- Spanish region of Murcia plans to apply for up to EUR 300mln of aid, with reports suggesting up to 6 more regions could request assistance; Spanish 10yr yield prints Euro-era record highs at 7.565%.
- La Stampa writes that ten Italian cities, most notably Naples and Palermo could be facing difficulties meeting their financing needs. Elsewhere, Italian market regulator CONSOB reintroduces short-selling ban on banking and insurance stocks.
- Senior executives at the IMF are considering ending their support for Greece, according to reports.
Risk-off trade is firmly dominating price action this morning in Europe, as weekend reports regarding Spanish regions garner focus, shaking investor sentiment towards the Mediterranean. The attitudes towards Spain are reflected in their 10yr government bond yield, printing Euro-era record highs of 7.565% earlier this morning and, interestingly, Spanish 2yr bill yields are approaching the levels seen in the bailed-out Portuguese equivalent. As such, the peripheral Spanish and Italian bourses are being heavily weighed upon, both lower by around 5% at the North American crossover.
As for the core indices, all are trading firmly lower, led downwards by financials. Investor focus this morning remains on reports from Spanish press that more regions could be queuing up to request aid from PM Rajoy’s central government. This effect has been compounded by similar reports from Italian press, raising the alarm that a number of Italian cities, notably Naples and Palermo, could be facing difficulties mounting their finances. The latest news from the periphery has seen a pick-up in volume in comparison to previous sessions, however with fewer than 250k contracts going through in the Bund, volumes do remain lighter on a year-average basis.
Elsewhere, news that the IMF are to consider ending its support for Greece, withholding the allocation of further money to the country, has brought the prospect of default to the forefront of many investors minds. Since the open, no commentary from the IMF has hit the wires, however the German finance ministry highlighted that they have received no signal from the IMF that it will not take part in any further Greek aid. As such, the results of the Troika report, due to be conducted this week, will catch focus as the week progresses.
In the energy complex, prices are seen markedly softer, with the weakness carrying across from the Asian session, wherein reports regarding
limited scope for a Chinese rate cut due to the inflation profile gained attention.
Looking ahead in the session, data remains light, with only Chicago Fed National Activity and Eurozone Consumer Confidence scheduled for release later today.
According to a central bank adviser, current interest rates in China are appropriate and any further cuts in the second half of this year would be difficult as CPI remains high. (Caixin.com)
People’s Bank of China monetary policy committee member Quoqing predicts China’s economy may cool to 7.4% GDP this quarter. (Newswires)
The current government target is for 7.5% GDP growth for this year, and the last GDP reading was 7.6%.
Fed's Williams has said the US are to make little progress tackling the high unemployment levels before 2014 unless the Federal Reserve eases their policy further. Williams declined to call directly for a Federal Reserve move, adding that he thinks the argument against further action is the question of uncertainty around the effects, costs and benefits of doing so. (FT-More)
EU & UK Headlines
The IMF is considering ending its support to Greece, with senior executives of the fund having already notified the EU that it no longer intends to allocate more money to the country, according to a report. (ekathimerini/Capital.gr) The report added that Greece could default as soon as September. The IMF is one third of the so called "Troika" of Greek creditors and this story follows the ECB saying Greek government bonds are ineligible for collateral purposes. The next Troika report on Greece is very much anticipated due to the reports that Greece may need a bridging loan. The visit by Troika inspectors is set to start on Tuesday.
The PM of Murcia said the region plans to apply for financial aid from the state of approximately EUR 200-300mln, though the amount is yet to be finalized. (El Mundo) Elsewhere, the Balearic Islands, Catalonia, Castilla-La-Mancha, the Canary Islands and possibly Andalusia are also having difficulties with funding, according to Spanish press reports. (El Pais) On Friday the Spanish region of Valencia confirmed it was to tap the EUR 18bln Spanish regional aid fund which did cause the market to react in a risk-off fashion.
Ten Italian cities face financing strains according to a report (La Stampa)
The ten cities include Naples and Palermo and underlines growing concerns over the sustainability of local finances in the Eurozone's third largest economy. Last week, Italian PM Monti expressed concerns over the autonomous region of Sicily was on the brink of defaulting on its debt, though the Sicilian governor said the region is not at risk of default. Unlike Spain, however, Italy's local funding problems would not have an immediate impact on the country's EUR 2trln public debt pile, but it does underscore the growing pressure on all levels of public finances.
Core European bourses are seen softer at the North American crossover, with losses seen at around the 2% mark for all the main indices, however the peripheral IBEX-35 and FTSE-MIB are underperforming, seen lower by upto 5% this morning. Financials are seen weighing across the continent as fears regarding Spain, Italy and Greece's finances prompt investor caution around the riskier assets. No sector is spared as even the defensive health care stocks take 1% of losses as very few European stocks climb into the green. Following a morning of Italian and peripheral banks dipping in and out of trade limit-down, the Italian regulator CONSOB has reintroduced a short-selling ban on Italian banking and insurance stocks, providing some relief for the troubled institutions.
In individual equities news, Siemens shares have seen some downside today as industry sources in German press suggest the company may miss its full year profit goals, with orders in the last quarter falling 'significantly'. (Handelsblatt) At the North American crossover, Siemens shares are seen lower by 1.6%.
Swiss private banking group Julius Baer are one of the few stocks in the green in Europe today as they release their earnings report premarket.
The company reported an expectation-beating adjusted net of CHF 221.4mln, with operating income and EPS both beating forecasts as well.
Julius Baer also reported that they have no exposure to Greek, Irish, Portuguese or Spanish sovereign debt, with Italian exposure seen as marginal. After a morning's trade, Julius Baer shares are seen higher by 1.6% today.
EUR/USD opened markedly lower at the European open, quickly breaking below the 1.2100 handle, a level that has not been broken since June 2010. The moves are reflected broadly across the asset classes, with risk-off remaining the dominant theme at the beginning of the week. The pair has staged a modest recovery, climbing back above the handle, but remaining fragile in negative territory. Market talk of stops in the pair at 1.2120 failed to halt the moves higher, but above this stops at 1.2160 could prove reactive as the session progresses. However, with little the way of data or events scheduled, a large option expiry at the 1.2100 handle could become magnetic as the US comes to market.
GBP/USD is mirroring the losses in EUR/USD as the USD benefits from safe haven status. Buying in EUR/GBP has been pinned by some desks as the driver behind much of the moves, explaining the divergence between EUR/USD and GBP/USD at the North American crossover. Some participants may also be eyeing the key risk event for GBP this week, due on Wednesday, the advanced reading of Q2 GDP from the UK, with many expecting a soft figure, reinforcing the UK's perceived economic weakness. Elsewhere, as the session progresses beyond today's 10am (1500BST) NY cut an option expiry at 1.5525 could define trade for tomorrow's NY cut.
Crude futures have suffered losses throughout overnight and European trade as investor sentiment has been weighed on by comments from a PBOC MPC member who noted the Chinese economy may cool to 7.4% GDP this quarter, and with growing concerns over Spain and Italy in the European periphery.
Oil & Gas News
- Iraq has resumed crude-oil exports from Kirkuk oil fields at a lower rate according to Middle East shipping agents. This follows an explosion that blew up part of the northern pipeline that caries crude to Turkey's Ceyhan port.
- China bought more crude from Iran in June that it did on average last year before sanctions against Iran were imposed by the EU on July 1st.
- Nigeria plans to reduce exports of Bonny Light crude to five cargoes of 950,000 barrels each in September according to sources.
- Iran would not close the Strait of Hormuz as long as it is able to use the vital shipping line itself according to a military commander.
- Iran has sent a new batch of enriched uranium to fuel a medical research reactor in its capital according to the country's nuclear chief.
- Israeli officials warned that an Iranian terror squad in Europe may be planning to attack its athletes at the Olympic Games.