SNAPSHOT:
-Euro regaining ground vs dollar; Treasury yields unchanged; stock
futures flat; ICE Aug Brent down 93c at $95.12, Nymex July crude down
39c at $82.88; spot gold 0.2% higher at $1,630.15
-Watch for: housing starts/building-permits, job openings
Top News: Spanish Borrowing Costs Surge; Germany Economic Expectations
Slump; Spain Delays Bank Audit to September
MARKETS OUTLOOK:
FOREX:
The euro's current level - EUR/USD was last at 1.2615 - belies the
fact that much of the session's news has been downbeat. The German ZEW
sentiment slumped to a 14 year low, the Spanish T- bill auction proved
very expensive, and Spain also announced it is delaying the
more-detailed banking audit until September. Despite all this
peripheral yields were trading off their session highs and equity
markets were largely holding a small bid tone.
Expect EUR/USD to test a 1.2515 low, said Credit Agricole FX analyst
Mitul Kotecha, after the positive euro reaction to the Greek elections
faded quickly. "The euro's inability to build on gains [against the
dollar] above 1.2700 despite extreme short market positioning,
highlights the lack of confidence in resolving the crisis," said
Kotecha, adding: "the EU finance ministers summit in a couple of days'
time may provide some relief but only if concrete measures are
outlined. In the meantime...we look for a test of EUR/USD 1.2515,
which could happen as early as Tuesday."
BONDS:
U.S. Treasurys moved sideways in thin trading as markets took a
time-out to digest the ongoing problems in the euro zone. German Bunds
were flat to a fraction higher, while peripheral bond yields were
barely changed from Monday's close. Dealers were looking ahead to the
FOMC statement on Wednesday with a growing expectation that new easing
measures will be announced. At 0406 ET, the September Treasury
contract was 3/32 higher at 133-265 and the 10-year cash yielded
1.565%.
The cost of insuring European corporate debt against default was mixed
as developments around Spain overshadowed progress made in Greece.
At around 0530 ET, the iTraxx Europe index, which comprises 125
high-grade borrowers, 25 of which are banks and insurers, was at
176/177 basis points, unchanged from Monday's close, according to
data-provider Markit. The Crossover index of 40 mostly
sub-investment-grade European corporate borrowers was five basis
points tighter at 676/679 basis points.
EQUITIES:
U.S. stock futures were flat Tuesday with investors' attention still
focussed on Spain's mounting debt problems and the upcoming Federal
Reserve's monthly monetary policy meeting, which is expected to
discuss easing measures.
"There is a view that an extension to Operation Twist would be a
disappointment, and won't be enough to boost risk assets appreciably,"
said David Morrison, senior strategist at GFT Markets.
"This suggests that a fresh programme of asset purchases [possibly
aimed at mortgage debt] is what the market is looking for."
In Europe, the Euro Stoxx 50 was 0.3% at 2161.59. Investors cautiously
welcomed the Spanish T-bill auction results, which were expensive but
well covered. "However, the amount of interest paid on such short-term
debt is getting out of control and can't last much longer...it is only
a matter of time until Spain requests a full bailout for the
government," Craig Erlam at Alpari UK.
COMMODITIES:
The downside potential for oil prices is likely to be limited for the
rest of the year, said SEB. "Seasonal demand will increase and the
Iranian oil embargo will have most effect from July 1," the bank
noted. "As a result, we expect a substantial reduction in current OPEC
over-capacity... [as] the cartel will obviously wish to avoid a
repetition of 2009 when the oil price collapsed to an average of $62.7
a barrel," it added. "We expect the risk of a hard landing in China to
decrease over the next half year," said SEB.
Spot gold was slightly higher in Europe, but lacking momentum as
investors remained cautious ahead of the start of a much-anticipated
meeting by the Fed later in the global day.
"I think the market is positioned long ahead of the meeting and if
tomorrow afternoon there is no mention of quantitative easing or such
like, we will definitely see disappointed selling," said David Govett,
head of precious metals at Marex Spectron. "Ahead of any
announcements, the market will remain thin, nervous and jumpy," he
added.
=======TODAY'S CALENDAR=======
ET PERIOD
0745 US Jun 16 ICSC-Goldman Sachs Chain Store
Sales Index
0830 CAN Apr Wholesale trade
0830 US May Housing Starts and Building
Permits
0855 US Jun 16 Johnson Redbook Retail Sales
Index
1000 US Apr Job Openings & Labor Turnover
Survey
1100 UK Bank of England announces size
of ECTR auction
1630 US Jun 15 API Weekly Statistical Bulletin
1901 UK Q2 Bank of England Quarterly
Bulletin
1950 JPN May Bank of Japan Monetary Policy
Meeting Minutes
1950 JPN May Provisional Trade Statistics
for the Month
N/A US FOMC meeting
==============================
TOP STORIES OF THE DAY:
Spanish Borrowing Costs Surge
Spain paid higher interest rates to lure investors to its Treasury
bill sale, an ominous sign ahead of a critical bond auction.
Germany Economic Expectations Slump
German economic expectations in June fell at the fastest rate in more
than a decade, reflecting the view that the Greek election only
provided a brief respite. 28 min ago
WSJ: Fed Wrestles With How Best to Bridge US Credit Divide
The U.S. recovery is hobbled by an economic divide that separates
Americans not by income or wealth but by their access to credit.
German Opposition Wins ESM Suit
Germany's highest constitutional court says that negotiations on
Europe's permanent rescue fund were not carried out appropriately,
thus giving a victory to Germany's opposition.
Spain Delays Bank Audit to September
Deadline for a group of auditors to present full reports on the
capital needs of Spain's financial sector is delayed to September from
July 31, a source tells Dow Jones Newswires.
Spain Fears Drag on Euro-Zone Bonds
Euro-zone government bond markets remain at highly stressed levels
following Monday's dramatic sell-off, with fears continuing to mount
that Spain will require a full sovereign bailout.
Cyprus Needs Imminent Bank Funds
Cyprus needs to get funding from a bilateral agreement with another
country or through euro-zone rescue funds as soon as possible so it
can recapitalize its banks.
New Greek-German Clash Over Bailout Looms
Greece appears headed for a new clash with Germany over its rigid
bailout program as the winners of Sunday's Greek election prepare to
ask Europe for more time to cut public spending.
-By Paul Larkins, Dow Jones Newswires; 4420-7842-9319;
paul.larkins@dowjones.com
(END) Dow Jones Newswires
June 19, 2012 06:38 ET (10:38 GMT)
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