From Ran Squawk
- The mood of Eurozone finance ministers is tilting towards more flexibility in restructuring of Greek debt
- Dutch finance minister said a selective default for Greece is not excluded anymore, however Belgium have said they see no country defaulting
- According to an article in the ABC newspaper, citing unnamed sources, as many as six Spanish banks have failed the European stress tests, including five savings banks and one medium-sized bank
- Successful T-Bill bill auctions from Italy, Belgium and Greece helped equities and EUR to come off their worst levels, allied with unconfirmed market talk of the ECB and China buying in the European debt
Risk-aversion remained the dominant theme during the early European session on the back of fears of contagion to core Eurozone countries from the peripherals. The mood of Eurozone finance ministers tilting towards more flexibility in restructuring of Greek debt, and with the Dutch finance minister not negating a selective default for Greece exacerbated the risk-averse tone. Moreover, an article in the ABC newspaper, citing unnamed sources, that as many as six Spanish banks have failed the European stress tests, including five savings banks and one medium-sized bank, also weighed on sentiment. European equities, led by financials, traded lower in early trade, which supported Bunds as the Italian 10-year bond yield crossed the 6% mark for the first time since 1997. However, a reversal of sentiment was observed as the session progressed, supported by market talk of the ECB and China buying in the European bonds, together with successful T-Bill auctions from Italy and Greece, which observed narrowing of the Eurozone peripheral 10-year government bond yield spreads. Elsewhere, GBP/USD plummeted around 70 pips following lower than expected CPI figures from the UK, which also provided strength to Gilts.
Moving into the North American open, markets look ahead to key economic data from the US in the form of trade balance, and IBD/TIPP economic optimism, as well as the FOMC minutes later in the session. In fixed income, USD 32bln 3-year Note auction is also scheduled for later.
BoJ Target Rate (Jun) M/M 0.10% vs. Prev. 0.10% (RTRS/Sources)
The BoJ revised up its assessment of the economy, encouraged by a pickup in factory output and the prospects for recovery in business sentiment. BoJ says Japan’s economy will resume moderate recovery from latter half of fiscal 2011/12. Worries about supply chains are easing and uncertainty rising somewhat on long-term power supply constraints. BoJ says need to continue watching Europe sovereign debt woes and impact of balance sheet adjustments in the US economy.
There was no movement on a dispute over revenues in debt talks between President Obama and congressional leaders at the White House on Monday, a Democratic official familiar with the meeting said. Meanwhile, Democratic congressional leaders made clear in talks lead by President Obama that there would not be votes from their side to pass a deficit-cutting bill if it contained only spending cuts, Democratic officials familiar with the talks said. Also, speaker of the House of Representatives Boehner pushed for immediate spending cuts at Monday’s debt reduction meeting with President Obama and fellow congressional leaders, a Republican aide said. (RTRS)
• US NFIB Small Business Optimism (Jun) M/M 90.8 vs. Exp. 91.2 (Prev. 90.9) (RTRS)
EU and UK Headlines:
Eurozone finance ministers said reaffirmed commitment to safeguard stability in the Eurozone and demonstrated their readiness to adopt further measures to improve Eurozone systemic capacity to resist contagion. They said this includes enhancing flexibility and scope of EFSF rescue fund, steps also include lengthening maturities of loans and lowering interest rate on loans. ECB confirms its position that credit event or selective default should be avoided. Eurozone finance ministers have tasked a working group to propose measures to reinforce current policy response to the Greek crisis. (RTRS)
• UK CPI (Jun) Y/Y 4.2% vs. Exp. 4.5% vs. (Prev. 4.5%)
• UK RPI (Jun) Y/Y 5.0% vs. Exp. 5.2% (Prev. 5.2%)
• UK DCLG UK House Prices (May) Y/Y -1.6% vs. Prev. -0.3%
• UK Visible Trade Balance (GBP/mln) (May) M/M -8478 vs. Exp. -7336 (Prev. -7389, Rev. to -7643)
• UK BRC Like-for-Like Sales (Jun) Y/Y -0.6% vs. Exp. -1.4% (Prev. -2.1%)
• UK RICS House Price Balance (Jun) M/M -27% vs. Exp. -25% (Prev. -28%) (RTRS)
• Italian 12-month BOT auction for EUR 6.75bln, bid/cover 1.55 vs. Prev. 1.71 (yield 3.670% vs. Prev. 2.174%)
• Greek 26-week T-Bill auction for EUR 1.25bln, bid/cover 2.88 vs. Prev. 2.58 (yield 4.900% vs. Prev. 4.960%)
• Belgian 3-month T-Bill auction for EUR 1.645bln, bid/cover 1.20 vs. Prev. 2.97 (yield 1.305% vs. Prev. 1.313%)
• Belgian 12-month T-Bill auction for EUR 1.070bln, bid/cover 1.54 vs. Prev. 2.18 (yield % vs. Prev. 1.884%) (RTRS)