for aggressive action to tackle deflation and revive growth.

As ever, markets will focus on tonight’s Non Farm Payrolls report, which will incorporate the population changes announced by the BLS last week. That should boost payrolls by an average of 30,000 per month since March, which implies that there has been a slightly sharper fall in unemployment. With the labour market a target of monetary policy the update is keenly watched, with analysts looking for 115,000 jobs to be created in September.

All its research is available here.