***Notes/Observations***
– Global interest rates continue to move higher following last week’s watershed event of Fed tapering expectations; sharp sell-off continues in almost every asset class
– China PBoC did sate on Jun 21st that it would fine-tune its policies as needed but unlikely to take an extra measures at this time to deal with the squeeze in money market rates; China 7-day repo rate falls by almost 230bps to 6.96% but Shanghai slumped
– PBoC: China banking system liquidity at reasonable levels; Big banks should help PBoC to stabilize market; another PBoC official: Fine tuning does not translate to RRR, interest rate cuts
– Moody’s: China credit crunch negative to small and medium-sized banks
– More analysts cut China’s 2013 GDP growth forecast with Goldman and CICC joining the bandwagon
– Japan ruling LDP swept Tokyo assembly election over the weekend as it gathers momentum ahead of the Upper House elections in July
– BIS fires a warning shot; Efforts by the world’s “overburdened” central banks to stabilize financial markets have allowed governments to delay necessary overhauls
– ECB’s Weidmann: ECB is unlikely to launch unlimited bond purchases and warned the market that it should not count on low rates forever
– German IFO Survey mixed; business confidence edges higher in June to meet expectations
***Economic Data***
– (SG) Singapore May CPI M/M: 0.4% v 0.2%e; Y/Y: 1.6% v 1.5%e
– (FI) Finland May PPI M/M: -0.2% v -0.6% prior; Y/Y: -0.4% v -0.5% prior
– (CZ) Czech Jun Business Confidence: 0.9 v 0.4 prior; Consumer Confidence: -19.0 v -19.8 prior; Composite: -3.1 v -3.6 prior
– (AT) Austria Apr Industrial Production M/M: +2.7 v -2.1% prior; Y/Y: +0.7 v -1.5% prior
– (EU) ECB €3.5B borrowed in overnight loan facility vs. €3.6B prior; €83.0B parked in deposit facility vs. €77.9B prior – Daily Eurosystem Liquidity Conditions
– (CH) SNB Sight Deposits for Week Ended June 21th: CHF277.5B v CHF274.7B prior
– (NL) Netherlands Jun Producer Confidence: -4.1 v -3.8e
– (TW) Taiwan May Industrial Production Y/Y: -0.1% v -1.2%e; Commercial Sales Y/Y: -1.9% v -1.5%e
– (DE) Germany Jun IFO Business Climate:105.9 v 105.9; Current Assessment:109.4 v 109.6e; Expectations Survey: 102.5 v 102.0e
– (IT) Italy Jun Consumer Confidence: 95.7 v 86.2e
– (HK) Hong Kong Q1 Current Account: -$9.5BB v +$11.9B prior; Overall Balance of Payments: $16.4B v $94.4B prior
– (IT) Italy May Non-EU Trade Balance: €3.0B v €0.3B y/y
Fixed Income:
– (DE) Germany sold €2.37B in 12-month BuBills; Avg Yield: 0.1229% v 0.0011% prior; Bid-to-cover: 1.9x v 2.3x prior
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Equities***
FTSE 100 -0.50% at 6,083, DAX -0.70% at 7,731, CAC-40 -0.90% at 3,625, IBEX-35 -1% at 7,620, FTSE MIB -0.60% at 15,158, SMI -1.6% at 7,301, S&P 500 Futures -0.60% at 1,574
– Equity markets in Europe are broadly lower, as China’s Shanghai Composite closed lower by over 5% (ended below 2,000) on continued interbank liquidity concerns. The market declines have also come amid the sharp rise seen for major government bond yields and the widening in emerging market debt spreads. European banks are broadly lower, led by losses in Portuguese banks. Resource-related firms are broadly weaker, in line with the declines in commodity prices.
– UK movers [Essar Energy +3% (FY loss narrowed), Drax Group +1% (broker commentary), Vodafone +0.50% (raised bid for Kabel Deutschland); Kazakhmys -10% (bid for ENRC, lower copper prices)]
– Germany [Kabel Deutschland +1.5% (revised bid from Vodafone); Metro -5% (broker commentary)]
Speakers:
– Spain Econ Min de Guindos commented that Govt to do comprehensive review of tax system and propose changes in 2014. He reiterated that Q2 GDP growth near flat and that growth would positive in Q3
– German IFO Economists: Domestic economy was holding its course while manufacturers were more optimistic on future business. It noted that export expectations increased sharply
– EU/IMF/ECB Troika said to harden stance on Cyprus unless Govt backed off the central bank. Cyprus govt hurt confidence by leaking letter to Troika and could increase deposit outflows. Destabilizing if Cyprus bail-in was view as the template. Troika still saw a fragile situation in Greece both politically and economically and stressed it was very dangerous if Greece needed more funds for banking sector. Talk that Greece was making progress was only for benefit of German voters (**Reminder: On Jun 11th Cyprus President Anastasiades sent a letter to troika expressing concerns over the onerous conditions for aid)
– German Foreign Min Westerwelle: Technical issues snagging the restart of EU-Turkey talks
– BOE Q2 Bank Liability Survey: Total Bank funding declined in quarter and expect further decline in Q3
– Russia Central Bank’s Ulyukayev formally named as the country’s Econ Min. the move replaces Belousov who would become Putin’s economic aid
– Italy Debt Agency (Tesoro) Chief Cannata noted that bond market turbulence was expected due to end of quarter flows. Markets might price in a US rate rise but recent yield rise also due to uncertainty on upcoming German elections. Stability was difficult in the short-term as bank were less able to absorb govt bonds
– Turkey Fin Ministry noted that its current account deficit not a problem and that it had sufficient Fx reserves
– South Africa President Zuma commented that ZAR currency (Rand) was being affected by global conditions and added he was not happy about current price action
– Japan PM Abe commented that Japan currency movements had been overall beneficial for the economy and he reiterated to continue closely watching impact of JPY currency impact on import prices
– South Korea and Japan confirmed they agreed to let their $3B currency swap expire on July 3rd
– Moody’s reaffirmed Malaysia sovereign outlook at stable but noted weak electoral mandate could slow Malaysia’s fiscal consolidation and political noise in country might persist in near time
– UAE Central Bank Gov hoped Fed would begin tapering sooner rather than later but must be aware of unintended consequences. Liquidityfrom Fed’s QE3 program was impacting emerging markets. UAE would encourage ECB to take moderate decisions and added there was no question that Euro was ‘here to stay’. He also noted that was not sure if Japan’s actions would end deflation. On oil he expected prices on oil to fall a bit more but not much
– EU’s Ashston: Hope to see progress with Iran on nuclear talks
Currencies/Fixed Income:
– The USD continued to be supported by rising yields and widening interest rate differentials, overseas repatriation flows and unwinding of carry-related trades. Markets continued to be characterized by sharp sell-off in almost every asset class.
– Risk aversion sentiment remained high due to continued concerns over China’s cash crunch. Although China short-term lending rates were moving lower they did remain well above the levels seen just a few weeks ago and the damage on the speculative property sector would be lasting. Moody’s also noted the credit crunch in the region would be felt by small and medium-sized banks.
-The USD/JPY moved higher in Asia after Japan ruling LDP swept Tokyo assembly election over the weekend (as expected). Results indicate strong momentum ahead of the House of Councilors (upper house) election in July; Tokyo election seen as a preview to the upper house elections.
– Emerging market currencies remained vulnerable given the atmosphere. India Central Bank (RBI) said to be intervening in FX via forward markets ahead of the pivotal 60- level
– European yields continued to move higher/ The Spanish 10-year gov’t yield tested the 5.00% first time since early April while the German 10-year Bund yield moved above1.80% level for its highest level in over two years
-Political/In the Papers:
– China’s Central bank (PBoC) sees banking system liquidity at reasonable levels. It believed big banks should help PBoC to stabilize market saying banks should effectively control risks of maturity mismatch and control liquidity risk from credit expansion. Over the weekend, the PBoC additional commented that China institutions should arrange reasonable asset and debt scale, focused on activating existing money and credit to support real economic growth and avoid deposit “red point” to maintain steady and moderate growth.
– Eurogroup moves closer to banking deal: EU’s Barnier noted that it will be difficult to reconcile differences on bail-ins but is confident an agreement can be reached in the days ahead on a banking deal. Several Fin Mins commented on the meetings. France’s Fin Min Moscovici believes we are 90% of the way toward an agreement on bank bail in rules and should have a deal next week, while German Fin Min Schaeuble said bank bailout rules need to be consistent in all 27 EU nations and that bail-in rules should be stricter in Euro Zone nations because of their shared risk.
– Bank of International Settlements (BIS) annual report noted that efforts by the world’s “overburdened” central banks to stabilize financial markets had allowed governments to delay necessary overhauls to their economies and banking systems
– (DE) German govt reportedly to boost 2013 federal net borrowing to €25.1B from €17.1B prior target due to costs of flood aid; to reach budget surplus in 2015
-(IT) Tens of thousands of protesters marched in Rome demanding more job creation measures from the govt
– (UK) Fin Min Osborne: Economy would stagnate if plans to reduce budget deficit and slow rise in govt debt was abandoned – BBC interview
-(UK) China, UK launch CNY200B/£20B currency swap agreement – Kyodo News
-(US) Fed is said to not be surprised by market reaction to the FOMC statement and Bernanke’s speech on Wednesday, June 19th – financial press; Fed said to warn that a lasting decline in stocks, rise in yields could be harmful to the economic outlook, which could in turn delay the taper.
– (US) Quarter-end market conditions could have impact on US Treasury yields – FT
**Looking Ahead***
All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)
– (IT) Italy former PM Berlusconi faces verdict on Prostitution with a Minor Trial
– (EU) European Financial Congress in Poland
– (BR) Brazil Treasury May Federal Debt Data
– 06:00 (IL) Israel to sell Bonds
– 06:00 (TR) Turkey to sell 2018 and 2023 bonds
– 06:00 (DE) German Chancellor Merkel, Seehofer present CDU-CSU Election Manifesto
– 06:00 (BE) Belgium Debt Agency to sell between €1.8-2.8B in 2018, 2019, 2023 and 2026 OLO bonds
– 06:30 (US) Daily Libor Fixing
– 07:00 (BR) Brazil Jun FGV Consumer Confidence: No est v 113.4 prior
– 07:30 (BR) Brazil Central Bank Weekly Economists Survey
– 07:30 (TR) Turkey Jun Industrial Confidence: No est v 112.5 prior; Capacity Utilization: No est v 74.8% prior
– 08:30 (US) May Chicago Fed National Activity Index: -0.15e v -0.53 prior
– 08:50 (FR) France Debt Agency (AFT) to sell €7.6B in 3-month, 6-month, and 12-month bills
– 09:00 (BE) Belgium Jun Business Confidence: -11.9e v -12.4 prior
– 09:00 (MX) Mexico May Unemployment Rate: 4.9%e v 5.0% prior
– 09:30 (EU) ECB announces settlements for next 7-day Term Deposit Tender to offset govt bond purchases to offset bond purchases under SMP program
– 09:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender
– 10:30 (DK) Denmark Nationalbank Gov Rohde speaks at OMFIF Roundtable
– 10:30 (IL) Israel Central Bank Interest Rate Decision: Expected to leave Base Rate unchanged at 1.25%
– 10:30 (US) Jun Dallas Fed Manufacturing Activity: -1.0e v -10.5 prior
– 11:00 (US) Fed to purchase $3.00-3.75B in Notes
– 11:30 (US) Treasury to sell $55B in 3-Month and 6-Month Bills
– 12:00 (EU) EU and Ukraine Foreign Ministers meet in Luxembourg
– 12:30 (UK) Fed’s Fisher speaks in London
– 15:00 (AR) Argentina May Industrial Production M/M: No est v 0.1% prior; Y/Y: 3.9%e v 1.7% prior
– 15:00 (AR) Argentina Q1 Quarterly GDP: 1.9%e v 2.1% prior; Current Account: +$2.0Be v -$1.0B prior
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