The European Commission met today and called for aid to banks, boosting EUR/USD for all of an hour or so, as the degree of German/core cooperation remains the great unknown. Risk remains on the mat for now.
The European Commission said it could “envision” using ESM bailout funds for direct assistance to banks rather than to sovereigns as a way of digging troubled EU banks out of their holes. There was an initial enthusiastic response to this in the market, but the usual suspect of German/core willingness to tread this route is the open question and it is still a question of how much money is even available to throw at the problem. If a hard Greek default/exit is supposed to cost a trillion euros, how much help is a half a trillion of ESM cash when you throw in a Spain and/or an Italy? It is clear that ECB involvement and money printing are the only way to keep the banks liquid unless we go the hard restructuring route – and that’s not even on the table. So, the euro downside picked up immediately again ahead of the US open for trading as Spanish 10-year yields vaulted above 6.50% today.
Note that the aussie is actually even weaker than the hapless euro after the triple whammy overnight of a heavy sell-off in metals yesterday, China announcing that no big new stimulus is in the works, and due to weaken. I would expect the aussie to remain the weakeast of the G-10 currencies as long as risk appetite remains in its current funk.
Not making a lot of headlines over the last few days, but the Chinese yuan has posted new lows versus the USD for the year over recent days as capital continues to exit the mainland. Hong Kong’s Hang Seng index is off over 12% from the previous highs as of today’s close, while the S&P has declined less that 6% over the same time frame.
Strong Swedish GDP and Current Account figures today enhancing are enhancing the krona’s latest status as a safe haven currency of choice. One wonders if European safety seekers are spreading their bets of late on the NOK, SEK and GBP.
Watch out for Japanese officialdom as US/DJPY declines close to the recent lows at 79.00 and beyond that, the 200-day moving average creeping higher now from around 79.60.
Looking Ahead
The song remains the same, as we are merely in a powerful spiral that will require a very concerted effort indeed from the EU political and ECB leadership to reverse course. There’s not much on tap for tomorrow save for Germany’s (fishy) employment figures and the SNB’s Danthine is out speaking. Later in the day we get the US ADP payrolls number, weekly jobless claims and the final regional manufacturing survey of the month, the Chicago PMI ahead of Friday’s ISM Manufacturing and US employment report.
Stay careful out there.
Economic Data Highlights
- Switzerland May KOF Swiss Leading Indicator out at +0.81 vs. +0.40 expected and +0.43 in Apr.
- Sweden Q1 Current Account out at +69.5B vs. +43.2B in Q4
- Sweden Q1 GDP out at +0.8% QoQ and +1.5% YoY vs. +0.2%/+0.8% expected, respectively and vs. +1.0% YoY in Q4
- UK Apr. Mortgage Approvals out at 51.8k vs. 50.1k expected and 51.1k in Mar.
- Canada Apr. Teranet/National Bank Home Price Index rose +0.8% MoM and +5.9% YoY vs. +6.1% YoY in Mar.
- US Apr. Pending Home Sales (1400)
- US Fed’s Fisher to Speak (1720)
- US Fed’s Dudley to Speak (1730)
- US Fed’s Rosengren to Speak (2030)
- US Weekly API Crude Oil and Product Inventory (2030)
- UK May GfK Consumer Confidence (2301)
- Japan Apr. Industrial Production (2350)
- New Zealand May NBNZ Business Confidence (0100)
- Australia Apr. Building Approvals (0130)