Overnight Summary: All Must Pray For Saint Bernanke Absolution

The key headline in the overnight session was that China was willing to add a token pittance to the IMF "warchest" even as it itself is struggling to find ways to stimulate its economy. Ignore that China had demands of a complete quota overhaul that would see China nearly on par with the US in voting rights, something the US, which incidentally have exactly $0.00 to the bailout effort, would agree to. The amount that warchest has increased to is now $456 billion. It was $430 billion in April just to keep things in perspective. Hardly the Deus Ex the EURUSD is trying hard to make it appear. In the meantime, a gaping hole, as large as $350 billion has opened in Spain. And that excludes the hundreds of billions that will shortly be needed by Italy. Also out of Greece we get rumors that a government may or may not be formed. As to how long said pro-bailout government will last when over half the country voted against he memorandum, that is a different question entirely. Overall, expect a quiet session with everyone praying loudly that Bernanke will launch a new LSAP program tomorrow. If the Chairman does something far less spectacular like merely expanding Twist or raising the maturity of bonds for sale from 1-3 year to 1-4 year, the market will not be happy. Lastly, the G-20 came, ordered lots of shrimp Ceviche at the best restaurants Las Ventanas and One and Only Palmilla has to offer (charge the taxpayers of course), and conquered nothing. But issued a statement that they hope things will fix themselves all over again. In short: nothing but solid reasons for the futures to be up, up, and away.

Full overnight recap from Bank of America

Market action

Overnight, Asian equity markets sold off as Spain's borrowing costs hit a Euro area record and optimism faded that the Greek election will end the sovereign debt crisis. To fully solve the Euro area crisis Euro area leaders need to go further in their steps to integrate. In our view, they need to take steps to turn the region's monetary union into a fiscal and political union as well. In addition, they need to create a common banking regulator with region wide deposit insurance. Until that day comes, investors will continue to test the region's banking sector and investors will be hesitant to fully invest in the region. Getting to that end game is a long way off. In the meantime investors should stay defensive. 

Back to the markets, the MSCI Asia Pacific index came off its one month high falling 0.2%. Looking at the individual markets, the region's worst performer was the Japanese Nikkei 0.8%. The Shanghai Composite wasn't far behind falling 0.7%. The Hang Seng finished 0.1% lower while the Korean Kospi finished flat. On the flip side, the Indian Sensex managed to rise 0.9%. 

In Europe, we might finally be seeing the relief rally we expected from the outcome of the Greek elections. In the aggregate the region's shares are up 0.5%. At home, futures are pointing to a 0.1% rise in the S&P 500 later today.

In bondland, Treasuries are trading flat except for the long bond which is bid 1bp. The 10-year yield is currently 1.57% while the long bond is trading at 2.65%. In Europe, yields on Spanish debt are declining but the 10-year yield still remains above 7%. Meanwhile, Italy's 10-year note is trading at 5.98%. 

The dollar is weakening in the currency markets with the DXY index down 0.2%. Commodity prices are mixed. WTI crude oil is down 10 cents to $83.17 a barrel while gold is up $2.98 an ounce to $1,631.05. 

Overseas data wrap-up

The sovereign debt crisis in Europe is taking its toll on German investor confidence. The German ZEW survey plunged the most in 14 years to 33.2 in June from 44.1 in the prior month. Consensus was looking for a much smaller drop to 39.0. The key takeaway here is that Germany's economy is losing momentum and is not immune from the ongoing sovereign debt crisis. 

Inflation in the UK continues to cool. In the Fall, headline inflation in the UK was running at a 5% yoy pace, today, that rate has dropped to 2.8%. Consensus was expecting May inflation to come in at 3.0% matching the prior month's yoy pace. While headline inflation fell, core inflation actually picked up 0.1pp from the prior month to 2.2% but that was still below the 2.3% yoy rate the consensus had penciled in