From Ran Squawk
- Enhanced uncertainty surrounding Greek debt situation promoted risk-averse trade today
- Moody’s placed France’s top three banks, BNP Paribas, Societe Generale, and Credit Agricole, on review for a possible downgrade
- It is expected that UK’s Chancellor Osborne will endorse plans to “ring fence” retail banking businesses of UK banks today in his Mansion House speech
- ECB’s Stark and Liikanen supported private sector involvement in Greek debt, as long as it is voluntary.
- However, Fitch said an announcement of Vienna type initiative would likely trigger Greek ratings downgrade to 'C'
The increasing uncertainty surrounding the second Greek bailout package following a stalemate at last night's meeting of Eurozone finance minsters has created risk-averse sentiment this morning. The EUR has been weak across the board as traders have looked to safer havens and as a result the USD-index has performed strongly. Elsewhere in the forex market, GBP has traded down following the release of the UK's employment data, with jobless claims showing the largest increase since July 2009. European equities have been under pressure with financials particularly underperforming following Moody's issuing a warning on the ratings of French banks due to their Greek exposure. In fixed income, Bunds have consequently been trading in positive territory as Greek and Irish 10-year bond yield spreads have hit record levels. However, the opening of the order book on the EFSF 10-year benchmark Eurobond has been received positively, beating its EUR 5bln target and keeping Bunds off the highest levels.
Looking forward focus will switch to US economic data in the form of CPI, Empire manufacturing and DOE crude inventories. There will be another Fed's Outright Treasury Coupon Operation in the maturity range of Dec'16-May'18, with a purchase target of USD 4-5bln and later on BoE's King speaks at Mansion House in London.
Japanese finance minister Noda said he is ready to resign in exchange for the passage of bills related to bond sales and tax reforms. Also, according to Japan’s ruling Democratic Party Secretary General, Okada, country’s second extra budget will likely to be about JPY 2trl. (Jiji/Kyodo News)
In other news, according to PBOC’s adviser Li Daokui, China should raise interest rates, particularly deposit rates, to rein in persistent inflation, adding that inflation pressures are still large. Also, according to a report in China Daily, China may raise interest rates in weeks, if not days to prevent a surge in inflation. (China Securities Journal/China Daily)
Fed officials are discussing whether to adopt an explicit target for inflation, according to people familiar with the discussions. (Sources)
MBA Mortgage Applications (Jun 10) W/W 13.0% vs. Prev. -0.4% (RTRS)
EU and UK Headlines:
A German-inspired plan to reschedule Greek debt could force Eurozone governments to provide up to an extra EUR 20bln to avoid a meltdown of its financial sector, European finance ministers have been warned. A briefing paper circulated by the European Commission, and seen by the Financial Times, warned the extra money may be needed to recapitalise Greek banks following a proposed maturity extension of Greek government bonds, which would be classified by rating agencies as a “selective default”. A further cash reserve may be required for emergency Greek bank liquidity if the European Central Bank refuses to accept downgraded bonds as collateral. Ministers have been told all the Greek collateral – some EUR 70bln – might have to be replaced. (FT)
ECB’s Stark said the ECB is not against private sector involvement, however it must be voluntary. He also said that a partial or complete default must be avoided, adding that the ECB doesn’t finance member states. Also, ECB's Liikanen said voluntary solutions on private participation are recommended, and the ECB does not oppose them. He further said that a Vienna style package as such would not likely be opposed, however he called for the avoidance of any credit events. (RTRS/Sources)
- UK Jobless Claims Change (May) M/M 19.6K vs. Exp. 6.5K (Prev. 12.4K, Rev. to 16.9K)
- UK Claimant Count Rate (May) M/M 4.6% vs. Exp. 4.6% (Prev. 4.6%)
- UK ILO Unemployment Rate (Apr) 3M/Y 7.7% vs. Exp. 7.7% (Prev. 7.7%)
- UK Nationwide Consumer Confidence (May) M/M 55 vs. Exp. 45 (Prev. 43, Rev. to 44) (RTRS)
- German Schatz auction for EUR 4.9445bln, 14-Jun-13, bid/cover 1.4 vs. Prev. 1.9 (yield 1.570% vs. Prev. 1.790%, retention 17.60% vs. Prev. 16.31%)
- UK Conventional Gilt auction for GBP 2.25bln, 4.25%, bid/cover 1.85 vs. Prev. 2.15, yield tail 0.3BPS
- Portuguese 3-month T-Bill Auction for EUR 0.612bln, Bid/Cover 2.40 vs. Prev. 2.70 (Yield 4.863% vs. Prev. 4.967%)
- Portuguese 6-month T-Bill Auction for EUR 0.388bln, Bid/Cover 3.80 vs. Prev. 3.70 (Yield 4.954% vs. Prev. 5.529%)