From Ran Squawk:
- Uncertainty persisted over the outcome of Greece’s 5-Year austerity package vote in the Parliament on Wednesday as lawmakers continued to switch sides
- French Finance Minister Lagarde said that the government has a first draft for a deal with French banks on a Greek debt rollover
- According to ING, Fitch could downgrade Italy after Moody’s placed the country’s sovereign rating on watch negative earlier this month
- According to the Bank for International Settlements, global interest rates must rise to avoid high inflation becoming entrenched
European equities have traded in a tight range lacking any firm direction since early trade; Greece has remained in the spotlight ahead of the key parliamentary 5-Year austerity package vote on Wednesday. Market talk that Fitch could go straight to a downgrade in order to get ahead of the rest of the pack after Moody’s put Italy on negative outlook earlier in the month, left investor sentiment subdued. However, comments from a PASOK opposition lawmaker that she may vote in favour of the government’s mid-term fiscal plan this week, allied with comments from France’s Lagarde that government has a first draft for a deal with French banks on Greek debt roll-over, gave some strength to equities and financials in particular. With renewed risk appetite EUR/USD moved back into positive territory as the USD-Index weakened.
Moving into the North American open, markets look ahead to key US economic data in the form of Personal income/Spending, PCE reports and Dallas Fed Manufacturing data. In fixed income, there is another Fed’s Outright Treasury Coupon Purchase operation in the maturity range of Jun’15 – Nov’16, with a purchase target of USD 4-5bln.
The failure of Japanese PM Kan’s government to meet a self-imposed June 20th deadline for announcing a long-term fiscal plan is credit negative, Moody’s said. Moody’s said it is “not inconceivable” that Japan would have a third lost decade of growth. (RTRS/Sources)
In other news, Chinese premier Wen Jiabao signalled for the first time that China would struggle to meet its 4% inflation target this year, underlining expectations that interest rates will rise further even as economic growth slows down.
Also in news, local governments in China had incurred about CNY 10.7tln in debt as of the end of 2010, about half of which was held by financial vehicles, the National Audit Office said. (RTRS)
Global interest rates must rise to avoid high inflation becoming entrenched, the Bank for International Settlements said. It also warned that delaying deficit cuts could risk intensifying the sovereign debt crisis and have grave consequences were investors to loose confidence in a major economy such as the US. (RTRS)
Investors in the US government bond market could face losses of up to USD 100bln if the largest economy loses its triple A rating, according to a research arm of McGraw-Hill. This could also mean the US Treasury paying USD 2.3bln-USD 3.75bln a year more in interest on financing a USD 1,000bln annual budget deficit. (FT - More)
In other news, the US Senate’s top two Republicans stood firm against including tax increases in any deal to raise the debt limit and shrink budget deficits one day before a meeting with President Obama, but said the showdown need not go down to the “11th hour”. (RTRS)
BarCap month-end extensions: US Treasury +0.06 years
EU and UK Headlines:
According to Kathimerini, as many as four PASOK deputies are considering not voting for the government’s mediumterm fiscal plan in Parliament this week, leaving the ruling PASOK party with the slimmest of majorities to pass the new set of austerity measures through the House. However, Ta Nea reported that a Greek opposition lawmaker, Elsa Papadimitriou, may vote in favour of the motion. Later in the session, Papadimitriou said that she will vote according to her conscience, and will put country above her party. (Kathimerini/To Nea/Sources)
In other news, the French government and banks have agreed on a proposal to make a Greek debt rollover more palatable to creditors, a banking source said confirming a report in Le Figaro Newspaper. Under the plan, creditors would reinvest 70% of the proceeds reimbursed when Greek debt falls due, with 50% going into new Greek bonds with a maturity of 30 years instead of 5 years, the newspaper said. The other 20% would be reinvested in a zero coupon fund of “high quality securities”, which would accumulate interest to be paid at maturity, Le Figaro said. Later in the European session, EU sources said that the French plan to roll over Greek debt is being discussed by the EU officials with the IIF. (RTRS/Le Figaro)
Elsewhere, ECB's Stark said a Greek restructuring would threaten solvency of Greek banks, impact Eurozone financial markets, and will lead to a sell off in other sovereign. He rejected any Greek solution that is classified as "selective default", or that has any private sector compulsion. Stark also said that the ECB is very vigilant and will do all to preserve stability of the EUR, as well as to anchor inflation expectations at low level. (RTRS/Sources)
• UK Hometrack Housing Survey M/M (Jun) -0.1% vs. Prev. -0.1%
• UK Hometrack Housing Survey M/M (Jun) Y/Y (Jun) -3.9% vs. Prev. -3.7% (RTRS)
• German 12-month Bubill auction for EUR 2.125bln, bid/cover 3.9 vs. Prev. 2.40 (yield 1.2986% vs. Prev. 1.327%)
• Italian 6-month BOT auction for EUR 8bln, bid/cover 1.721 vs. Prev. 1.70 (yield 1.988% vs. Prev. 1.657%) (RTRS)
BarCap month-end extensions: Euro Sovereign Index +0.06 years
BarCap month-end extensions: Sterling Index +0.22 years