- Market’s risk sentiment improved, especially in after the Spain revealed yesterday the budget for 2013, which focused mostly on spending cuts and less on tax increases – see WSJ . Spain still aims at a deficit target of 6.3% this year and 4.5% in 2013. Spain will continue to be in the focus also today as the Oliver Wyman report on Spanish banks will be released. It has already been leaked that the recapitalisation need will be in the range of EUR50-60bn, so pretty close to the initial estimate and less than the EUR100bn that is the limit on the EU credit line. Continuing with Spain, Moody’s could release its rating verdict on Spain already tonight and it is possible that Spain’s sovereign rating will be lowered to junk territory.

- Besides news out of Spain, the market’s sentiment was lift up by new stimulus hopes in China. The recent weak data have raised speculation that China will take further steps to lift the economy ahead of the Golden Week holiday that starts on Monday. Furthermore, in Greece coalition partners yesterday struck a deal on a EUR13.5bn austerity plan. The Troika of EU, IMF and ECB will return this weekend to judge if the Greek measures are enough to allow for payment of the next loan tranche of EUR31.5 bn. In early October eurozone finance ministers are expected to review the package and a vote in the Greek parliament will likely take place after that.

- The dollar declined against all G10 currencies with the exception of JPY after Spain revealed the budget for 2013. Yesterday, EUR/USD managed to climb back above 1.29 and is currently seen trading around the 1.2935 levels. USD/JPY continued to move lower this morning and reached 77.50 for the first time in two weeks despite improved risk sentiment and a rather mixed series of Japanese economic data releases. Japan showed a higher-than-expected drop in industrial production of -1.3% and a surprising rise in retail sales of 1.5% in August. USD/JPY has dropped more than one big figure since the Bank of Japan meeting on 19 September, where the bank surprised the market with an increase in its asset purchase programme. However, so far it seems like the market does not believe that BoJ is not able or willing to deliver enough QE to counter the effects from the Fed’s open-ended QE.