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  1. Cautious trade noted ahead of today's Non-farm payrolls report; asset classes remain relatively rangebound.


  1. German Industrial Production (May) M/M 1.6% vs. Exp. 0.2% (Prev. -2.2%, Rev. -2.1%)


  1. Spanish 10-yr yield breaks 7% to the upside, erasing all moves made following last week's EU summit.


  1. RANsquawk European Morning Briefing Video:

Market Re-Cap

European equities are showing no solace from yesterday's action from both Eastern and Western central banks, and are seen lower at the North American crossover. Risk-aversion is observed as the theme of trade so far today, with health care stocks making defensive gains ahead of the key Non-farm payrolls report due at 1330BST/0730CDT.

Newsflow this morning has been relatively light, with the only data point of note being German industrial production comfortably beating expectations, although analysts have noted that this uptick may be a rebound from the previous month's poor figure.

In the fixed income market, French, Dutch and Austrian bonds are seen outperforming ahead of next weeks redemption and coupon payment flows, with all respective 10-yr government bond yield spreads sharply tighter on the day against the German counterpart. This is contrasted with underperformance in the peripheral securities, with the Spanish yield breaking 7% to the upside this morning. Earlier market talk of a Spanish sovereign downgrade may have kept investors on their toes and cautious of the country's bonds.

Despite yesterday's rate cut from the ECB failing to boost risk appetite, the easing has been reflected in today's 3-month Euribor fix, recording a steep fall to 0.549% from 0.641% today.

Looking ahead in the session, price action looks to be limited ahead of the key jobs data from the US this afternoon, where a number of major institutions such as Goldman Sachs have revised up their estimates following yesterday's forecast-beating ADP data.

Asian Headlines

Japanese finance minister Azumi has said the Japanese government could run out of funds in October without a bond bill passage, and Japan would need to strictly curb government spending from September if the bond bill is not passed. (Newswires) Azumi reiterated that the government is prepared to respond appropriately to speculative FX moves.

Japanese PM Noda has said JPY strength is one-sided and does not reflect the economic fundamentals. (Newswires) IMF's Lagarde has said JPY strength and the effect of the European debt crisis on Japanese exports pose the greatest threat to the Japanese economy.

China's economic growth could slow to below 7.5% in Q2 if industrial production growth in June was at the same level as May's 9.6%, according to a government think tank economist. (Shanghai Securities Journal)
Chinese CPI is forecast to have risen 2.4% Y/Y in June from 3.0% Y/Y in May and to have risen 2.9% in Q2, according to an economist with the China Academy of Social Sciences.

The PBOC still needs to inject liquidity into the market so that banks can lower their lending rates, despite the rate cut, according to an economist with the State Information Center. (China Securities Journal)

Chinese industrial production growth likely bottomed out in Q2 of this year and is to improve at the end of Q3 and into Q4, according to two economists with the Ministry of the Industry and Information Technology. (China Securities Journal)

Global Headlines

According to WSJ analysis, analysts and investors have expressed doubt as to whether global easing is to help the economy as global central banks are now constrained by zero rates and unconventional tools. (WSJ)

US Headlines

According to WSJ analysis, the Fed could follow in the footsteps of other global central banks if today's jobs data is weak. (WSJ)

US Monster Employment Index rose to 153 in June from May's 147, up 4.8% Y/Y. (Newswires)

EU & UK Headlines

Germany's Economic Ministry wants the ESM to be part of the Europe-wide banking regulator, according to an internal ministry paper. (Frankfurter Allgemeine Zeitung) The ministry wishes to transfer operational supervision of banks to the ECB, but wants to entrust the ESM with tasks such as licensing, breaking up or restructuring banks. The report justifies the position as it would have the decisive advantage that sovereign regulation and financing would lie in the same hands.

Moody's have said last week's EU summit measures are to reduce the likelihood of shocks, but at a cost. (Newswires)

The Italian government have approved EUR 4.5bln in spending cuts for 2012 aimed at slashing the size of Italy's bloated public sector and delaying a new tax increase until after the first half of 2013. (Newswires)

Portugal's government has suffered a major setback as a national court rules it cannot apply wage cuts in 2013 and 2014 as the government had wished in order to reach deficit targets. (Newswires) The Portuguese PM has said he will look for new budget measures for 2013.

German Industrial Production (May) M/M 1.6% vs. Exp. 0.2% (Prev. -2.2%, Rev. -2.1%) (Newswires)
German Industrial Production NSA (May) Y/Y 0.0% vs. Exp. -1.2% (Prev. -0.7%, Rev. -0.6%)


European equities trade lower ahead of the key jobs release later today, with the price action appearing relatively muted as participants await 1330BST/0730CDT. Risk aversion is evident in financials making losses and health care seeing benefiting from defensive positions. DAX future did experience a minor uptick on the release of an expectation-beating industrial production figure, but failed to make any significant progress higher. US stock futures are seen moving in tandem with their European counterparts, indicating a lower open on Wall Street today.

In individual equities news, smaller French stock Arkema are seen making significant gains following the stock being highlighted on FT Alphaville. FT Alphaville highlighted that the company is reportedly subject to a number of bid approaches, following which the company saw strong buying, moving higher by over 12% in total following the headlines. Arkema is last seen trading higher by over 15%.

French carmaker Peugeot are seen heavily underperforming today following reports from French press that the company's H1 sales fell by 13% as demand for their vehicles slumped in the first six months of this year. (La Tribune) At the midpoint of the European session Peugeot shares are seen lower by 6%.


EUR/USD trades range-bound with quiet FX markets observed ahead of the non-farm payrolls report. The pair is seen marginally lower, carrying across yesterday's weakness from the ECB rate cut. Grinding higher in the Spanish 10-yr yield throughout the session has weighed upon on the pair also. Any significant upside may be capped amid unconfirmed market talk of offers at the 1.2400 mark, and to the downside, yesterday's low has held at the 1.2364 mark keeping the pair within a tight range throughout the European morning. Notably large option expiries are seen at the 1.2150 level, however the upcoming redemption flows from France, Netherlands and Austria are likely to keep the pair from any major moves lower, which may nullify the effects of this expiry. Heading into the data, focus will be on the USD as the primary influence on the pair.

With Japanese PM Noda and Finance Minister Azumi once again highlighting their concerns with JPY strength, USD/JPY is seen lower on the day. Daily cloud range of 79.22-80.56 may be influential for the currency pair as we progress through the session and any major downside may be limited by market talk of bids at 79.50, although this remains unconfirmed. The pair currently trades between two touted option expiries for the 10am (1500BST) NY cut at the 79.75 and 80.00 levels, which may prove magnetic later in the session.


WTI and Brent crude futures are seen lower ahead of the key US Non-Farm Payrolls report, as global central bank measures announced yesterday fail to put a cap on risk-aversion in today's session. EIA Natural Gas Storage data is also due for release today at 1530BST/0930CDT - (Jun 29) W/W Exp. 43, Low 34, High 52 (Prev. 57).

Oil & Gas News


  1. The CME have boosted their margins on NYMEX crude oil and natural gas futures contracts as of the close of business on July 9th. The initial margin for speculators in light, sweet crude futures for the month nearest to expiration will increase to USD 6,885 per contract from USD 6,210. The initial cost to speculators in natural gas will rise to USD 3,105 per lot, from the current USD 2,835.
  2. The Norwegian Oil Industry Association has said it has had no formal contact with labour unions as it prepares to shut down oil production off the Norwegian coast. An association spokesman has said if the unions do not accept their offer, the association hopes the government will intervene before the lockout. According to BP analysis, the lockout has been planned to force the Norwegian government to intervene as it did in 1997, 2000 and 2004.
  3. Barclays have cut their 2012 forecast for WTI by 8.6% to USD 96/BBL and have cut their Brent forecast by 5.8% to USD 113/BBL.
  4. A rise in oil prices of around USD 10/BBL would trigger a 'hard destruction' of demand and make governments consider releasing emergency reserves, according to Petromatrix analysis.
  5. Libya has cut their oil output to around 1.3MBPD from around 1.6MBPD for security, storage and other reasons, according to the national oil company.
  6. Chinese gasoline and diesel prices may be reduced by around CNY 400 per ton on July 11th, according to Xinhua-obtained system data.
  7. A major oil terminal in Ras Lanuf, Eastern Libya has been shut down due to protests over the allocation of seats in a national assembly due to be elected on Saturday, according to a terminal supervisor.
  8. Saudi Arabia's crude oil shipments to the US in June were near their highest levels since 2008, despite a serious glitch at the Motiva refinery in Texas.

Geopolitical News


  1. US Secretary of State Clinton has said Russia and China must pay a price for supporting Assad's regime in Syria.
  2. An increasing number of Iranian crude tankers have signalled that they are bound for China, in an indication that Iran remains defiant against Western sanctions and may be reversing its current strategy of storing crude at sea.
  3. Iran will see its July oil exports more than halved from regular levels seen last year because tough new Western sanctions are stifling flows and costing Tehran more than USD 3bln in lost revenue per month. In related news, Iran and Syria have resumed working together to fight Western sanctions on their oil as shipping records showed two Iranian vessels delivered diesel to Syrian ports over the past week.
  4. The Swiss government will not match the EU and US' sanctions on Iran, deciding on its own set of measures that would exclude a ban on trading the Iranian oil.

Last Price taken at 1232BST


Dollar Index July options expiry (2000BST/1400CDT)

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