Spain puts spanner in the works

15.39 AEST, Wednesday 3 October 2012

Spain puts spanner in the works

By Tim Waterer (Senior Trader, CMC Markets)

Spain appears to have again thrown a spanner in the works of risk assets, with news there is not likely to be an imminent request for a bailout, having a deflating effect on the market. On face value, the fact that a country says it is not seeking a bailout could during ordinary times seem like good news, but these are not ordinary times. The ECB’s grand plans regarding bond purchases will remain on ice while Spain does not extend its arm for help, so financial markets are at present feeling a little empty when it comes to the outlook for the Eurozone.

The Australian Dollar has found very few friends in the currency market over the last few days, except for some bargain hunters thinking the AUD’s quick fall from grace has made it a good value proposition at the current levels. The RBA cut combined with the latest Trade Balance data has made for a steep descent for the AUD, with the currency underperforming after being stripped of some yield attractiveness. I expect this bargain hunting will however support the currency above 1.0150 in the short term.

The Australian share market appeared to hit the pause button today following Tuesday’s RBA-fuelled rally. News on Spain overnight meant the writing was on the wall for a day of range-bound trading as local investors await clearer direction from offshore markets. The situation regarding Spain appears to have stalled market momentum abroad, so today was more about consolidation of Tuesday’s gains on the local front. Languid trading was the order of the day as traders position for further news on Spain over coming weeks.
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