- The Eurogroup meeting ended in the early hours of Tuesday with an outline for the recapitalisation of Spanish banks: the first EUR30bn (out of a total EUR100bn) will be paid out to Spain’s existing bank bailout fund by the end of July. Madrid will then channel funds to stricken banks. Notably, according to Jean-Claude Juncker, head of the Eurogroup, the aid will initially add to government debt; but as soon as the new eurozone banking supervisor to be headed by the ECB is up and running, loans will be granted directly to banks and thus free Madrid of any national guarantees against ESM losses. Finally, Olli Rehn, vice-president of the European Commission, said that work on a similar set-up for aid to Irish banks will be initiated soon. Conflicting statements from finance ministers on the back of the meeting, however, suggest that some of these issues still remain unsettled. EUR/USD has headed lower this morning, again flirting with the two-year low of 1.22.
- Chinese trade data released overnight saw a smaller-than-expected rise in imports (6.3% y/y versus 11.0% consensus), leaving the country’s trade surplus at a three-year high, albeit export growth also slowed. While adding to the case for further stimuli from the central bank, price rises of close to 30% in grains over the past month – and soybean prices surpassing the 2008 record last night as a drought in the US Midwest threatens the harvest – could eventually prevent some emerging market central banks, including the People’s Bank of China, from easing monetary policy by as much as is currently projected.
- US stocks are slightly lower although the earnings season was kicked off by Alcoa which reported a better-than-feared Q2 result despite a global aluminium smelting surplus as demand growth is set to stay healthy. Small losses were seen in the Asian session as well. US Treasurys initially saw yields head lower but ended the day largely unchanged. In FX markets, the dollar has gained against most majors apart from JPY.
- Focus today will likely be on the market reception of the Eurogroup meeting which is followed by ECOFIN later today; with some important details regarding bank recapitalisation still blowing in the wind, markets are unlikely to take a lot of comfort from Juncker’s statements. Developments in Spanish rates could take centre stage again as the 10Y segment hovers around the psychologically important 7%. Also, the German constitutional court is due to discuss whether signing the new ESM and the fiscal pact for Europe is consistent with national law.
- In Norway, the government has stepped in to avert a threatening lockout in the country’s oil and gas industry and, according to Statoil, production should thus return to full capacity within a week’s time, and Brent dropped below USD100/bbl this morning. Sweden reports industrial production figures for May but Norway is likely to steal the limelight in the Scandi region when reporting inflation data for June; in May, CPI rose more than forecast and Norges Bank has left the door open for rate hikes further out.
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