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  1. Spain's borrowing costs sharply increase at their 3- and 6-month T-bill auction.


  1. BoE's King says the MPC have not rejected cutting the base rate but does add that the case against further cuts does still apply.


  1. Moody's downgrades 28 Spanish banks by 1-4 notches.


  1. RANsquawk European Morning Briefing Video:

Market Re-Cap

Volatility has been observed across the asset classes this morning, with European equities looking roughly flat at the midpoint of the European session after seeing some choppy trade. From the open, Moody's ratings action on Spanish banks late last night has weighed upon peripheral financials, with Spanish banks making up a bulk of the top losers today and their Italian counterparts slipping in and out of trade due to volatility. One catalyst for price action has been the Spanish treasury selling 3- and 6-month securities, with sharply higher yields on both lines, confirming that sentiment towards the country has not eased. The steep incline in borrowing costs was followed by weakness in both the EUR and European equities, however, as the session progressed and volumes picked up, somewhat of a recovery has been observed across the asset classes. EUR/USD has pared most of its losses along with European stocks at the North-American crossover.

For UK-related asset classes another flashpoint of activity has been members of the MPC presenting in front of the UK Treasury Select Committee. A particular comment of note from the governor King drew attention, saying that the BoE have not rejected cutting the bank's base rate. The remark prompted a spell of weakness in the GBP currency, somewhat stemmed by additional comments from King, saying that the case against a cut continues to apply. Although there was a distinct move lower, GBP/USD is seen outperforming its European counterpart and is in positive territory on the day.

Looking ahead in the session, key US data is expected in the form of consumer confidence at 1500BST/0900CDT and the S&P/Case-Shiller housing data may also draw focus, due on the wires at 1400BST/0800CDT.

Asian Headlines

According to a BoJ official, Japan's long-term interest rates are very low because markets believe fiscal reform will make progress, but any backtracking could heighten chances of spikes in bond yields. (Newswires)

China should cut its benchmark interest rates again given slower-than-expected economic growth and declining inflationary pressure, according to state-run press. (Economic Information Daily)

US Headlines

BarCap preliminary US Treasury month-end extension seen +0.02yrs

EU & UK Headlines

The EU would gain far-reaching powers to rewrite national budgets for Eurozone countries that breach debt and deficit rules under proposals likely to be discussed at a summit this week, according to draft reports. (FT-More) The proposals are part of an ambitious plan to turn the Eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union.

Moody's have downgraded 28 Spanish banks by 1-4 notches. (Newswires) Moody's have said they view positively the Spanish government's efforts to stabilize the banking system.

Spanish T-Bill Auction Results
-Spain sells EUR 1.6bln 3-month T-bills, bid/cover 2.60, prev. 3.95 (yield 2.362%, prev. 0.846%)
-Spain sells EUR 1.48bln 6-month T-bills, bid/cover 2.80, prev. 4.30 (yield 3.237%, prev. 1.737%)
In the 10 minutes following the auction results, EUR/USD moved to session lows of 1.2485, coinciding with lows printed across the European equity futures, with the Spanish 10-yr government bond yield moving to the upside to 6.7%.

Italian Auction Results
-Italy sells EUR 2.991bln zero coupon May'14 CTZs, bid/cover 1.652, prev. 1.66 (yield 4.712%, prev. 4.037%) - Highest yield since December
-Italy sells EUR 626mln 2.10% Sep'16 BTPei Linkers, bid/cover 2.217, prev. 2.29 (yield 5.20%, prev. 4.390%)
-Italy sells EUR 290mln 3.10% Sep'26 BTPei Linkers, bid/cover 2.431 (yield 5.29%)

UK related asset classes saw a brief spell of volatility following comments by various MPC members attending the Treasury Select Committee. Even though BoE's King initially said that the MPC have not rejected cut to bank rate, he was quick to note that case against cutting rates further still applies. This was also echoed by Miles who said that he doubts about whether a rate cut would do any good. On the subject of further asset purchases, the governor added that bond purchases can provide much larger stimulus. (Newswires)

BarCap preliminary Pan Euro Agg month-end extension seen +0.08yrs


European equities are seen roughly unchanged after experiencing a volatile European morning. The Utilities and Basic Materials sector are seen as the best performers so far, with Industrials and Technology the primary laggards. Financials trade relatively unchanged although a number of the top losers are Spanish and Italian banks.

In individual equity news, Glencore and Xstrata are seen sharply higher after the news that the companies may reconsider executive pay in their merger, which has been one of the more controversial topics throughout their dealings. Following the news, Xstrata shares moved 0.6% to the upside immediately and 2.0% over the next 2 minutes, with Glencore shares also moving 2.0% to the upside across the same period.

CAC-listed Vivendi are seen underperforming their respective sector and index following the news that a New York jury has told the company to pay damages of EUR 765mln to Liberty Media in a case dating back to a USD 10.3bln deal between the companies struck over a decade ago (FT-More). At the mid-point of the session today, Vivendi shares trade lower by 1.3%.


FX markets have had a mixed trading session so far in Europe with no real direction being established heading into the North American open. EUR/USD at the time of writing trades flat on the day after having traded in a relatively tight range for the pair, as attention still remains focused on the EU summit in the latter part of the week. One eye was kept upon the Spanish and Italian fixed income issuances which unsurprisingly drew higher yields but given that these were T-Bills and bond-linkers being auctioned, the reaction was quickly pared.

GBP has been one of the better performers with GBP/USD moving firmly above 1.5600 and the EUR/GBP cross trading around intraday lows. This is despite a general dovish tone emanating from the BoE top brass in their comments in front of the treasury select committee as Middle Eastern bids in GBP/USD are said to have underpinned the move to the upside. This has also been in conjunction with a US name said to be on the offer in EUR/GBP, therefore providing an extra lift to GBP.

Elsewhere, AUD/USD trades close to a touted option expiry at 1.0050 for the NY cut, but bear in mind there is also another touted expiry at parity (1.0000) which could determine price movement. After yesterday's strong strengthening of the JPY there is a slight continuation of this trend in today as the EUR/JPY cross briefly broke 99.00 to the downside. In the major USD/JPY pair we also trade lower given that the USD-index is also in negative territory for the day so far.


WTI and Brent crude futures have been trading with volatility throughout the European session, echoing the moves in European equities. WTI trades relatively unchanged, with Brent seeing around USD 0.50 gains so far today. Energy participants can look forward to the weekly API inventory figures after the NYMEX pit close today.

Oil & Gas News:


  1. National Iranian Oil Company head Ghalebani has said Iranian oil exports may fall 20-30% gradually after the sanctions take place, adding that China, India and South Africa will require Iranian energy resources.
  2. Iraqi crude output in June rose to a 20 year high of 3.07MBPD, according to a spokesman for the energy minister.
  3. Credit Suisse have said oil and natural gas prices are to recover from their declines, adding that oil demand is positive, and output capacity is falling.
  4. Norway has formally launched its keenly awaited 22nd licensing round with 86 blocks up for grabs, including 72 in the prospective Barents Sea that are likely to generate strong bidding interest.

Geopolitical News:


  1. Israel fears that the victory of Islamist Morsi in Egypt is likely to erode the already delicate ties between the two countries, testing one of the Middle East's most important strategic links. Most Israeli officials expect the Muslim Brotherhood to uphold a promise to preserve the 33-yr old Egypt-Israel treaty, but many analysts expect the relationship to cool.
  2. South Korea has become the first major Asian consumer of Iranian crude to announce a halt to imports after the government said they would be suspended from July 1st due to the EU bans on insurance for tankers carrying Iranian crude.
  3. Iranian tanker company NITC has delayed the expansion of its oil tanker fleet, as Western sanctions and a weak freight market hurt the company's ability to turn a profit, according to industry sources.
  4. Turkish PM Erdogan has said the Turkish armed forces have changed their rules of engagement in response to the recent downing of a reconnaissance jet by Syria. Erdogan has said every violation on the Syrian border will be responded to.
  5. NATO's Rasmussen has said the shooting of the Turkish jet was unacceptable, adding that NATO stands together with Turkey in a spirit of solidarity.

Silver July options expiry (1825BST/1225CDT)
Gold July options expiry (1830BST/1230CDT)
Heating Oil/RBOB/Nat Gas July options expiry (1930BST/1330CDT)