RANsquawk's  Instablog

1. Italy sells their on-the-run Mar'15 BTPs at the highest yield since December last year, but were overbid by EUR 0.20.

1. Some platforms register Spanish 10-yr government bond yields at 7%.

1. SNB says it is essential that Credit Suisse boost capital this year.

1. RANsquawk European Morning Briefing Video: http://youtu.be/s25YT8oZlXI

Market Re-Cap

The continued rise in Spanish and Italian borrowing costs remain the dominant theme as Spanish 10yr yields approached the psychological 7% level this morning following the Moody's downgrade of the Spanish sovereign to one notch from junk last night. Focus for bond traders was firmly on the Italian debt auctions in early trade but the Tesoro managed to sell the full EUR 4.5bln across three lines as intended albeit with the highest yields seen since around the end of last year. The equity market has had to deal with its fair share of market moving news with Nokia issuing another profit warning pre-market and Credit Suisse shares coming under heavy selling pressure following commentary from the SNB that the Swiss banks need a further capital cushion.

Taking a look at the short end of the UK curve, the sterling strip has risen 4-5 ticks as market participants keenly await the mansion house speech at 1900BST this evening. The FT wrote this morning that the Chancellor and BoE are poised to announce a new strategy to ease credit conditions and offer more liquidity to the baking system. Elsewhere, as we approach the Greek elections this Sunday, Greek banks have shot higher by 20% on speculation that the pro-bailout parties are likely to win control. However, analysts continue to stress that the outcome is still very uncertain and over the next few days we will be keeping a close eye out on any source comments that may be forthcoming.

Looking ahead, the US CPI report for May is the highlight and we will wrap up the weekly issuance from the US treasury with USD 13bln in the 30yr note at 1800BST. In terms of speakers, ECB's Weidmann, a leaning hawk, is due at 1430BST and after the Italian auctions this morning worth noting the PM Mario Monti speaks at 1500BST alongside the newly appointed French President Francois Hollande.

Asian Headlines

Japanese Industrial Production (Apr F) M/M -0.2% (Prev. 0.2%)

Japanese Industrial Production (Apr F) Y/Y 12.9% (Prev. 13.4%) (Newswires)

A Chinese state researcher has said CPI is likely to fall to around 2% in the second half of this year. The spokesman commented that there is no need for aggressive consumption stimulus. (Newswires)

Deutsche Bank has cut its Chinese GDP forecast for this year by a further 0.3% to 7.9%, and 2013 by 0.2% to 8.4% on a weaker external demand outlook. (Newswires)

An NDRC official has been quoted as saying that interest rates could be cut two more times in the 2H of this year and by as much as 50bps. (Newswires)

US Headlines

US Treasury Secretary Geithner has said the US economy is still seen growing at 2-3%, and the US must now put in place policies now to encourage growth. Geithner added that the best defense against uncertain risks is to ensure greater banking capital. (Newswires)

RealtyTrac data has shown that foreclosure filings increased by 9% from April but still down 4% on a year earlier. The report also shows that one in every 639 US housing units had a foreclosure filing within May. The state of Georgia recorded the highest level of foreclosure, closely followed by Arizona, Florida, California and Nevada. (Newswires)

EU & UK Headlines

Moody's downgraded Spain to 'Baa3 from A3; on review for further downgrade. (Newswires) Moody's said they may cut Spain's rating to Junk and a further rating review is to be completed within the next three months. Moody's have also downgraded Cypriot government bond ratings by two notches to Ba3 from Ba1; on review for a further downgrade.

Senior government officials in Germany have cautioned anew against expectations in the financial markets - and the capitals of its eurozone partners - at the introduction of radical new measures to defuse the crisis in the eurozone in coming days or weeks. (FT-More)

Independent auditors examining Spain's banking system set capital needs of lenders at about EUR 60bln, citing a preliminary report. The report is to be released on Monday, in time for the G20 summit. (ABC News)

Italian yields on their on-the-run BTPs sold with the highest yield since December last year at an earlier debt auction.

On-the-run:

-Italy sells EUR 3bln Mar'15 BTPs, bid/cover 1.592, Prev. 1.52 (yield 5.30%, Prev. 3.910%) - Highest yield since December 2011

Government government and opposition agree that the Bundesbank lower house of parliament to vote on the ESM, fiscal pact on June 28th, according to a coalition source. (Newswires)

The UK chancellor and Bank of England are poised to announce a new strategy to ease credit conditions in the British economy and offer more liquidity to the banking system, perhaps as early as the annual Mansion House dinner today. (FT-More)

Equities

European equities have been observed lower throughout most of the session, with the Spanish IBEX and the Italian FTSE-MIB inching into the green at the North American crossover. European equities opened lower following last night's ratings action on Spain from Moody's, and saw a period of strong selling after the Swiss National Bank said it is essential for Credit Suisse to boost capital, prompting risk aversion across many asset classes. US stock futures currently indicate a modestly higher open on Wall Street.

In individual equities news, Swiss financials are seen underperforming strongly, following comments from the SNB, saying that it is essential for Credit Suisse to boost capital this year. Following the reports, Credit Suisse sold off heavily, with similar moves observed across the sector, as investors saw the comments as pessimistic towards the bank. Credit Suisse remain trading just above their lows, currently down around 9%, but related banks such as UBS have somewhat pared the losses, however are still in negative territory.

FX

EUR/USD trades marginally above the open after a volatile morning in Europe. The pair saw some swift selling as the Swiss National Bank stirred risk-aversion with their comments on Credit Suisse. the pair has somewhat reclaimed ground into positive territory and now trades just below a touted option expiry for the 10am NY cut at the 1.2600 handle. To the downside, a touted option expiry also lies at the 1.2550 level.

With the USD index flat on the session, AUD/USD has seen some modest strength and now trades higher over the open, in very close proximity to a touted option expiry at the 0.9950 mark.

Ahead of BRL trading, the Brazilian government have reduced the maturity of foreign loans that are subject to so-called IOF tax as the BRL weakens amid mounting concern that global growth will falter.

Commodities

WTI and Brent crude futures are seen in minor negative territory ahead of the NYMEX pit open after spending the first few hours of the European session in the green, but selling off in line with European equities, as risk-aversion becomes the prominent theme once more. EIA Natural Gas Storage Change data is due later in the session at 1530BST, currently expected to show a build of 75BCF.

Oil & Gas News:

1. Saudi Arabia and Iran have reached a consensus to keep the output ceiling unchanged according to sources.
2. Venezuela have passed Saudi Arabia as the world's largest holder of proven oil reserves, currently at 265.5bln bbls.
3. The rise of US shale oil, along with other sources such as Canadian tar sands, is raising the prospect that OPEC's share of the global market for crude, and hence its influence over price, could be undermined.
4. Iraqi crude oil production is expected to hit 3.4MBPD by the end of this year, from 3MBPD currently, according to a senior government official.
5. The UAE is planning to increase production by 200,000BPD by the end of this year, according to the country's oil minister.
6. The Mayor of Japanese town Oi has OKed the restart of local nuclear reactors.
7. Chevron's ex-CEO believes the US will be importing oil for at least the next two decades despite a recent surge in domestic production from newly developed shale basins.
8. The Bank of China, one of the largest Chinese banks, has started an oil products trading desk in Singapore, according to industry sources.
9. World oil stores jumped 8.3% last year as exploration rose and record crude prices made marginal products commercially viable, according to BP.

Geopolitical News:

1. Japan is pressing the EU to loosen pending sanctions that would prohibit European firms from insuring Japan's imports of Iranian oil, according to people familiar with the matter.