Troika reaches staff-level agreement with Greece on next tranche payout

EU Market Update: Troika reaches staff-level agreement with Greece on next tranche payout; still needs Eurogroup and IMF approval

Notes/Observations

- Japan May Current Account registers its third straight surplus

- Egypt split widens. Rallies/confrontations grow. Oil hits 14 month highs; Suez canal shipping remains normal

- Portugal PM Coelho confirmed an agreement to keep coalition together; CDS party leader Portas to take newly created post of Vice PM

- Troika reaches staff-level agreement with Greece on next tranche payout; still needs Eurogroup and IMF approval

- US Q2 Corporate earnings kicks off today with Alcoa

Economic Data

- (JP) Japan Jun Eco Watchers Current Survey: 53.0 v 55.5e (3rd straight monthly decline); Outlook Survey: 53.6 v 55.7e (2nd straight monthly decline)

- (CH) Swiss Jun Unemployment Rate: 2.9% v 3.0%e v; Unemployment Rate Seasonally Adj: 3.2% v 3.2%e

- (DE) Germany May Current Account: €11.2B v €14.8Be; Trade Balance: €13.1B v €17.8Be; Imports M/M: 1.7% v 0.0%e; Exports M/M: -2.4% v +0.1%e

- (FI) Finalnd May Preliminary Trade Balance: €90M v -59M prior

- (FR) Bank of France Jun Business Sentiment: 96 v 94 prior

- (CH) SNB Sight Deposits for Week Ended July 5th (CHF): 321.0B v 296.9B prior

- (CZ) Czech May Industrial Output Y/Y: -2.2% v -2.0%e; Construction Output Y/Y: -15.5% v -11.4% prior

- (CZ) Czech May Trade Balance (CZK): 28.8B v 28.5Be

- (TR) Turkey May Industrial Production M/M: -0.6% v 1.4% prior; Y/Y: -2.9% v 3.4%e

- (EU) ECB €438M borrowed in overnight loan facility vs. €52M prior; €103.9B parked in deposit facility vs. €103.7B prior - Daily Eurosystem Liquidity Conditions

- (CH) Swiss Q1 Industrial Production Y/Y: 3.0% v 1.4%e

- (SE) Sweden May Industrial Production M/M: -2.6% v +0.6%e; Y/Y: -7.3% v -2.9%e

- (SE) Sweden May Industrial Orders M/M: -2.6% v -10.3% prior; Y/Y: -6.1% v +0.6% prior

- (CZ) Czech Jun International Reserves: $43.8B v $43.7B prior

- (TW) Taiwan Jun Total Trade Balance: $3.3B v $3.3Be; Total Exports Y/Y: 8.6% v 1.2%e; Total Imports Y/Y: +6.8% v -1.7%e

- (EU) Euro Zone July Sentix Investor Confidence: -12.6 v -11.4e

- (SG) Singapore Jun Foreign Reserves: $259.8B v $258.4B prior

- (GR) Greece Jun CPI Y/Y: -0.4% v -0.4% prior; CPI EU Harmonized Y/Y: -0.3% v -0.3% prior

Fixed Income:

- (DE) Germany sold €3.981B in 6-month BuBills; Avg Yield: -0.0035% v +0.0231% prior; Bid-to-cover: 1.7x v 1.7x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

FTSE 100 +1.0% at 6,441, DAX +2.3% at 7,986, CAC-40 Index +1.9% at 3,823, IBEX-35 Index +1.8% at 8,008, FTSE MIB +1.8% at 15,710, SMI +1.2% at 7,874, S&P 500 Futures +0.6% at 1,636

- European indexes opened broadly higher ignoring increased violence in Egypt and instead focusing on the finalization of an agreement among the majority coalition partners in Portugal that saw CDS party leader Portas appointed as Portugal's Deputy PM. The markets saw another leg up early in the session when the Troika announced a staff level agreement regarding Greece after concluding their review. Economic data during the session was mixed with the German current account and trade balance coming in narrower than expected and Euro Zone July Sentix Investor confidence missing the mark at -12.6 v -11.4e while Bank of France June business sentiment came in at a two year high and June Swiss unemployment was better than expected at 2.9% v 3.0%e. Traders are looking ahead to Germany May Industrial Production which is expected at 06:00 ET (10:00 GMT) with consensus expectations of -0.5%.

- UK movers [Bovis Homes +4.5% (H1 trading update), Hikma Pharmaceuticals +7.7% (Raises FY Rev guidance to +17% y/y v 13% prev)]

- Germany movers [OSRAM -4.2% (IPO of spin-off from Siemens)

- Switzerland movers [Novartis +1.6% (Secukinumab (AIN457) demonstrated superiority to Enbrel)]

Speakers:

- EU Commission/IMF joint statement stated that the Troika review of Greece was completed and had come to a staff level agreement. Important progress continued to be made by Greece, policy implementation was behind in some areas; Outlook on Greece bailout program remained uncertain. Greek authorities were committed to take corrective actions to ensure delivery of the fiscal targets for 2013-14 and achieve primary balance this year. Eurogroup and IMF to consider request for review approval in July. Greece macro outlook broadly in line with adjustment program and saw Greece returning to growth in 2014

- Eurogroup head Dijsselbloem: Greece aid tranche could be paid in installments

- France Labor Min Sapin stated that he saw unemployment falling by the end of the year

- DIHK Institute commented that Eastern German growth was seen flat vs. +0.5% y/y due to effects from flood. It saw overall 2013 German GDP growth at +0.3% vs. 0.7% y/y and added that export risks were biggest concerns among companies. The institute forecasted 40K new jobs in 2013 especially in service sector

- Turkey Central Bank Gov Basci stated that the central bank was starting extra tightening from today and would be strong, effective and temporary. The duration depended on FX development

- Poland Central Bank (NBP) lowered its 2013 GDP forecast to 1.1% from 1.3% and trimmed its 2013 thru 2015 CPI outlook. Lower CPI due to growth outlook and lower energy prices. It added that the PLN currency (zloty) remained fundamentally undervalued and that lower capital inflows to keep currency undervalued. It noted that PLN currency, fiscal policy and Eurozone slowdown remained largest risks to forecast

- Czech Central Bank Minutes noted that several members spoke in favor of immediate commencement of currency interventions. The minority view noted that forward-looking monetary policy should be reacting to current risks. Tendency to undershoot the bank's inflation target was only short-term in nature and that the risk of sustained deflation

- Poland Finance Ministry's Dziennik: Planning PLN10B in 2013 budget cuts

- ECB's Nowotny presented Financial Stability Report for Austria and noted that Bank sector capitalization had risen but more improvement was needed. Stress tests showed solid results for overall Austrian bank sector, individual banks remained "conspicuous". Efforts to strengthen financial sector needed to ensure a sustainable recovery. Banking system needed strengthening.

- ECB's Nowotny (Austria) commented that ECB was committed to keeping rates low for an extended period and any rate increase could be ruled out. Market conditions had improved since summer 2012 and ECB took the historic step of forward guidance. He expected divergence in EMU economies to last for some time and could not depart from strategy too early

- Israel Central Bank Minutes noted that the vote was unanimous (6 to 0) to hold rates steady. Rise in global yields and central bank FX purchases might help moderate l ILS currency gains

- Official at Russia state repository (known as 'Gokhran') : May resume gold purchases in 2014

- Reserve Bank of India (RBI) to meet with oil company officials in Mumbai later on Monday to discuss their foreign exchange needs (**Note: oil companies are the biggest buyers of dollars in domestic currency markets)

- S&P report on Japan's banking sector noted that most Japanese financial institutions could meet required capital levels even if interest rates rise 3 percentage points from 2012 levels

- Egypt Military: "Terrorist' group attempted to storm a Republican Guard facility earlier today

Currencies/Fixed Income:

- USD consolidated from its 3-year highs achieved last week after Friday's better than expected US NFP. The focus now turns Fed Chairman Bernanke's mid-week testimony to Congress and the release of the last FOMC meeting minutes for tapering clues

- Dealers were eyeing the 1.2800 neckline level in the EUR/USD pair with a break and subsequent close below opening the downside technical momentum with 1.2200 as a measured target. The recent agreement in Portugal to maintain its ruling coalition and Troika staff-agreement on Greece kept the 1.28 level intact during the session

- The SEK curreny was broadly weaker after Swedish industrial prodiction data came in way below market expectations. The EUR/SEK cross surge from 8.72 to test near 8.81 as a result.

- Emerging markets took action to quell the recent spat of currency weakness following renewed Fed tapering sentiment. The Turkish Central bank announced it was starting extra tightening from today with its duration dependent on FX development. The Indian Central bank (RBI) was said to be intervening to curb the INR currency (rupee) off its fresh record low level of 61.20

Political/In the Papers:

- Portugal PM Coelho confirmed of a firm agreement to maintain stable govt with coalition partner; CDS party leader Portas to take newly created post of Vice PM. In his new post, Portas will be charged with coordinating govt economic policies and its relationship with bailout lenders.

- S&P revised Portugal Sovereign Outlook to negative from Stable citing growing political uncertainty

- Reports circulated over the weekend that IMF made progress on terms of next loan tranche to Greece; an agreement likely on Monday, July 8th. It reached an agreement with creditors over public-sector reforms

- Greece international creditors to delay next tranche payment citing dissatisfaction with reforms. Other financial press reports noted that the Troika was unhappy about Greek reforms and might delay next loan tranche. It would stagger tranches conditionally on reaching reform targets

- Insight on recent ECB decision in German press. ECB's Praet proposed cutting the Main Refi Rate by 25bp and was backed by Draghi. The report noted that 7 members (including Weidmann, Knot and Asmussen) opposed a cut and the final vote for unchanged rates was unanimous (**Note: - ECB chief Draghi did not at last week's press conference that a cut was debated)

- Reports that Muslim Brotherhood was calling for an uprising to take back an election that was stolen by tanks

Looking Ahead

All times listed for economic events are denominated in Eastern Standard Time (Add 4 hours for GMT equivalent)

- (US) US Tsy Sec Lew and Sec of State Kerry meet with Chinese Officials

- (IL) Israel Central Bank Minutes of Rate Meeting

- 06:00 (DE) Germany May Industrial Production M/M: -0.5% v 1.8% prior; Y/Y: -0.5%e v 1.0% prior

- 06:00 (PT) Portugal May Industrial Sales M/M: No est v -2.9% prior; Y/Y: No est v 2.3% prior

- 06:00 (EU) OECD May Leading Indicators: No est v 100.5 prior

- 06:00 (IL) Israel to sell Bonds

- 06:00 (RO) Romania to sell Bills

- 06:30 (US) Daily Libor Fixing

- 07:30 (DE) German Chancellor Merkel in Berlin

- 07:30 (BR) Brazil Central Bank Weekly Economists Survey

- 08:30 (CA) Canada May Building Permits M/M: -5.0%e v 10.5% prior

- 08:30 (CL) Chile Jun Trade Balance: $900.0Me v $639.0M prior; Total Exports: No est v $7.2B prior; Total Imports: No est v $6.6B prior; Copper Exports: No est v $3.7B prior

- 08:50 (FR) France Debt Agency (AFT) to sell combined €8.2B in 3-month, 6-month, and 12-month bills

- 09:00 (EU) Euro-Area Finance Ministers meet in Brussels

- 09:00 (EU) ECB chief Draghi in Brussels

- 09:30 (EU) ECB calls for bids in 7-Day Main Refinancing Tender

- 09:30 (EU) ECB announces prior settlements in SMP program to offset bond purchases

- 10:00 (HU) Hungary Jun YTD Budget Balance (HUF): No est v -559.4B prior

- 10:00 (BR) Brazil May CNI Capacity Utilization: 83.0%e v 83.3% prior

- 10:00 (MX) Mexico Jun Vehicle Production: No est v 255.5K prior; Domestic Sales: No est v 87.5K prior; Vehicle Exports: No est v 191.2K prior

- 10:30 (CA) Bank of Canada Q2 Senior Loan Officer Survey : -5.0e v -5.8 prior; Business Outlook Future Sales: 30e v 24 prior

- 11:00 (US) Fed to purchase $1.25-1.75B in Bonds

- 11:30 (US) Treasury to sell combined $55B in 3-Month and 6-Month Bills

- 14:00 (EU) EIB's Hoyer speaks at Konrad Adenauer Foundation in Brussels

- 15:00 (US) May Consumer Credit: $12.5Be v $11.1B prior

- 16:00 (US) Crop Condition

- 17:00 (US) EIA Gasoline and Diesel Fuel Update

- 21:30 (CN) China Jun CPI Y/Y: 2.5%e v 2.1% prior