From Ran Squawk:
- EU's Van Rompuy called an emergency meeting of top EU policy makers today to discuss plans for a second bailout package for Greece
- According to an article in FT, European leaders are for the first time prepared to accept that Athens should default on some of its bonds as part of a new bail-out plan for Greece
- According to a senior Eurozone source, Eurozone is working on the possibility of rollover or buyback of the Greek debt, however no resolution is currently expected before the end of July
- GBP came under pressure after Credit Suisse trimmed UK’s 2011 growth forecast to 1.5% from 2.0%
Risk-aversion remained the dominant theme during the European session, as lack-lustre economic data from the US last week, and China, during the weekend, weighed on market sentiment. Allied to that, the ongoing contagion fears in the Eurozone dented the appetite for risk-among investors. European equities traded lower throughout the session, with particular weakness seen in financials, which was also reflected in the Italian FTSE MIB and Spanish IBEX 35 indices underperforming their European peers. Weak equities provided support to Bunds, whereas general widening was observed in the Eurozone peripheral 10-year government bond yield spreads. European sovereign concerns together with strength in the USD-Index weighed upon EUR/USD and GBP/USD, whereas safe-haven currencies including JPY and CHF received a boost. Elsewhere, WTI and Brent crude futures traded under pressure weighed upon by a strong USD as well as diminishing hopes of a sustainable economic recovery.
Moving forward, the economic calendar remain thin, however markets will keep a close eye on developments related to the Eurozone. In fixed income, another Fed’s Outright Treasury Coupon Purchase operation in the maturity range of Jul’15-Dec’16, with a purchase target of USD 2.5-3.5bln, together with the French T-Bill auctions are scheduled for later in the session.
The PBOC will maintain a prudent policy to fight stubbornly high inflation, but will try to avoid causing big swings in economic growth, central bank Chief Zhou Xiaochuan said. Zhou Xiaochuan says inflation pressure is still the most prominent problem in the economy and will use more market-oriented policy tools to manage liquidity. China needs to further raise interest rates to tame inflation during the rest of the year despite concerns about a slowing economy, Liu Yihui, a researcher with the Chinese Academy of Social Sciences said. (RTRS)
• Chinese CPI (Jun) Y/Y 6.4% vs. Exp. 6.2% (Prev. 5.5%)
• Chinese PPI (Jun) Y/Y 7.1% vs. Exp. 6.9% (Prev. 6.8%)
• Chinese Trade Balance (USD) (Jun) Y/Y 22.27bln vs. Exp. 14.20bln (Prev. 13.05bln)
• Chinese Exports (Jun) Y/Y 17.9% vs. Exp. 18.6% (Prev. 19.4%)
• Chinese Imports (Jun) Y/Y 19.3% vs. Exp. 25.3% (Prev. 28.4%) (RTRS)
Latest on the US debt deal: (RTRS/ABC TV/ Mainichi Daily News)
- Deficit reduction talks between President Obama and Republican leaders ran into trouble on Sunday at a meeting marked by testy exchanges and a failure to mend rifts on taxes and social-spending cuts.
- Treasury Secretary Geithner warned that a failure to raise the debt ceiling by August 2nd could mean catastrophic damage to the economy, and an agreement must be reached. He added that the US must have outlines of the debt agreement by the end of next week. Geithner reiterated that the US is not going to default.
- IMF’s chief, Lagarde, said she can’t imagine the US defaulting, adding that a US default would shock the US and global economy.
- US Senate Republican leader, McConnell, said he believed a broad USD 4trl deficit reduction plan was off the table as part of a deal to raise the debt ceiling. He further said that he wanted to pursue the biggest debt reduction deal possible, but without raising taxes.
- However, White House chief of staff, Daley, said President Obama still wants a deficit reduction package of around USD 4trl, and will not away from a tough political fight.
- House Republican budget negotiators have abandoned plans to pursue a massive USD 4trl, 10-year deficit reduction package in the face of stiff Republican opposition to any plan that would increase taxes as part of the deal. House Speaker Boehner informed President Obama that a smaller agreement of about USD 2trl was more realistic.
EU and UK Headlines:
EU's Van Rompuy called an emergency meeting of top EU policy makers today to discuss plans for a second bailout package for Greece. The meeting included ECB's Trichet, EU's Juncker, Barroso and Olli Rehn. A senior euro-zone official said "there are various concerns and worries about the progress of the second bailout package, mostly because of little progress in the private sector involvement". (WSJ)
In other news, European leaders are for the first time prepared to accept that Athens should default on some of its bonds as part of a new bail-out plan for Greece that would put the country’s overall debt levels on a sustainable footing. The new strategy, to be discussed at a Brussels meeting of eurozone finance ministers today, could also include new concessions by Greece’s European lenders to reduce Athens’ debt, such as further lowering interest rates on bail-out loans and a broad-based bond buyback programme. It also marks the possible abandonment of a French-backed plan for banks to roll-over their Greek debt. (FT-More)
Elsewhere, according to a report in Die Welt, citing an unnamed ECB source, the existing European rescue fund now in place is not large enough to protect Italy as it was never designed to do that. Meanwhile, the ECB is seeking to have the Euro-rescue fund expanded to include help for Italy, the report said. (Die Welt)
Also, the ECB is seeking advice from a private-sector bank on what to do in the event of a sovereign default in the Euro-area, according to sources. The newspaper said the ECB has written to more than five financial institutions in recent days, requesting that they apply to act as advisers. (Handelsblatt)
• German 6-month Bubill auction for EUR 3.974bln, bid/cover 2.80 vs. Prev. 1.70 (yield 1.193% vs. Prev. 1.184%) (RTRS)