Daily US Opening News And Market Re-Cap: October 2

From RanSquawk

• Market focus remains on Spain, as conflicting reports emerge that Spanish PM Rajoy is close to requesting aid.
• European equities drift higher amid a quiet session, with sentiment towards the periphery easing, allowing Italian and Spanish borrowing costs to decline throughout the day.
• Australia's RBA cut their benchmark cash target rate by 25bps to 3.25%.

Market Re-Cap

Equity markets continued to edge higher today as market participants grew hopeful that a full scale bailout of Spain will take place in the very near future. So much so that even though reports that Spain is to seek bailout this weekend was denied, the risk on sentiment held strong. As a result, SP/GE and IT/GE bond yield spreads tightened further, with IT 10s now yielding close to 5%. The renewed sense of security saw EUR/USD squeeze higher towards the psychologically important 1.3000 level, while GBP/USD also benefited from a weaker USD and is trading in minor positive territory in spite of another round of disappointing macro data from the UK. Going forward, the second half of the session sees the release of the latest ISM New York index, as well as the regular weekly API report. Both the BoE and the Fed are due to conduct another round of asset purchases at 1445BST and 1600BST respectively.

Asian Headlines

The Nikkei 225 closed lower by 0.1% amid a quiet session as Chinese participants continue their week-long market holiday. Despite the RBA in Australia cutting their base rate by 25bps, the Nikkei 225 failed to hold on to earlier gains, continuing to be weighed upon by the ongoing island dispute tensions between Japan and their key export market of China. (RANsquawk)

US Headlines

The US holiday season may be muted this year, with an uncertain jobs picture, higher gas prices and economic worries weighing on consumer sentiment, with retail sales expected to grow by 4.1% this year, the lowest rate since 2009, according to the National Retail Federation. (Newswires)

US Senate leaders are closing in on a path for dealing with the fiscal cliff facing the US in 2013, opting to try to use a postelection session of Congress to reach agreement on a comprehensive deficit reduction deal rather than a short-term solution. (New York Times)

EU & UK Headlines

Despite reports late in yesterday's US session that the Spanish PM Rajoy is prepared to request a bailout, reports emerged from Europa Press saying he will not request a bailout for the country this weekend. This follows the overnight reports that Spain were a bit hesitant but now they are ready to request aid according to a senior European source. It looks like there is a cat and mouse game developing between Spain and Germany/ECB in regards to an aid request. Unless there is significant market stress for Spain in the near-term expect these type of comments to continue. (Newswires/RANsquawk)

UK Construction PMI (Sep) M/M 49.5 vs. Exp. 49.8 (Prev. 49.0) (Newswires)

Equities

European equities trade higher heading into the North American crossover as speculation that Spain could formally request a bailout heightens following source comments last night that the PM is prepared to take the plea. Despite conflicting reports being released in Europa Press today, market expectations are still for the troubled sovereign to seek aid in the near future, easing sentiment towards the periphery. As such, all ten sectors are in the green, with the periphery outperforming, as the FTSE-MIB and IBEX-35 trade higher by over 1% apiece.

The UK banking sector are currently underperforming, as UBS cut RBS, Lloyds as well as Barclays to neutral from buy, however do not do the same for HSBC. As such, Lloyds and RBS are currently some of the worst performing stocks in Europe today, both lower by over 2%. However, earlier in the session, Credit Suisse upgraded the US banking sector to overweight from benchmark, with JP Morgan to benefit the most from loan growth and increased asset quality.

FX

The AUD weakened significantly across the board in the Asia-Pacific session as the RBA cut their cash target rate by 25bps, and remains lower heading into the North American crossover, with an option expiry at the 1.03 AUD/USD handle proving magnetic throughout the European morning. The EUR has drifted higher throughout the European morning, with the USD-index seen weaker by around 0.1% prompting the major pairs to make gains, as modest risk sentiment lifts the European currency, reflected in European stocks. However, the FX markets do remain quiet ahead of key risk events later in the week in the form of the ECB's rate decision, as well as Nonfarm Payrolls from the US. (RANsquawk)

Commodities

After seeing firm gains after yesterday's strong ISM manufacturing release from the US, WTI crude futures trade little changed heading into the NYMEX pit open, as participants continue to await the key US jobs report on Friday. Spot gold and silver prices have drifted higher throughout the European morning, with the weaker USD-index lifting downward pressure on pricing. (RANsquawk)