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  1. Moody's downgrades 15 global banks; alongside expectations.


  1. The ECB will announce a decision today to lower the rating on the collateral it accepts from Spanish banks to BBB- from A- according to sources.


  1. Focus on Rome, as German Chancellor Merkel, French President Hollande, Spanish PM Rajoy and Italian PM Monti are due to meet.


  1. RANsquawk European Morning Briefing Video:

Market Re-Cap

European equities are seen lower at the North-American crossover, with the exception of the peripheral Spanish and Italian indices, which are holding onto gains at the midpoint today. The Oil & Gas and Basic Materials sectors have carried across losses from yesterday's session, and continue to be the worst performers for the second day in a row. Financials have shrugged off last night's news from Moody's, who have downgraded 15 global banks, as the moves were very much alongside expectations. Sentiment towards Spanish banks has soothed, with source comments last night suggesting that the ECB is to lower the rating on the collateral it accepts from Spanish banks to BBB- from A-. However, there has been no such official confirmation from the ECB as yet. As such, the top gainers in Europe today consists of peripheral banks, seen making sharp gains, with further buoyancy provided from last night's Spanish banking audit, which has shown the country's financials will not require as much capital as some had feared.

Data from Europe has been particularly light today, with the German IFO survey coming in roughly alongside expectations, proving to be un-reactive across the asset classes.

With no tier 1 data from the US expected in the session today, the focus is likely to remain on Europe, as the leaders of Germany, Spain, Italy and France are set to meet in Rome, alongside an ECOFIN conference in Brussels.

Global Headlines

Moody's downgraded 4 global financial firms by 1 level, 10 by 2 and 1 by 3, Moody's says all banks affected by these actions have significant exposure to volatility and risk of outsized losses inherent to capital markets activities. (Newswires)
One notch downgrades:
Bank of America (exp. cut 1 notch)
HSBC (exp. cut 2 notches)
Royal Bank of Scotland (exp. cut 1 notch)
Societe Generale (exp. cut 1 notch)

Two notch downgrades:
Barclays (exp. cut 2 notches)
Citigroup (exp. cut 2 notches)
Goldman Sachs (exp. cut 2 notches)
JP Morgan (exp. cut 2 notches)
Morgan Stanley (exp. cut 3 notches)
BNP Paribas (exp. cut 2 notches)
Credit Agricole (exp. cut 2 notches)
Deutsche Bank (exp. cut 2 notches)
Royal Bank of Canada (exp. cut 2 notches)
UBS (exp. cut 3 notches)

Three notch downgrades:
Credit Suisse (exp. cut 3 notches)

Asian Headlines

Japanese PM Noda has won the backing of the main opposition parties for a bill to double the sales tax. (WSJ)

Fitch have said the Chinese slowdown is not yet comparable with 2008 and is likely to lead to a much milder policy response than that enacted in 2009. (Newswires)

US Headlines

Traders have warned that the Fed's decision to extend Operation Twist will reduce liquidity in the short-term funding market that helps smooth trading of US government bonds. (FT-More) Traders argue that once Operation Twist ends, the Fed will hold few short-dated treasuries that mature through to January 2016 in its SOMA, restricting the ability to lend certain securities from SOMA that can help alleviate high demand for bonds in the repurchase market.

EU & UK Headlines

Germany's Bundesbank will oppose the ECB buying bonds of countries like Italy on the secondary markets on behalf of the EFSF and ESM according to the sources. (FT Deutschland) Under the plan proposed from Italian PM Monti, the bailout funds would insure parts of sovereign bonds against default risks to protect the ECB. According to the Bundesbank that would amount to state financing and would violate EU contracts.

The ECB will announce a decision today to lower the rating on the collateral it accepts from Spanish banks to BBB- from A- according to sources. (FT Deutschland) In related news, IMF's Lagarde has said the ECB has room for more creative monetary policy. (Newswires)

Italian PM Monti has said Italy has always made clear that it is not seeking a bailout. Monti added that the Italian situation is better than six months ago, but there is still more to do. (Sueddeutsche Zeitung) The Italian Treasury under-secretary said that Italy is missing its 2012 deficit target by EUR 4bln and needs to be compensated by more spending cuts. (Newswires) In a similar warning, Italy's planned VAT rise would be a catastrophe for the country according to Italy's biggest retail association.

German IFO - Business Climate (Jun) M/M 105.3 vs. Exp. 105.6 (Prev. 106.9)
German IFO - Current Assessment (Jun) M/M 113.9 vs. Exp. 112.0 (Prev. 113.3, Rev. 113.2)
German IFO - Expectations (Jun) M/M 97.3 vs. Exp. 99.8 (Prev. 100.9, Rev. 100.8)

German IFO says recent surge in Eurozone uncertainty is impacting the German economy; adds that manufacturing climate dropped sharply. The IFO does see a fall into recession, but does expect a dip in Q2 and Q3 this year. (Newswires)


Core European equities are seen lower in both the cash and the futures, with the Spanish and Italian bourses seen higher on the day, as sentiment towards the periphery has eased following source comments that the ECB may accept collateral from Spanish banks of a lower quality. Yesterday's disappointing HSBC Manufacturing PMI from China continues to weigh down on the natural resources sectors, with both the Oil & Gas and Basic Materials sectors dragging Europe down today, both seen lower by over 1.5% apiece.

US stock futures currently indicate a higher open in the Dow Jones and S&P 500, with a relatively unchanged open in the NASDAQ.

Spanish banks make up a significant portion of Europe's top performers today, as last night's Spanish banking audit came in with capital requirements far lower than some had feared. As such, Bankia, Banco Sabadell as well as Italian banks Banca Monte dei Paschi and Bankinter are seen higher by over 5% each.

Swiss healthcare stock Roche Holding are seen underperforming today, following overnight news that the company failed to inform regulators of reports of illness and death in as many as 80,000 US patients who received the company's medicines over the past 15 years. (FT-More) Roche shares currently underperform European healthcare stocks as well as the SMI, seen lower by around 0.7%.


Coming into the European session, USD/JPY was observed on a downward trajectory, with unconfirmed market talk of offers from Japanese corporate names assisting the way down from an Asian session high of 80.52. The pair now trades just below a touted option expiry at the 80.40 level for the 10am (1500BST) NY cut.

EUR/USD trades relatively unchanged, seen rangebound in the mid-1.25's throughout the European morning, with unconfirmed market talk of Asian sovereign names buying at 1.2520 assisting the pair at the lows.

GBP/USD is seen relatively unchanged on the session, after seeing some early strength amid unconfirmed market talk of Asian sovereigns buying the pair. GBP/USD has come off the session highs and now trades just below a touted option expiry at the 1.5600 handle for the 10am (1500BST) NY cut.


WTI and Brent crude futures have recovered off their recent multi-month lows, although the OPEC basket of crude fell below the USD 90.00/BBL for the first time since the beginning of 2011.

Oil & Gas News


  1. OPEC's basket of crudes fell below the USD 90.00/BBL mark for the first time in over 17 months. Morgan Stanley has said OPEC will probably cut crude output if the level remains below USD 90.00.
  2. Barclays have said investors should either sell oil or remain out of the market in the immediate future as prices may still fall further. Barclays added that natural gas consumption may increase and displace the use of coal this summer, as long as prices do not move significantly above the USD 2.50/MMBTU mark.
  3. A BP senior economist has said the global oil market is more balanced now than it was in 2011, but the short-term outlook mainly depends on OPEC production decisions.
  4. European refiners cut output in May, with around 25% of capacity offline, according to figures obtained by Euroilstock. Europe's daily refinery output was 0.9% lower than in April, and 3.1% lower than in May last year.
  5. The Texas electric grid is projecting record June demand over the next week, as temperatures are set to climb significantly across the state.

Geopolitical News


  1. Following a lack of progress over two days at the talks between Iran and the P5+1 group in Moscow, an EU official has said Iran and the world powers are very far apart from a resolution. The official said the talks are being downgraded to a technical level in order to determine whether there is a basis for a fourth round of high-level negotiations.
  2. An EU official has said the Iranian oil embargo is to start as planned on July 1st.

Market Closed China
Euro-Bund/Bobl/Schatz July options expiry (1615BST/1015CDT)
UST July options expiry (1900CDT/0100BST)