- Eurogroup confirmed aid for Spain and said their support for Spanish banks could be as much as EUR 100bln.
- Spanish 10-yr government bond yield spreads were markedly tighter in the early hours of the European session, but have reversed the trend and now lie wider against the German Bund by around 20BPS.
- The Italian industry minister has said Italy has already done what was needed to save itself from the Eurozone crisis; dampening expectations for Italian aid to follow the Spanish assistance.
European equities in both the futures and the cash markets are making significant gains after a mornings’ trade, with financials, particularly in the periphery, leading the way higher following the weekend reports of the Eurogroup confirming aid for the Spanish banking sector. With data remaining light throughout the day, its likely investors will remain focused on the macro-picture, seeing some relief as the Spanish financials look to be recapitalized.
At the open, risk sentiment was clear, with EUR/USD opening in the mid-1.2600’s, and peripheral government bond yield spreads against the German bund significantly tighter. In the past few hours, these positions have unwound somewhat, with EUR/USD breaking comfortably back below 1.2600 and the Spanish 10-yr yield spread moving through unchanged and on a widening trend across the last hour or so against its German counterpart, and the yield failing to break below the 6% mark.
Looking ahead, one of the remaining topics to be concluded for the Spanish bank aid is whether the funding will be procured from the ESM or the EFSF. In terms of most recent commentary, a spokesman for the German government has said the credit line is more likely to spring from the ESM.
Chinese CPI (May) Y/Y 3.0% vs. Exp. 3.2% (Prev. 3.4%)
Chinese PPI (May) Y/Y-1.4% vs. Exp. -1.1% (Prev. -0.7%)
Chinese Industrial Production YTD (May) Y/Y 10.7% vs. Exp. 10.8% (Prev. 11.0%)
Chinese Industrial Production (May) Y/Y 9.6% vs. Exp. 9.8% (Prev. 9.3%)
Chinese Retail Sales YTD (May) Y/Y 14.5% vs. Exp. 14.6% (Prev. 14.7%)
Chinese Retail Sales (May) Y/Y 13.8% vs. Exp. 14.2% (Prev. 14.1%)
Chinese Exports (May) Y/Y 15.3% vs. Exp. 7.1% (Prev. 4.9%)
Chinese Imports (May) Y/Y 12.7% vs. Exp. 5.5% (Prev. 0.3%)
Chinese Trade Balance (May) Y/Y 18.70bln vs. Exp. 16.25bln (Prev. 18.43bln)
Chinese New CNY Loans (May) M/M 793.2bln vs. Exp. 700.0bln (Prev. 681.8bln)
Chinese Money Supply - M0 (May) Y/Y 10.0% vs. Exp. 10.6% (Prev. 10.4%)
Chinese Money Supply - M1 (May) Y/Y 3.5% vs. Exp. 3.2% (Prev. 3.1%)
Chinese Money Supply - M2 (May) Y/Y 13.2% vs. Exp. 12.9% (Prev. 12.8%) (Newswires)
Fitch have said Japan's debt level was the primary reason for their downgrade in May, adding that the agency does not see a fall in funding conditions in the next 18-24 months. (Newswires)
S&P affirmed the US at AA+; Outlook remains negative. (Newswires)
S&P cited fiscal performance and the debt burden as US credit weaknesses, with the outlook reflecting the view of primary political and fiscal sovereign credit risk. S&P continues to believe the US will likely need a more substantial medium-term fiscal consolidation plan. They see the risk of returning to recession in the US at about 20% and rating pressure could build if elected officials are unable to agree on credible and medium-term fiscal consolidation plans.
EU & UK Headlines
The Eurogroup confirmed aid for Spain and said their support for Spanish banks could be as much as EUR 100bln. The loan amount must cover estimated capital requirements with an additional safety margin according to the Eurogroup. (Newswires) IMF stress tests show that Spanish banks could need EUR 40bln in capital, and Spanish banks could struggle without central bank aid. Spanish banks are estimating that the government will ask for an EU financing package of EUR 60bln once the audits are carried out later this month. According to preliminary analysis, Banco Santander and BBVA will not request EU funds.
Financial assistance is to be provided by the EFSF/ESM according to Eurogroup chairman Juncker. Juncker added that Spain will not be asked to implement an austerity program unlike Greece, Ireland and Portugal. El Pais has reported that the aid package is conditioned on Spain attaining its fiscal targets and failure to do so would result in the suspension of EU funds, according to EU sources. Sources said Spain will pay interest of 3% for European aid for its banking system, well below the market rate.
IMF chief Lagarde called for more ECB easing as global risks rise, adding the very existence of ‘European Project’ is at stake, and a plan is needed to wind-down international banks. Lagarde added that the IMF is ready to support Euro area moves and strongly welcomes the latest Euro area steps. (Newswires)
The Italian industry minister has said Italy has already done what was needed to save itself in the Eurozone crisis, dampening speculation of an Italian bailout to follow Spain's aid. (Newswires)
European equities are seen higher in both the futures and cash markets with, unsurprisingly, outperformance noted in the Spanish IBEX, which is currently seen higher by around 2.5%. The gains are being led by the financials sector, with the most at-risk banks seeing plenty of support after a morning's trade. The top gainers in Europe today are peppered with peripheral banks; as such, Bankia, BBVA, and Banco Santander are all seen higher by over 5% on the day.
In individual equities news, FTSE-listed BP are outperforming the Oil & Gas sector following weekend reports that the company may be able to settle all outstanding claims from the Deepwater Horizon disaster with the US authorities for a figure under USD 15bln. Following the news that the company may be able to move on from the catastrophic effects of the oil spill, BP shares trade higher by over %.
Long-suffering stock Nokia are seen as one of the top losers in Europe today after a Samsung spokesman claimed that reports from last Friday that Samsung were considering a bid for Nokia were 'groundless'. After a mornings trade, Nokia shares are seen lower by over 1%, heavily underperforming.
EUR/USD rose sharply overnight in response to the Spanish news touching a high of 1.2670 as Asian equity markets closed significantly higher. The currency pair has sold off since the European open, moving back below 1.2600 and settling at around the 1.2550 level as the US comes to market. The moves lower follow unconfirmed market talk of both Asian central banks as well as the SNB selling EUR/USD throughout the European morning.
Likewise with GBP/USD, it benefited from the gains seen in its European counterpart, but has not suffered from the weakness noted in EUR this morning. With GBP holding onto gains, it now trades in close proximity to a touted option expiry at the 1.5500 mark for the 10am NY cut.
Both WTI and Brent crude futures are seen higher ahead of the NYMEX pit open, although have been observed on a downward trend in recent trade. The gains follow moves in European equities, buoyed by news of a Spanish banking bailout.
Oil & Gas News:
For the first time in a decade, OPEC are to maintain their oil-output quotas while prices plunge as the European debt crisis and China's
- slowdown curbs fuel demand.
- Iraq's oil minister has said his country's oil exports are to rise to 2.9MBPD in 2013 from 2.4MBPD in 2012.
- The OPEC head has said the tremendous oil supply surplus has led to a severe price decline, adding that he sees USD 100 - 120 /BBL as a reasonable price.
- The EIA said US Q1 oil output topped 6MBPD for the first time in 14 years.
- Iran and other states are expected to press Saudi Arabia to scale back its record output when OPEC meets this week in Vienna, or face the risk of a new oil-price collapse.
- Saudi Arabia pumped 9.8MBPD in May, cutting output by 300,000BPD from a month previously, according to an industry source.
- China's crude oil output was unchanged at 17.43 MMT compared with one year ago.
- Iraq have raised the OSP differentials for its Basrah Light crude for July shipments to the US, Europe and Asia.
- Iranian talks with IAEA failed according to an Iranian IAEA envoy, with the UN nuclear watchdog also adding that no progress was made in talks to ease the probe into Iran's nuclear activities. An Iranian member of parliament said the Islamic Republic won’t allow the IAEA inspectors to visit its Parchin military complex.