• Markets:
    • Equity markets continued their drop with global markets all falling, and Treasuries and Bunds continued their rally. The market seems to expect another short-term fix for Greece — poor economic news and tightening liquidity conditions, not Greece, seem to be the key drivers of the equity pullback.
    • USD downtrend seems to have stalled, with the USD rallying in the short term on risk-aversion. The EUR uptrend has similarly been broken by the Greek situation but the currency has not yet seen large falls. If a short-term fix is again found I expect the EUR to rally. GBP downtrend continues. JPY continues to go nowhere, AUD, like equities, has only had a pullback so far, and CHF remains strong with the uptrend intact.
    • Among the commodities, gold has failed to make new highs but appears to be in an uptrend still, and sugar is rallying strongly on short-term supply tightness and concerns over growing conditions in Brazil, and copper has held its ground. Other commodities saw sharp falls, with oil, gas, platinum and palladium all falling. Together with the equity market, the picture painted by commodities is of fears for global demand, although the behaviour of copper does not fit with that picture. Wheat, soybeans and corn also sold off, which coheres with the picture, although corn and soybean prices remain high as supply concerns for the coming season look increasinly real.
  • Newsflow:
    • European governments fail to agree a further bailout of Greece, jeopardising the country’s ability to repay EUR 7bn in principal and coupons to bondholders in July. Lack of agreement is likely a political tactic to help the Greek PM defeat a no-confidence vote on Tuesday (which he called after failing to form a national unity government and replacing the cabinet). Irish finance minister’s plan to impose losses on Anglo-Irish senior bondholders makes sense for Ireland but is not immediately helpful. Merkel has dropped her demand for mandatory bondholder participation in the next stage of the Greek rescue and now says she will work with Trichet to avoid crisis. The IMF, which had said it could not release the next tranche of aid until 2012 financing was agreed, has relented. The main danger is that the Greeks won’t accept any more help, preferring default (looks unlikely in the short term, but will remain possible for years to come). 
    • China raises reserve requirements 0.5% after a fairly strong monthly data release.
    • China existing home prices fell in 23 out of 70 cities in May, vs. 16/70 in April. New home prices hold up — developers likely waiting for a policy reversal.
    • Prices of rare earth metals surge; hoarding by individual Chinese companies the most plausible explanation.
    • Zawahiri appointed head of Al-Qaida. Heads the Egyptian, rather than the Saudi, faction, which wants to focus on “apostate” Islamic governments before attacking the West again.
    • Erdogan wins a third election in Turkey but not enough seats to change the constitution (wants to create a more powerful presidency, which he would presumably assume).
    • Switzerland holds rates despite strong economy owing to fears of CHF strength.  India raises rates again; GDP growth 7.8% in Q1, the slowest in five quarters.
  • Commodities:
    • Corn: USDA predicts consumption to rise by 3% this year, outpacing increased supply and taking ending inventories to the lowest since 1974. Price dropped last week on reports of refiniers cutting prices, a congressional plan to remove tax breaks for refiners (which was rejected) and some reports of farmers cutting animal production. 
    • Oil: Saudi Arabia increases output despite failure of OPEC to agree on increases. OPEC quotas bear little relation to actual production.
  • Data:
    • US:
      • Michigan sentiment jumps, although less than expected.
      • Retail sales -0.2%, better than expected. Core retail sales fall to +0.3%, beating expectations.
      • Philly Fed and Empire State surveys both turn negative for the first time since late 2010, disappointing expectations.
      • Building permits and housing starts show no change in the big picture.
      • Initial claims drop but still on that higher plateau.
      • Current account deficit widens less than expected.
      • PPI 0.2% MOM, a big drop from last month.
      • CPI has another decent drop to 0.2% MOM; core CPI jumps to 0.3%, beating expectations.
      • IP grows 0.1% after 0% last month, but disappoints again. Capacity utilisation falls to 76.7%.
    • UK:
      • Claimant count jumps, but unemployment flat at 7.7%. 
      • UK retail sales -1.4%, d.e.
      • CPI holds at 4.5%, but last month’s figure was inflated by the timing of Easter. Core CPI drops to 3.3%.
    • Europe:
      • German PPI 0% MOM. 
      • Eurozone CPI falls slightly to 2.7%; core CPI drops to 1.5% after two big rises.
      • Current account flat MOM, as expected. Narrowing trend looking questionable. 
      • IP grows 0.2%, beating expectations for a fall.
    • Japan:
      • Trade balance -0.47tr, beat expectations but still very bad compared to recent history of surpluses.
      • Revised IP +1.6%, b.e.
    • China:
      • FDI YOY falls for a second month, to 23.4% YOY.
      • CPI rises to 5.5%, a.e.
      • Fixed investment rises to 25.8%, a.e.
      • IP falls a little to 13.3%, a.e.
      • PPI flat at 6.8%.
      • Retail sales fall a little to 16.9%.
This week:
  • Mon: ECOFIN meetings.
  • Tue: Australian Monetary Policy Meeting minutes, UK public sector net borrowing, German ZEW, US existing home sales.
  • Wed: MPC minutes, Eurozone industrial new orders, FOMC meeting and press conference.
  • Thu: China HSBC flash PMI, Eurozone flash PMI’s, US new home sales.
  • Fri: German Ifo, Mervyn King speaks, US durable goods orders and final Q1 GDP.
Next week:
  • Global PMI’s.
  • UK current account.
  • US CB consumer confidence, pending home sales and non-farm payrolls.
  • Japan Tankan.
Advertisements