Markets Calm With Eyes On EU Summit Later In The Week

Markets are generally calm in Asia as the week starts with equities quickly recovered from early losses. Meanwhile, the dollar is steadily in range against other major currencies. A major focus of the week will be on the EU summit on June 28/29. Over the weekend, Germany's Chancellor Merkel agreed to jointly lobby the EU ministers for a growth plan of up to EUR 130 with leaders from France, Italy and Spain after a four-way summit. However, she continued to resist calls for joint euro bonds, as well as the idea to use ESM to buy peripheral debt to stabilize the bond markets. Merkel will meet with French President Hollande again on Wednesday to prepare for the European Council meeting.

In Greece, the newly formed coalition government announced that it would be seeking extension of its schedule of austerity measures by at least two years. Moreover, it would also request additional terms including tax cuts, extra help for the poor and unemployed and a freeze on public sector layoffs at the upcoming EU summits. Troika, the official team from the EU, ECB and IMF originally planned to visit Greece today. But the meeting was postponed for a few days as prime minister Samaras underwent an eye surgery on Saturday while incoming Finance Minister Rapanos is in hospital suffering from nausea.

The Bank for International Settlements general manager Jaime Caruana warned that while "monetary policy can buy time needed for other policies to correct fundamental," it's "not without limits or risks." He identified three major risks of making "necessary fiscal and structural adjustments seem less urgent," "financial-stability risks" from "protected low interest rates," and difficulty for central banks to "calibrate and implement the tightening of monetary policy." In the annual report of BIS, it also said that "central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed."

BIS backed the idea of a banking union in eurozone and said that "with day-to-day normality attained through a unified currency and banking system, leaders will have the time they need to finish building the broader institutional framework that the monetary union needs for its long-term viability." BIS emphasized that a "pan-European financial market" and a "pan-European central bank" require a "pan-European banking system."

The economic calendar is very light today and only US new home sales is featured. It's expected that sales will rise slightly to 345k annualized rate in May.