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  1. Spanish 10-yr government bond yield sees steep decline following smooth Spanish T-bill auction, but does remain above the 7.00% handle.


  1. Spanish Banks' audit delayed until September in order to gather further information, according to the Bank of Spain.


  1. UK CPI declines across May, fuelling further speculation of BoE QE in July.


  1. RANsquawk European Morning Briefing Video:

Market Re-Cap

After a volatile morning's trade, European equities are making gains. Having progressed through the session, markets saw a distinct period of volatility wherein peripheral 10-yr government bond yield spreads tightened markedly with their German counterpart, with the Spanish 10-yr yield making a test, but stopping short of a break below the 7.00% handle. The moves came in the wake of a relatively smooth Spanish T-Bill auction, which saw decent bid/cover ratios albeit with markedly higher yields on their 12- and 18-month lines. A modest relief rally was also observed when markets received confirmation that a recent ruling from the top German court regarding information on the ESM's configuration does not bar the fund from coming into action and taking effect.

In terms of data, markets have shrugged off a particularly poor ZEW survey from Germany, however a substantial weakening was observed in GBP following the release of the first deflationary May reading of CPI since records began. The pullback in cost-push inflation has given markets further reason to believe the BoE may conduct additional QE, as the price-level pressures have eased across the past two months.

Looking ahead to the rest of the session, US Housing Starts and Building Permits are due for release, as well as the first announcement from the BoE concerning its new ECTR program.

Global Headlines

Several key emerging markets have detailed their plans to boost their IMF contributions by more than USD 90bln, pushing the total commitments up to USD 456bln. (Newswires) China has pledged USD 43bln, with India, Russia, Brazil and Mexico contributing around USD 10bln each.

BoJ's Shirakawa has said central banks are working closely together to ensure they are ready to provide ample liquidity in case it is needed to protect their countries' financial systems. Shirakawa said central banks exchange information and keep in close contact on a regular basis. (Newswires)

Asian Headlines

A growing number of Chinese households believe that prices will rise in the third quarter of this year, and more bankers believe that monetary policy will be loosened in the country, according to the latest polls conducted by the PBOC. (Newswires)

US Headlines

The Fed is wrestling with how impaired personal credit records are weighing on consumers access to lending, weighing on the consumer recovery. (WSJ)

According to a draft G20 communique, the US have committed to reducing their debt. (Newswires)

EU & UK Headlines

New Democracy, PASOK and the Democratic Left are poised to agree on the formation of a coalition government after holding 'constructive' talks yesterday. (ekathimerini) Greece is expected to request a third international bailout agreement as soon as a new government is formed, increasing pressure on Germany and Brussels to commit further to the Eurozone. (Telegraph)

Spanish PM Rajoy is aiming to win an agreement with Germany, France and Italy for the ECB to fund his government at a meeting on June 22nd. (El Economista) Spain is to seek a credit line from the ECB for the central bank to purchase government debt to lower yields.

The Bank of Spain has announced that Spain is delaying full bank audit reports until September, and the delay has been agreed with the ECB, IMF and the Spanish government. The Spanish central bank placed the reason for the delay on the need to gather more information. (Newswires) Following the news, Bunds moved higher by around 10 ticks, and the Spanish 10-yr yield rose to 7.16%. The moves, however, were not long-lasting as a smooth Spanish 12- and 18-month T-Bill auction came in with decent bid/cover ratios albeit with significantly higher yields.

-Spain sells EUR 2.40bln 12-month T-Bill, bid/cover 2.20 , Prev. 1.84 (yield 5.074%, Prev. 2.985%)

-Spain sells EUR 0.64bln 18-month T-Bill, bid/cover 4.40 , Prev. 3.23 (yield 5.107%, Prev. 3.302%) (Newswires)

UK inflation data came in below expectations, adding fuel to the fire of speculation over another wave of QE from the BoE as inflationary fears recede. Gilt futures moved higher by around 20 ticks and GBP/USD weakened markedly, falling 21pips immediately after the release.

UK CPI (May) Y/Y 2.8% vs. Exp. 3.0% (Prev. 3.0%)
-UK CPI (May) M/M -0.1% vs. Exp. 0.1% (Prev. 0.6%), first monthly fall in May CPI since records began in 1996
-UK Core CPI (May) Y/Y 2.2% vs. Exp. 2.3% (Prev. 2.1%)
ONS says largest contributions to fall in CPI rate come from food and fuel; main upward pressure from airfares. (Newswires)

German ZEW Survey (Economic Sentiment) (Jun) M/M -16.9 vs. Exp. 2.3 (Prev. 10.8)

German ZEW Survey (Current Situation) (Jun) M/M 33.2 vs. Exp. 39.0 (Prev. 44.1) (Newswires)


European equity markets are trading in the green across the board, with outperformance noted in the telecommunications and technology sectors, and the consumer goods sector the only laggard of the day. Underperformance is noted in the French CAC-40 as Les Echos reports that France is planning a 3% tax on investor dividends to take place this summer. US stock futures are currently indicating a higher open on Wall Street, in line with their European counterparts.

In individual stocks news, Danone are performing particularly poorly after having cut its company profitability forecast as Spanish consumers switch to less expensive products and raw-material costs rise. The company expects its operating margin to decline by 0.5 percentage points on a like-for-like basis. The company's share price has declined at the fastest rate in three years, currently seen lower by over 7.5%.

One of the outperforming stocks in Europe is UK-listed ARM Holdings, who are benefiting from announcements made by Microsoft that their technology is to be used in a version of Microsoft's new tablet computer 'Surface'. After a morning's trade, ARM Holdings shares are seen higher by around 3.5%.


EUR has benefited from the declines in the Spanish 10-yr government bond yield, as risk sentiment is soothed by a solid Spanish auction. EUR/USD also took a move to the upside amid unconfirmed market talk of Middle-Eastern names on the bid in the pair, assisting the incline above the 1.2600 level. The pair shrugged off a poor German ZEW survey and is seen higher by around 50pips ahead of the US open, just below today's pivot level.

GBP/USD saw distinct weakness following the below-forecast CPI readings, providing the BoE with room to act upon further QE purchases. GBP/USD now trades relatively unchanged, in close proximity to a touted option expiry at the 1.5680 level.


Heading into the North American open, WTI crude futures are trading lower as pressure from the broad Eurozone debt crisis and fading expectations for coordinated central action erased gains in the oil market.

Oil & Gas News:


  1. Enbridge Inc, Canada's No. 2 pipeline company, expects to complete an expansion of its newly reversed oil pipeline to Texas refineries by the end of this year, the company's incoming chief executive said on Monday.
  2. The Group of 20 industrialized and developing economies will be vigilant on the movement of oil prices and take additional measures as needed, according to a draft communiqué at a G20 leaders summit in Mexico.
  3. State-run PTT Exploration & Production (PTTEP) has ramped up production at the Greater Bongkot South field in the Gulf of Thailand after completing a test run of the field's processing facility.
  4. Russia's Gazprom is set to wind up the consortium created to operate the giant Shtokman gas field in the Barents Sea and is preparing to sign a deal to bring onboard Shell as a partner in the project, according to reports.

Geopolitical News:


  1. Iran engaged in intense and tough exchanges with the US and other world powers as a third round of negotiations began yesterday amid fears a peaceful resolution to the stand-off over Tehran's nuclear ambitions will prove elusive. Senior diplomats from Iran and the P5+1 group are due to meet once again today.
  2. The United States is planning a significant military presence of 13,500 troops in Kuwait to give it the flexibility to respond to sudden conflicts in the region as Iraq adjusts to the withdrawal of American combat forces and the world nervously eyes Iran, according to a congressional report.
  3. Syrian Homs-Damascus oil products pipeline bombed, according to SANA.