Fresh selling is seen in Euro today after Spain bill auctions ended
with sharply higher yield while there is growing pessimism that the EU
summit later this week will conclude with any substantive actions. Spain
sold EUR 1.6b of 3-month bills with yield at 2.362%, nearly tripped
0.846% yield at an auction in May. The treasury also so EUR 1.48b of
6-month bills with yield at 3.237%, also nearly doubled 1.737% in
another auction in May. Nonetheless, the combined EUR 3.08b sale
exceeded its EUR 2-3b target, suggesting that demand was still there.
Meanwhile, Italy sold EUR 2.99b of zero-coupon notes due in May 2014
with yield at 4.71%, higher than late 4.04% at May's auction. Italy also
successfully sold EUR 0.92b of inflation linked debt.
EU President Van Rompuy released his grand vision 10 year road map on
banking supervision and deposit insurance today. The report was a
collaboration effort with ECB president Draghi, EC President Barroso and
head of EU finance ministers Juncker. The report envisaged that
regional banking supervision will be entrusted to ECB and a regional
deposit insurance program will be implemented to strengthen credibility
of current national backstops. But regarding joint debts, the report
noted that "a robust framework for budgetary discipline and
competitiveness" needs to be in place before considering introduction of
"joint and several sovereign liabilities".
German Deputy Foreign Minister Link criticized that "parts of it read
like a wish list," and is short of "improved controls". German
Chancellor hardened her stance on Euro bonds ahead of the EU summit on
June 28-29. Merkel said that "Euro bonds, Euro bills and European
deposit insurance with joint liability and much more" was "economically
wrong and counterproductive". Moreover, she openly stated that the
upcoming summit "will be far too much about all kinds of ideas for joint
liability and far too little about improved oversight and structural
measures....So the goal has to be a political union in which the
standard is whatever the best, not mediocrity is". These comments
suggested that Merkel continued to oppose the ideas of joint Euro bonds.
While this does not mean that she will not accept such as move even
though the market situation deteriorates markedly further, the terms and
conditions of any joint issuance would likely be under Germany's
ruling.
In Greece, Prime Minister Samaras quickly named Athens University
economics professor Yannis Stournaras as finance minister after Vassilis
Rapanos quitted on Monday on health issue. Samaras, who underwent an
eye surgery over the weekend, is set to miss this week's EU summit while
it's also unclear whether Stournaras would join. Outgoing finance
minister Zanias will represent Greece instead. And it's also uncertain
when troika will return to Greece for review.
BoE officials addressed parliament's Treasury Committee today.
Governor King said that the MPC is united on the need for a "very loose
monetary policy" but views diverged on "precisely how loose it should
be". He noted that the bank could do more on asset purchases and there
is "no immediate limit or constrain" on that. But King would prefer to
see how the situation plays out first. Meanwhile, King also said he's
"pessimistic" and concerned about Eurozone as situation get worse over
two years.
The lower house of the Japanese parliament passed the bill to double
the consumption tax in three years by a vote of 363-96. The bill will
then be voted by the upper house to become law and it's very likely to
be approved. The consumption tax hike was a means to ease the fiscal
deficit of the Japanese economy. However, the impact is expected to be
small. While the government anticipates it would help soothe the fiscal
problems, opposition parties believed this would weaken demand for
domestic goods, further hurting the nation's economy. Some analysts
viewed that the hike would weaken that outlook of Japanese yen. On the
political front, opponents of the tax hike may submit a no-confidence
motion regarding the bill. The worst scenario would be resignation of
the Noda Cabinet or dissolution of the lower house and elections.
(actionforex.com)
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