For the first time in over 2 months, last week CDS traders ignored their ongoing derisking barrage in Great Britain CDS, and instead shifting their attention to the very heart of European darkness, the two countries that are in charge of it all - Germany and France. There was over 750 million worth of German CDS derisked, in 58 contracts, with France close behind at $728 million. Two other notable names rounding out the top five were Turkey and Spain. Quiet, little Finland was there for some reason. Other name filling out the list of top 10 were Brazil, Ukraine, Korea, Portugal and Japan: all names that have very valid reasons to be concerned about their future, and CDS traders agree. On the other end, rerisking was rampant in Mexico, Slovenia, Holland, Indonesia and Thailand. Most likely these are just hedge pairs as there is no reason why any of these names should be in play. Two names which we will focus on shortly, Romania and Bulgaria, were in no man's land. We expect they will slowly migrate toward the red part of the chart.

In May, US listed ETFs were down 5.7%, or $47.3 billion, to $788.5 billion. The decline was less than the general US market performance of 8.2% due to $7.9 billion in net inflows across ETFs, even as market values declined. Of various ETF asset classes, not surprisingly, commodities performed the best, seeing the bulk of the inflows, or $5.1 billion, bringing total commodity assets to $74.6 billion. Drilling down even further, the one single ETF that represented more than half of the positive inflow was the SPDR Gold ETF, GLD, which saw $4.2 billion in May inflows,bringing total assets to $49.2 billion. The exodus from paper to real assets continues, and a very confused Ben Bernanke is powerless to stop it.

In a stunning development for millions of American who no longer pay their mortgages with the blessing of Uncle Obama, only to use all this "excess" money to buy Apple apps and whatever latest gadget Steve Jobs' gizmo factory comes out with, they are now fresh out of luck in redirecting cash flow that otherwise would go to adding some much needed realistic cash to support bank mark-to-myth balance sheets (we wonder if the FASB will ever release a pro forma analysis of how many hundreds of billions, if not trillions, the combined TBTF capitalization is underwater if banks are indeed forced to mark their loans to market). In an internal AT&T memo, reported by the Boy Genius Report, and likely leaked intentionally to drive up the iPhone 4 release frenzy a few notches higher, the firm has told its employees "that pre-orders for the iPhone — whether they be new activations, upgrades, or exchanges — have been “temporarily suspended.” What will the great unwashed masses do now? Could this, gasp, force the pathetic US Savings rate to increase above its one year low reading in the mid 3%, thus spitting in the face of the Fed Chairman, whose doctrine of "spend now, worry about maxed out credit cards tomorrow" is being flagrantly ignored? Surely civil disobedience can not be far behind if Americans are thus prevented from spending the money that contractually belongs to their mortgage servicers.

As we surmised yesterday, when we pointed out that the IMF's Strauss-Khan is now officially getting involved in Spain's bailout, that the next step would be flat out denials that Spain is going to get a rescue package, sure enough Market News reports that "A European Commission spokesman today “firmly” denied a Spanish press report that Spain was in negotiations with the European Union, the International Monetary Fund and the U.S. Treasury for a credit line of up to E250 billion." Of course, this means that Spain is about to spring a half a trillion rescue request. The rumor of the latest Spanish rescue package appeared in Spanish business journal El Economista which reported that officials from the EU, the IMF and the US Treasury were in talks to provide Spain with a €250 billion liquidity lifeline. "The publication, citing sources close to the process, ran the headline of the story along just above a tease to an inside editorial urging Spanish Prime Minister Jose Luis Rodriguez Zapatero to resign." Subtle. And of course, here comes the IMF itself denying the self-evident reality: "“I have a very simple line for you: There is no truth to these rumors,” Simonetta Nardin, an IMF spokesperson told Market News International." Additionally, the IMF made it all too clear that Strauss-Khan is in Europe purely for sightseeing purposes: "He is in Europe this week, and is taking this opportunity to discuss global economic developments with the Prime Minister, and to consult with him on developments in Spain, including the government’s economic policies and reforms." Not to mention bail outs. One thing the ECB was perfectly happy not to comment on, was the question whether Trichet is pushing European countries to express their support for Spain. In truth, they don't have to say anything - just buy up their quota of Spanish bonds at the next "successful" auction, with the ECB gobbling up the rest, and somehow make this seem EUR positive. Now just throw in a few automatic lies from Tim Geithner, and the short EURUSD trade will be back firmly on the table.

Following up on the earlier report from El Economista that Spain is about to resort to another €50 billion in US taxpayer generosity and use €250 billion from the EU/IMF rescue fund, is this piece in the FT which confirms our disclosure from yesterday that Spanish banks have borrowed a record €85.6 billion from the ECB in May. And this is even before all the Cajas were scrambling to merge into Europe's biggest insolvent megabank. From the FT: "Spanish banks borrowed €85.6bn ($105.7bn) from the ECB last month. This
was double the amount lent to them before the collapse of Lehman
Brothers in September 2008 and 16.5 per cent of net eurozone loans
offered by the central bank. This is the highest amount since the launch of the eurozone in 1999
and a disproportionately  large share of the emergency funds provided by
the euro’s monetary guardian, according to analysis by Royal Bank of  Scotland and Evolution. Spanish banks account for 11 per cent of the
eurozone banking system. The rise in borrowing from €74.6bn in
April, or 14.4 per cent of the net liquidity pumped by the ECB into the
eurozone financial system, provides further evidence of the acute
tensions in the Spanish banking system." And here is the piece de resistance: "'If the suspicion that funding markets are being closed down to Spanish banks and corporations is correct, then you can reasonably expect the share of ECB liquidity accounted for by the country to have risen further this month,' said Nick Matthews, European economist at RBS." You can also expect the army of bureaucrats to deny, deny, deny until the US taxpayer has to fund another trillion dollar bailout. And speaking of spin, here is Goldman's take on all things Spanish.

• Asian shares were solidly higher Wednesday after Wall Street rallied Tuesday.
• China boosts holdings of US Treasury debt by $5 billion.
• Euro zone May inflation confirmed at 1.6 pct y/y.
• France may raise retirement age from 60 to 62 in 2018.
• Obama says oil spill shows US must cut oil 'addiction’.
• OECD recommends Dutch workers stay on the job longer, accept less when they retire.
• Russia preparing to buy Canadian, Australian dollars to diversify reserves.
• Yen trades near 1-week low on improving global economic outlook.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 16/06/10