Market Update 27 Sept 2012

• Overnight things in Europe took a turn for the worst as protests in Madrid and Athens got violent and a report by the Spanish central that said GDP continued to fall at a “significant rate”, not to mention the growing threat of a constitutional crisis with Catalan. We are expecting a budget update full of more nasty cuts tonight followed by the bank audit tomorrow.

• USDMYR opened higher again at 3.0800 as risk off headlines in Europe is driving the pair higher, expect low trading volumes today ahead of our Budget Meeting on Friday.

• Needless to say, more goodies will be distributed ahead of elections and there is expectations of each government employee getting a one off RM500.00/each. The areas with your best bet to get more money is likely the bang for bucks area as elections are now rumoured to be either in November or March.

• The Spanish IBEX fell 3.92% and the 10yr yield spiked 31bps to 6% while safe haven assets were gobbled up with German yields down 13bps and UK gilt yields down the same. The FTSE lost 1.56%, the CAC was off 2.82% and the DAX fell 2% in a horrid day where financials were battered the hardest fearing contagion. Rajoy did say earlier, rather candidly, that he would certainly request a bailout if yields stayed too high for too long.

• Things were even worse in Greece where a national strike took place, closing airports, schools and tourist sites. Demonstrations took place outside the parliament in Athens where at least 50,000 people were said to be chanting, "we won't submit to the troika" of lenders and "EU, IMF, out!".

• Chinese stocks yesterday touched levels not seen since 2009 and Japanese stocks were battered after China reportedly refused to meet Japan at the UN over the recent tensions and the Japanese opposition elected former PM Shinzo Abe as leader (a right wing nationalist). With elections due by next summer it could well raise tensions in the APAC region.

• New home sales in the US actually fell 0.3% to 373k annualised, an increase to 380k had been expected and the data really soured the mood as traders watched scenes in Europe and Asia with concern. The S&P fell for a 5^th straight day and closed down 0.57% in broad based selling. Treasuries were well bid on haven demand with a 5yr auction going swimmingly with the bid to cover at 3.06 from 2.92 in Aug (7yr auction tonight). 10yr yields fell 6bps to 1.61%

• The Feds Evans (non-voting super dove) meanwhile came out urging policy makers to hold interest rates near zero until the unemployment rate falls to 7 percent or inflation rises to 3 percent.