European Market Update: S&P comment on ‘selective default’ dampens the post Greek austerity vote party

***Economic Data***

– (CZ) Czech May Retail Sales Y/Y: 3.2% v 3.6%e
– (SP) Spain Jun Net Unemployment Change: -67.9K v -86Ke (third consecutive decline)
– (TU) Turkey Jun Consumer Prices M/M: -1.4% v -0.8%e; Y/Y: 6.2% v 7.0%e; CPI Core Y/Y: 5.3% v 4.7% prior
– (TU) Turkey Jun Producer Prices M/M: 0.0% v 0.4%e; Y/Y: 10.2% v 9.6% prior
– (SZ) Swiss May Real Retail Sales Y/Y: -4.1% v +7.8% prior
– (BR) Brazil Jun FIPE CPI: 0.0% v 0.0%e
– (SP) Spain Jun Consumer Confidence: 74.9 v 74.3 prior
– (UK) Jun PMI Construction: 53.6 v 53.8e
– (UK) Q1 BoE Housing Equity Withdrawal: -£5.8B v -£6.5Be
– (HK) Hong Kong May Retail Sales Value Y/Y: 27.8% v 27.7%e; Retail Sales Volume Y/Y: 21.6% v 20.7%e
– (EU) July Sentix Investor Confidence: 5.3 v 0.6e
– (EU) Euro Zone May PPI M/M: -0.2% v -0.1%e; Y/Y: 6.2% v 6.3%e
– (SA) South Africa Jun Naamsa Vehicle Sales Y/Y: 12.6% v 6.1% prior

Fixed Income:
– (NV) Netherlands Debt Agency (DSTA) sold approx €6.96B vs. €4.5-7.0B indicated range in 3-month, 8-month and 12-month Bills
– Sold €2.76B in Sept 2011 Bills; Avg Yield 1.11% v 1.15% prior
– Sold €2.3B in Feb 2012 Bills; Avg Yield 1.37% v 1.32% prior
– Sold €1.89B in Jun 2012 Bills; Avg Yield 1.47%

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***

***Notes/Observations:
– Euro Group approved Greece’s €12B aid installment but its effort to pull Greece back from the brink may be slapped with a default rating
– ECB rate tightening is fully priced in and the market remains hopeful that the U.S. will come to an agreement on the U.S. debt ceiling by the early August

Equities:
FTSE 100 +0.44% at 6,006; DAX +0.10% at 7,424, CAC 40 -0.10% at 4,002, IBEX 35 -0.3% at 10,466, FTSE MIB -0.2% 20,466, SMI +0.60% at 6224

– The European bourses saw little direction in a lackluster session with the US markets off for its Independence holiday. The FTSE was trying for close above 6,000 for the first time since May while the CAC-40 look to steady above the 4,000 mark.

Individual Companies:
– Carrefour [CA.FR] The company’s Board backed a plan to merge its Brazilian operations with Brazil’s Grupo Pao de Acucar
– John Menzies [MNZS.UK] provided trading update in which it noted it was on track to exceed expectations
– Ultra Electronics [ULE.UK] was awarded £200M contract in Oman relating to an airport IT and systems integration
– Alfa Laval [ALFA.SW] was awarded SEK135M order for brewery solution in Brazil
– Assa Abloy [ASSAB.SW] sold its Lorentzen and Wettre unit to ABB for approx SEK750M ($119M) in cash

Speakers:
– S&P commented that the options for a Greek debt rollover might place the country into “selective default”
– Vietnam Central Banks cuts Repo Rate by 100bps to 14.0% (Not expected). The authorities had recently stressed the fight against
Inflation rather than efforts to stoke economic growth
– China PBoC Gov Zhou reiterated the view that the central bank would maintain a prudent monetary policy approach in its Q2 Review. The PBoC to maintain a stable CNY currency rate and that the Chinese economy would grow at fast, stable rate. The PBoC did caution that inflation remained too high
– German Fin Min: Germany to look at room for tax cuts in autumn; Warned against exaggerated tax cut hopes
– Swiss government will discuss the CHF currency strength issue next week – Swiss press
– BoJ Quarterly Branch Managers’ Meeting: Seven of nine regions raised views as supply constraints diminished
– BoJ Hayakawa commented that Japanese output was likely to achieve ‘V-shaped’ recovery but noted that the Kansai region uncertainty had increased due to concerns over power cuts

Currencies/Fixed income:
– The EUR/CHF continued to exult following the conclusion of recent Greek austerity votes and the Euro Group tele-conference call that approved the release of the next €12B tranche. The cross was up over 500 pips from last week’s all-time low of 1.1802 as it moved above the 1.2340 level during the session.
– The EUR/USD was unable to recover from earlier comments from S&P on the definition of technical default on Greece. The pair drifted off its Asian highs of 1.4569 to languish around 1.4530 for the bulk of the European morning.
– The JPY was firmer against the other major pairs.

Political/ In the Papers:
– The Guardian, citing ratings agency S&P, hinted at the rising risk that credit rating agencies will still declare Greece in default. According to BNY Mellon Chief FX strategist, when comparing the French plan to what the ratings agencies have said, it looks as though they would make it a default. S&P has previously indicated no final decision on Greece rating will be taken until all the detail were published, but warned the debt-swap deal may still represent a default.
– The use of European government bonds for interbank lending as collateral reached record levels, though lending between banks without collateral are near a standstill for any loans of more than a week’s duration as there is increased concerns over bank insolvency due to the Greek situation according to the Financial Times. According to Icaps BrokerTec, in Europe, this form of short-term repurchase lending hit daily highs of more than €220B ($320B) last week, as measured by the 20-day moving average surpassing records set before the financial crisis in Aug 2007.
– The Irish Times commented on the continued decline in Irish home values through the second quarter. From peak levels in 2006, home prices are down approximately 40%, with declines in the capital city of Dublin down further at 46%. Currently, the average home price nationally stands at €249,000 with Dublin at €286,000.

**Looking Ahead***
– 6:00 (PD) Poland to sell 51-Week T-bills
– 7:15 (EU) Poland’s EU Ambassador speaks at Brussels Think Tank
– 7:30 (BR) Brazil Central Bank Weekly Economists Survey
– 8:30 (CA) Canada May Industrial Product Price M/M: 0.0%e v 0.5% prior; Raw Materials Price Index M/M: -3.0%e v +6.8% prior
– 9:00 (FR) France Debt Agency (AFT) to sell €8.0B in 3-month, 6-month and 12-month Bills
– 9:30 (EU) ECB Calls for bids in 7-Day Main Refinancing Tender
– 9:30 (EU) ECB announces settlements in its weekly gov’t bond purchases
– 13:00 (MX) Mexico Jun IMEF Manufacturing Index: 53.4e v 53.7 prior;
IMEF Non Manufacturing Index: 52.9e v 53.1 prior
– 22:30 (CH) China Jun HSBC Services PMI: No est v 54.3 prior

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July 2nd, 2011 in Forex News

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