Market Update - 18 October 2012

• Another solid risk on session prevailed overnight as a Spanish bailout (of some description) is looking increasingly likely and housing data in the US makes best gain since the GFC, while US earnings didn’t go so well. We had EU officials on Monday talking about a November request and then yesterday rumours of a precautionary credit line, rather than a full blown bailout, confirmed by Finland PM Jyrki Katainen:”If Spain decides to ask for some sort of bail-out then Europe should be ready to act and I’m sure they will not need a full program like Ireland or Portugal and instead they might need some sort of a precautionary program”. Moody’s also reaffirmed Spain’s credit rating, adding to the risk bid.

• USDMYR opened at 3.0300 and given that 3.0500 support has now been firmly broken I would expect market to try and test the 3.0000 support handle. Market in general is short USDMYR and we expect to see more sellers in the market today if we have no major irsk-off headlines/data.

• The Spanish German 10yr spread broke through another level of technical support to reach the lowest it’s been since April as Spanish 10yr yields fell 34bps on the night and safe haven bonds got sold hard, US treasuries up 9.6bps, Bunds up 9bps and UK gilts up 9.5bps.

• Stocks would have performed better if not for the shaky earnings out of the US, the DOW rose 0.04% only as IBM cost the index 80pts!! The S&P rose 0.41% and the Eurostoxx put on 0.86%, again led by Spain’s IBEX (+2.37%), it was financials that led gains. Oil and gold both held steady while copper rose 0.38% ahead of Chinese GDP data today.

• Housing starts in the US rose a whopping 15% MoM and building permits similarly spiked higher, up 11.6% MoM. That’s the best monthly gain for both measures since the GFC.

• The German government also lowered its growth estimates to 1% in 2013 from 1.6% previously, but raised 2012 to 0.8% from 0.7%.

• Despite some worrying rumours about Greece yesterday it seems things are looking up, PM Samaras: “I'm confident we're doing everything we have to do in order to get it [a deal] and get it soon, so that we can move towards a recovery.” However finance minister Yannis Stournaras said: “We are in full agreement on almost all the issues [...] What remains is to reach a compromise on labour reforms and civil servants”, that’d be the pay conditions for the swelling mob of rioting Greeks outside I suppose? Expect more trouble when the measures are announced next week, all this playing directly into the hands of our old friend Alexis Tsipras and his belligerent Syriza party.