EU keeps Greece on a tight lease

EU Market Update: UK registers its first spat of weaker economic data in some time; EU keeps Greece on a tight lease

Notes/Observations

- Eurogroup Meeting: Ministers approve total €6.8B in aid payment to Greece via staggered installments, conditional on meeting reform targets; EU payment include €2.5B in July and €0.5B in Oct; IMF to pay €1.8B in Aug. Greece to also receive €2.0B in central bank profits on Greek debt holdings (also in 2 tranches with €1.5B in July and& €0.5B in Oct)

-EU's Dijsselbloem: No financing gap in Greek program for foreseeable future; must implement reforms by 19th July before next tranche can be approved

-China June CPI hotter than expected with YoY reading at 2.7% vs2.5%e; Jun food cpi +4.9%. Non food cpi +1.6%

- IMF's warns that Eurozone remains vulnerable to flare ups in economic stresses; A piecemeal approach, on the other hand, could further undermine confidence and leave the euro area vulnerable to renewed stress

- UK May Industrial and Production data bucks recent trend and disappoints in term so beating analyst expectations; GBP currency drifts lower

Economic Data

- (FI) Finland Apr GDP Indicator WD: -4.2% v -1.0% prior

- (JP) Japan Jun Preliminary Machine Tool Orders Y/Y: -12.4% v -7.4% prior

- (FR) France May Central Govt. Balance: -€72.6B v -€66.8B prior

- (HU) Hungary May Preliminary Trade Balance: €653.2M v €850.0Me

- (CZ) Czech Jun CPI M/M: 0.4% v 0.2%e; Y/Y: 1.6% v 1.3%e

- (DK) Denmark May Current Account: 11.8B v 10.0Be; Trade Balance (ex shipping (DKK): 5.9B v 6.5Be

- (CZ) Czech Jun Unemployment Rate: 7.3% v 7.5%e

- (EU) ECB €620M borrowed in overnight loan facility vs. €438M prior; €101.5B parked in deposit facility vs. €103.9B prior - Daily Eurosystem Liquidity Conditions

- (CH) Swiss May Real Retail Sales Y/Y: 1.8 v 3.1% prior

- (UK) May Industrial Production M/M: 0.0% v 0.2%e; Y/Y: -2.3% v -1.5%e

- (UK) May Manufacturing Production M/M: -0.8% v +0.4%e; Y/Y: -2.9% v -1.6%e

- (UK) May Visible Trade Balance: -£8.5B v -£8.5Be; Total Trade Balance: -£2.4B v -£2.6Be; Trade Balance Non EU: -£4.1B v -£3.5Be

- (CY) Cyprus Jun CPI Harmonized M/M: 0.6% v 0.8% prior; Y/Y: 0.8% v 0.2% prior

Fixed Income:

- (ES) Spain Debt Agency (Tesoro) opened its book for 15-year 2028 syndicate; initial pricing guidance at 280bps/mid-swaps; Order book was over €6.0B

- (NL) Netherlands Debt Agency (DSTA) sold €2.12B vs. €1.5-2.5B indicated range in July 1.75% 2023 DSL bonds; Avg Yield: 2.061% v 1,783% prior

- (NO) Norway sold NOK4.0B vs. NOK4.0B indicated in 2021 bonds; Yield: 2.49% v 1.83% prior

- (GR) Greece Debt Agency (PDMA) sold €1.625B vs. €1.25B indicated in 26-week Bills; Avg Yield: 4.20% v 4.20% prior; Bid-to-cover: 1.70x v 1.70x prior

- (EU) ECB allotted €102.1B in 7-day Main Refi Tender at fixed 0.50% vs. €107.7B prior

- (EU) ECB allotted €3.5B in 1-month Refi Tender at fixed 0.50% vs. €4.0Be

- (CH) Switzerland sold CHF1.055B in 12-Month Bills; Avg Yield: -0.079% v -0.150% prior

- (HU) Hungary Debt Agency (AKK) sold HUF55B vs. HUF50B indicated in 3-Month Bills; Avg Yield: 4.16% v 4.19% prior; Bid-to-cover:1.99 x v 1.51x prior

- (DE) Germany sold €745M in 0.75% 2018 inflation-linked BOBL; Real Yield: -0.47% v -1.18% prior; Bid-to-cover: 1.4x v 1.9x prior

- (UK) DMO sold £1.4B in 0.125% I/L 2029 Gilts; Real Yield: -0.043% v -0.635% prior; Bid-to-cover: 1.80x v 1.51x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices: FTSE 100 +1.1% at 6,520, DAX +1.1% at 8,056, CAC-40 +0.80% at 3,853, IBEX-35 +0.60% at 8,066, FTSE MIB +0.80% at 15,925, SMI +1.1% at 7,948, S&P 500 Futures +0.50% at 1,643

- Equity markets in Europe are broadly higher, tracking the gains seen in the US and Asia, as EU leaders reached a financing agreement for Greece. Banks are higher across the board, led by gains in shares of Commerzbank and RBS. Resource related firms are mostly higher, tracking the gains in gold prices.

- UK movers [Ferrexpo +7% (H1 production rose y/y), Smiths News +6.5% (extended two agreements), Aveva +4% (positive on outlook for engineering unit), Weir Group +3% (broker commentary); Marks & Spencer -1.5% (Q1 merchandise sales below ests)]

- Germany movers [Osram +9% (broker commentary), Evotec +2.5% (partnership with Dow Agrosciences), Siemens +1% (broker commentary); Lufthansa -1% (share placement)]

- France movers [Technicolor +10% (broker commentary), EDF +9% (price increase), LVMH +1.5% (acquisition)]

- Italy movers [Brunello Cucinelli +3% (industry consolidation); Buzzi Unicem -1.5% (convertible bond offering)]

Speakers:

- Portugal New Deputy PM Portas: There are conditions for political stability; conditions in place to meet bailout agreement; Priority should be to value the economy and job creation

- EU-27 Finance Ministers comment ahead of EcoFin

- German Fin Min Schaeuble commented on the need to stick to a legal basis on banking union and stressed it must be very careful with SRM proposal that it did not violate current EU Treaty

- France Fin Min Moscovici urged EU to move ahead with financial transaction tax and must make plans on FTT by end of 2013, He also called for more emphasis on countercyclical role of European Investment Bank (EIB)

- Spain Fin Min Guindos: Markets are showing confidence in Spain

- Austria Fin Min Fekter: Greece will be closely controlled on reforms; Slovenia need to avoid higher deficit and debt; Working to stabilize the situation in Cyprus

- Luxembourg Fin Min Frieden reiterated that she did not expect any new debt restructuring for Greece, as this topic was was not discussed at yesterday's Eurogroup meeting

- Greece Central Bank Chief Provopoulos: Tourism in Greece needs to be more competitive

- Bank of Spain (BOS) Gov Linde commented that Govt and banks were discussing deferred tax assets and believed that credit could grow again in coming months, he also reiterated view that Q3 GDP could be close to zero (**Note: On Jun 20th he noted of possible growth in Q3)

- Poland Central Bank Chojna-Duch reiterated that the rate-setters would probably keep interest rates unchanged until end of 2013 as Poland would need cushion to cut rates in cash of shock.

Currencies/Fixed Income:

- Eurozone sentiment improved yesterday as Greece managed to get the next aid payment in order for it to avoid default.

- The GBP/USD reversed its earlier gains after May industrial and manufacturing data came in weaker and much worse than analysts' expectations. Dealers appeared to have been market was caught long on poor UK production data and was poised positioned for further signs of a economic recovery. The GBP was hoving just under the 1.50 handle just before the data release and probed under 1.4900 afterwards.

Political/In the Papers:

-(GR) EMU ministers confirm aid to Greece from Troika to amount to €6.8B by October; Euro Zone finance ministers agree to make €2.5B aid payment in July, followed by a €500M tranche in October. IMF to provide €1.8B in aid in August. Eurozone central banks to give Greece a share of profits from Greek sovereign debt holdings, paying out €1.5B in July and €500M in Oct. Thus, total aid payments to be €6.8B.

-(EU) ECB chief Draghi: Macroprudential policies are essential to help promote financial stability - comments in Brussels on European Systemic Risk Board (ESRB)

-ESM Chief Regling: ESM targeting issuance of €9B in longer term bonds later this year.

-(ES) Spain said to have hired banks to move forward on the new 15-year (2028) euro benchmark bond - press

-(US) White House revised forecasts for deficits, GDP, and unemployment: FY13 fiscal deficit at 4.7%/GDP; FY14 at 4.5%/GDP, FY15 deficit 3.5%/GDP; Sees FY13 unemployment at 7.5% v 7.7% prior forecast

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

- (IE) Troika 11th mission review of Ireland begins

- (EU) EU Finance Ministers set conversion rate for Latvia entry

-(PT)) Bank of Portugal Data on Banks

- 06:30 (EU) ESM to sell €2.0B in 3-month Bills; Avg Yield: % v -0.007% prior; Bid-to-cover: x v 2.60x prior

- 06:30 (US) Daily Libor Fixing

- 07:00 ECB allotment in 7-day Term Deposit Tender to offset Govt Bond Purchases under SMP; to drain €195.5B

- 07:00 (BR) Brazil July Preliminary IGP-M Inflation: 0.5%e v 0.4% prior

- 07:30 (US) Jun NFIB Small Business Optimism: 94.7e v 94.4 prior

- 07:45 (US) Weekly ICSC Chain Store Sales

- 08:15 (CA) Canada Jun Housing Starts (annualized): 188.0Ke v 200.2K prior

- 08:55 (US) Weekly Redbook Retail Sales

- 09:00 (DE) German Chancellor Merkel speech in Bad Staffelstein at Conclave of CSU Allies

- 09:00 (MX) Mexico Jun CPI M/M: 0.0%e v -0.3% prior; Y/Y: 4.1%e v 4.6% prior; CPI Core Y/Y: 0.2%e v 0.2% prior

- 09:00 (EU) Weekly ECB Forex Reserves: No est v €212.0B prior

- 10:00 (UK) Jun NIESR GDP Estimate: No est v 0.6% prior

- 10:00 (US) May JOLTs Job Openings: No est v 3.757M prior

- 10:00 (MX) Mexico Weekly International Reserves

- 11:00 (DE) ECB's Asmussen (Germany) in London

- 11:00 (US) Fed to purchase $2.75-3.50B in Bonds

- 11:00 (UR) Ukraine to sell Bills and Bonds

- 11:30 (US) Treasury to sell $40B in 4-Week Bills

- 12:00 (US) DOE Short-Term Crude Outlook

- 13:00 (US) Treasury to sell $32B in 3-Year Notes

- 16:30 (US) Weekly API U.S. Crude Oil Inventories

- 17:00 (CO) Colombia May Exports FOB: $5.4Be v $5.0B prior

- 22:00 (CN) China Jun Trade Balance: $27.8Be v $20.4B prior; Exports Y/Y: 3.7%e v 1.0% prior; Imports Y/Y: +6.0%e v -0.3% prior