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  1. Spain formally requests EU aid for its banking system; EU's Juncker says conditions of aid to Spain will include restructuring plans.


  1. German finance minister Schaeuble sticks to hardline on Greece in response to calls from Greece to extend their austerity deadlines.


  1. Risk-aversion pushes German 10yr yields below 1.5%, coinciding with Spanish 10yr yields breaking back above 6.5%.


  1. RANsquawk European Morning Briefing Video:

Market Re-Cap

Stocks in Europe are seen lower as market participants look forward to the EU Summit this week which according to latest reports will likely underpin the rift between the core and peripheral Eurozone. Weekend reports have shown German representatives sticking to their hardline, and looking likely to restate Greece's targets in spite of an appeal for a deadline extension from the new Greek coalition.

Separately, distinct underperformance is observed by Italian bonds ahead of this week's supply, with Italian 2s wider by around 42bps and 10s 18bps against the German equivalent. As such, German Bund futures are seen making strong gains, with the 10-yr German yields moving below the 1.5% mark coinciding with the Spanish counterpart breaking above 6.5%.

Alongside expectations, the Spanish government have filed their formal request for aid for their ailing banking system, with a memorandum of understanding to be reached by July 9th, however no distinct figures have been mentioned as yet. Elsewhere, Fitch have taken downgrade action on the Cypriot sovereign debt rating, bringing their classification down to junk status, in-line with the pre-existing ratings of S&P and Moody's.

Looking ahead in the session, data remains light, with New Home Sales expected from the US at 1500BST/0900CDT.

Asian Headlines

The PBOC may cut the RRR for banks 'soon' and use reverse repurchase agreements to alleviate a possible capital shortage in July to improve liquidity and stimulate lending, according to unidentified market sources and analysts. (China Securities Journal)

Credit Agricole sees China cutting RRR by 250bps total in 2012. (Newswires)

US Headlines

Cash-strapped US states will see the reported shortfalls in their public pension funds grow sharply under new accounting standards likely to be approved today that could add up to USD 600bln to official estimates of the holes in states' pension funds. (FT-More)

EU & UK Headlines

An EU blueprint for the future of the euro is to call for member states to surrender powers to run their banks, give up some control over national budgets and explore pooling the risk of underwriting deposits and raising debt, according to the latest draft of the proposal. (FT-More) While the 10-page draft lays out a detailed path to banking union, options for "eurobonds", and the possibility of the EU's permanent bailout fund directly buying stakes in banks, disagreements remain over elements such as the single bank supervisor's remit and central controls over national budgets.

ECB's Nowotny has said the fiscal pact will make Europe more stable, but has warned that long-term plans for Europe cannot be solved in a two-day summit. (Newswires) German Chancellor Merkel and French President Hollande are to meet on Wednesday in order to prepare for the summit.

Greece wants an extension of the bailout timeline to at least 2016, and Greece remains committed to financial targets of the loan agreement according to a PM advisor. (Newswires/Oesterreich/Bild) The Greek coalition are to seek no further wage and pension cuts, with plans for a stable tax system for the next 10 years. In response, the Austrian finance minister has said an extension to the austerity program is 'negotiable'. Meanwhile, the German finance minister has said Greece should press on with its economic reforms instead of asking for more help.

Due to the New Greek PM Samaras' hospital visit, the Troika have postponed their visit to Athens, originally scheduled for today. (Newswires/ekathimerini)

The German government has reached an agreement with representatives of the country's 16 states to ratify the European fiscal treaty and permanent bailout fund, clearing the way for legislative approval later this week. (Newswires) The German government is to issue joint federal-state debt, with the program beginning in 2013. (Newswires)

Fitch downgrades Cyprus to BB+, outlook negative. (Newswires)

Spain have formally applied for EU aid to recapitalize its ailing banking system. No distinct numbers have been mentioned as yet, and a memorandum of understanding is expected by the July 9th deadline. (Newswires) The EU have welcomed the request, and EU's Juncker has said conditions of aid to Spain will include restructuring plans. This comment saw a move lower in equity space, coinciding with a downwards movement in EUR/USD, to session lows of 1.2471.

Moody's plans to downgrade Spanish banks by 2-3 notches at approximately 2200BST according to unidentified Spanish bank executives cited in Spanish press. (Expansion)

BoE's Miles said that another GBP 50bln of QE is needed as it is the only way to kick start the economy. (FT-More)


With the risk averse sentiment, European equities are seen lower across the board, with underperformance notable in the Italian and Spanish equity space, both lower by around 2.5%. Utilities and Financials are seen as the primary laggards, with all sectors currently in the red. US stock futures are reflecting the moves in their European counterparts, indicating a lower open on Wall Street today.

In individual equity news, CAC-listed EADS are outperforming their respective index, following weekend reports that the new Chief of the company has said he is ready to bet that their new A350 wide-body model will not suffer from the same delays and setbacks that their primary rival Boeing suffered with their 787 Dreamliner. The Chief's optimism has buoyed the stock throughout the morning, currently higher by around 2%. (FT-More)

FTSE-listed Shire are seen taking heavy losses following premarket reports that their second most successful drug has had a generic version approved by the US FDA. Following the news, Shire shares are seen lower by around 13%.


Risk aversion is the theme of the day in FX space, with the USD index touching 2-week highs in the early hours of the European session, preceded by moves lower in both the EUR and GBP concurring with moves lower in European equities. As such, EUR/USD is seen markedly weaker as participants eye the upcoming EU summit with caution. The pair has printed lows of 1.2471, and is very modestly above that mark in recent trade. The pair now sits between two touted option expiries at the 1.2500 and 1.2450 mark for the 10am NY cut (1500BST).

With commodities observed lower on the day, the commodity-linked currencies are seen weaker, with AUD/USD moving below parity halfway through the European morning, with an option expiry touted at the 0.9965 level for the 10am NY cut (1500BST).


WTI and Brent crude futures failed to benefit from reports that a tropical storm shut nearly a quarter of US offshore crude and gas output and instead trended lower as market participants looked forward to the latest EU Summit which according to latest reports will likely underpin the rift between the core and peripheral Eurozone.

Oil & News:


  1. South Korea's imports of Iranian crude oil fell nearly 40% in May from a year earlier, reflecting Seoul's efforts to reduce purchases in return for a waiver from US sanctions targeting Iran's controversial nuclear programme.

Geopolitical News:


  1. Mursi, of the Egyptian Muslim Brotherhood, has been declared the winner in the country's presidential election. Egypt's first Islamist president said in an interview with Iran's Fars news that he was interested in better relations with Tehran in order to create a strategic 'balance' in the region.
  2. Israel and the US will hold their largest ever joint military exercise in October, featuring thousands of soldiers and advanced anti-missile defense systems, simulating simultaneous fire from Iran and Syria, Maariv reported Monday morning.
  3. The Iranian oil minister has said EU sanctions on it's exports will not affect the country's oil industry.
  4. Turkey has raised the stakes in a confrontation over a military jet shot down by Syria on Friday, saying the plane was over international waters when the incident took place.