Risk aversion has taken hold of markets yet again as the EU Summit gets underway at the same time as the Spanish 10-year yield climbs above 7% and data on Germany’s labor market showed unemployment climbing more than expected…
- Spain 10-year hits 7% again, before retreating slightly below.
- German unemployment rises by 7K, more than expected showing the economy is catching the periphery flu.
- Equities slip as pessimism over EU Summit (which starts today) dominates.
- Mainly based on a Germany’s official saying “detailed deal” is unlikely tempering (trampling?) expectations.
- US durable goods orders, pending home sales and Japanese retail sales had helped equities overnight until European session, which has brought with it a strong bout of risk aversion undermining higher yielding currencies against safe havens.
- Italy sold 5.42 billion euros of five- and 10-year bonds, versus a maximum 5.5 billion-euro target for the sale.
- The Treasury priced the 10-year debt (2.9 bn) to yield 6.19 percent, up from 6.03 percent at the previous auction on May 30.
- Bids exceeded supply 1.28 times, down from 1.4 times in May.
- The five-year bond (2.5 bn) yielded 5.84 percent, compared with 5.66 percent last month..
- Bids exceeded supply 1.54 times, reports said, versus 1.35 in May
- One of the main topics – How to get Italy’s 10-year yield to 4% or lower?
- Second main topic – How to avoid Spanish bank recapitalization from impacting Spanish overall debt burden.
- Use funds from the EFSF as an insurance scheme – maximize the capacity of the EFSF by using a special purpose vehicle to insure bond buyers against potential losses from investing in eurozone sovereign bonds.
- German official said the summit was supposed to focus on a €130bn growth plan, and on long-range reforms of the European monetary union.
- Leaders intent to set out clear priorities and a timetable for decision on more fundamental reforms.
- Ms Merkel has said that stronger European banking supervision is necessary, and could be enforced through the ECB, but the official said the issue was too complex to agree at one meeting.
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes.com – provider of News, Analysis, Education, Videos, Charts, and other trading resources.
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