Economic Data

- (DE) Germany July GfK Consumer Confidence Survey: 5.8 v 5.6e

- (FI) Finland May Preliminary Retail Sales Volume Y/Y: 0.0% v -2.2% prior

- (FI) Finland May Unemployment Rate: 9.5% v 8.4% prior

- (CH) Swiss may UBS Consumption Indicator: 1.05 v 1.37 prior

- (FR) France Jun Consumer Confidence Indicator: 90 v 89e

- (ZA) South Africa Apr Leading Indicator: 131.9 v 134.5 prior

- (NL) Netherlands Q1 Final GDP Q/Q: +0.3% v -0.2%e; Y/Y: -0.8% v -1.1%e

- (SE) Sweden May PPI M/M: -0.5% v -0.2%e; Y/Y: 0.3% v 0.6%e

- (IT) Italy Apr Retail Sales M/M: -1.6% v -0.6%e; Y/Y: -6.8% v -0.1%e

- (PL) Poland May Retail Sales M/M: 0.9% v 0.7%e; Y/Y: 7.7% v 7.5%e

- (PL) Poland May Unemployment Rate: 12.6% v 12.6%e

- (UK) May Public Finances (PSNCR): -£4.4B v +£4.0Be; Public Sector Net Borrowing: +£15.6B v +£14.0Be; PSNB ex Interventions: +£17.9B v +£14.8Be

- (HK) Hong Kong May Trade Balance (HKD): -35.6B v -38.1Be; Exports Y/Y: 5.2% v 0.5%e; Imports Y/Y: 4.6% v 2.2%e

- (IT) Italy May Hourly Wages M/M: 0.0% v 0.3% prior; Y/Y: 1.4% v 1.4% prior

Fixed Income:

- (NL) Netherlands Debt Agency (DSTA) sold €2.17B vs.€2.0-3.0B indicated range in 2.25% July 2022 DSL Bonds; Avg Yield 1.995% v 2.139% prior

- (ES) Spain Debt Agency (Tesoro) sold €3.08B vs. €2.0-3.0B indicated range in 3-month and 6-month Bills

- Sells €1.6B in 3-month Bills; Avg Yield 2.362% v 0.846% prior; Bid-to-cover: 2.60x v 3.95x prior; Max Yield 2.500% v 0.879% prior

- Sells €1.48B in 6-month Bills; Avg Yield 3.237% v 1.737% prior; Bid-to-cover: 2.82x v 4.3x prior; Max Yield 3.369% v 1.793% prior

- (IT) Italy Debt Agency (Tesoro) sold €2.991B vs. €2.0-3.0B indicated Range in May 2014 Zero Coupon CTZ; Avg Yield 4.712% v 4.037% prior; Bid-to-cover:1.65xx v 1.66x prior

- (EU) ECB allotted €180.4B in main 7-day Refinancing Tender at fixed 1.0% vs. €169Be

- (IT) Italy Debt Agency (Tesoro) sold total €916M vs. €0.5-1.0B in I/L 2016 and 2026 BTPi

- Sold €290M in 2.1% I/L Sept 2016 BTPi Bonds; Yield 5.20% v 4.39% prior; bid-to-cover: 2.22x v 2.30x prior

-Sold €626M in 3.1% Sept 2026 BTPi Bond; Avg Yield 5.29%; Bid-to-cover: 2.43x

- (ZA) South Africa sold 2023, 2031 and 2048 Bonds

- (HU) Hungary Debt Agency (AKK) sold HUF55B in 3-month Bills; Avg Yield 7.10% v 7.14% prior; Bid-to-cover: 2.41x v 1.89x prior

- (UK) DMO sold £1.25B in 0.125% I/L Mar 2029 Gilts; Real Yield -0.108% v -0.045% prior; Bid-to-cover:1.83x v 1.70x prior


SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Notes/Observations

- EU seeks to move towards fiscal union at upcoming summit

- Market is beginning to accept that the process of European integration will be a slow and bumpy ride

- Cyprus become fifth European bailout victim

- Moody's downgrades 28 Spain banks from 1 to 4 notches sighting govts reduced ability to support them.

- Focus shifts to Italy after banking sector asked ECB to reactivate SMP program

- German Gfk consumer confidence Survey rises in July

- Month-end rotational trade into equities from bonds tried to help overall sentiment

- Spain Bill yields surge in auction as bid-to-cover slumps


Equities

Indices: FTSE 100 -0.10% at 5447, DAX -0.05% at 6129, CAC-40 -0.30% at 3013, IBEX-35 -0.40% at 6595, FTSE MIB -0.50% at 13,053, SMI -0.25% at 5930, S&P 500 Futures +0.10% at 1308

- European equity indices are trading off of the session's highs following bill auction results out of Spain, after opening mixed. In the banking sector, Italian and UK banks have underperformed so far on the session. Overall, the focus for markets continues to be the Thursday/Friday EU summit.

- Following the weakness seen on yesterday's session for Italian banks, shares of Banca Monte Paschi [BMPS.IT] has moved between gains and losses in an overall volatile trading session. According to an Italian press report, the bank could require state aid, as it has until the end of June to meet the EBA's capital requirements. In London, shares of retailer Ocado [OCDO.UK] have lost over 7%, as the company reported H1 results and gave a cautious outlook for Q3. Small cap name Wolfson Microelectronics [WLK.UK] is higher by over 4%, as the company was selected to supply components for Samsung's new Galaxy smartphone. Stagecoach [SGC.UK] is higher by over 3% after issuing tis FY11/12 results, while Carpetright [CPR.UK] has gained by more than 4.5% after reporting its full year results. In other UK movers, Petrofac [PFC.UK] is higher by ~1.5%, as the company reaffirmed that it is on track to have 2012 net profit growth of at least 15%. In Germany Porsche [PAH3.DE] is lower by ~2.5%, as the company is trading ex-dividend. Swiss name Adecco [ADEN.CH] is higher by over 2.5%, after announcing a share buyback. In Spain, Bankia [BKIA.ES] is lower by over 2%, as Moody's downgraded the ratings of 28 Spanish banks.

Speakers:

- Full EU fiscal union would imply the creation of a unified Euro zone fiscal body such as a treasury office and that different forms of fiscal solidarity could also be considered. EU's Van Rompuy report proposed using the ESM as a backstop for European deposit guarantees and that Govt to seek pre-emptive deficit approval from Euro nations. It would explore scope for having ECB as European bank supervisor and that a common budget control could allow common debt in the medium term. To prepare report exploring deeper economic and monetary union with the next steps towards EU banking and fiscal union would come in a report in December, with an interim report due in October. EU Summit to decide on Spain's loan status as ministers were are deadlocked. Germany said to be pressed to scrap its senior status on Spain's banking sector rescue package

- France Fin Min Moscovici: Economic growth is too weak while unemployment too high

- New Greece Fin Min appointment to be relased following meeting of leaders

- France budget Min Cahuzac reiterated the view that the 2012 budget had to be corrected in order to achieve its target as it was €7-10B short. He noted that 2012 GDP growth of 0.5% would be hard to achieve. To raise tax on Financial transactions to 0.2% and that a 3% tax on dividends to kick in this summer to bring between €0.8-1.0B annually

- Germany Gov official Link commented that the EU: Roadmap was too focused on mutualized debt and fell short on control mechanisms

- ECB's Bonnici commented that past excesses would take time to correct and that a period of deleveraging was inevitable

- Austria Fin Min Fekter commented that EU aid packages could solve issues in Spain, Cyprus and any decision on Greece must wait until after Troika report

- Japan lower house (Diet) passed the tax hike bill which would raise the consumption tax in two stages: first from 5% to 8% in April 2014, then to 10% in October 2015. The Bill next goes to the Upper House (House of Councillors) of Japan.

- BOE Gov King testified to Parliament UK was not in a liquidity trap yet; and that Monetary policy did work by injecting more money into the economy. He noted that he had NOT rejected any cut to bank rate, but arguments against rate cut below 0.5% continued to apply

- BoE's Broadbent: UK economy continues to remain in a difficult position

- Japan Fin Min Azumi commented that Japan had to address its fiscal problems and that the Lower House passage of national sales tax showed that Japan was doing more than Europe

- BOE's Dale commented that he revised down his medium-term growth outlook with a central view that underlying growth would pick up toward end of 2012 and into 2013. He added that the pace at which CPI declines key to his policy decision

- BOE's Miles expressed doubt that an interest rate cut would do any good and that unanimous support on MPC for bank funding measure. Very substantial risk that demand stays weak

- Moody's commented that Japan decision to increase its national sales tax was a credit positive and could build confidence in JGB market . It did note that Japan would need growth measures to balance tax

- Fitch sovereign analyst Colquhoun stated that Japan's sovereign outlook remained negative despite the hike in sales tax as it was subject to political risk

- S&P sovereign analyst Ogawa commented that S&P's ratings outlook on Japan remained negative with economic slowdown and worsening of finances as risks for its sovereign rating. He did note that the passing of Japan national sales tax in lower house is not a negative

- Moody's sovereign analyst Byrne commented that China 2012 GDP growth was seen at 7.5% but that a soft economic landing remained its baseline scenario. China to be negatively impacted if Europe contracted by 1%. China also faced headwinds from a rising CNY currency. Byrne did note that good fundamentals worked in China's favor

- Bank of Korea May Minutes noted that it needed to secure room to cope with further worsening of economic conditions. It noted that inflationary pressures remained too high. Steady economic conditions should precede any interest rate increase and that its domestic economy remained weak

- Turkish PM stated that it would respond militarily to any Syria border threat

Currencies:

- Month-end rotational trade into equities from bonds initially helped to smooth over any risk aversion sentiment. The USD was initially softer across the board in the session but reverse its trend as European equities slumped after Italy retail sales and Spanish Bill auction results.

- The EUR/USD hovered in the lower end of its established range from mid-June with the 1.2450 support seen as pivotal. The higher yields in the Spanish and Italian auctions coupled with weak Italian retail sales offset any benefits of potential EU fiscal union at the upcoming summit.

- The JPY currency maintained a firm tone despite the Japanese Lower House passing of the national sales tax. The concerns over Europe and cross currency flows causing the JPY to firm.

- the GBP bucked the European trend and was firmer in the session and shrugged off UK May government borrowing numbers that came in above forecasts due to lower tax receipts

Political/In the Papers:

- The press reported the Italian government is seeking to hold four confidence votes on labor reform measures. The Prime Minister wants to have the measures approved before he attends Thursday's EU summit in Brussels.

- Former President of the EU Commission Jacques Delors and former Chancellor Schmidt are among a group pushing for a euro zone debt agency that would issue common euro zone bonds. In the FT article Delors and Schmidt would create a euro zone finance minister to head the agency who would have broad powers, including ability to reject national budgets.

- As expected the French government raised the minimum wage by 2% from the hourly rate of €9.22 (€1,398.37 per month per 151.67 hours). The increase will be effective as of the 1st of July.


Looking Ahead

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

- (EU) EU holds entry talks with Montenegro, Iceland, Turkey

- (UK) U.K. Comments Due on Financial Services Compensation Scheme

- (US) Final Ruling on Commodity Options

- World Banking & Finance Summit 2012 held in the UK

- (FR) France Fin Min Moscovici to meet German Fin Min Schaeuble, PM Monti and Spain Fin Min De Guindos later today in Paris

- (ES) Spain May YTD Budget Balance: No est v -€25.5B prior

- 6:00 (IE) Ireland May PPI M/M: No est v -0.5% prior; Y/Y: No est v 2.8% prior

- 6:00 (EU) EU's Barroso speaks at Brussels Think Tank

- 7:00 (EU) ECB to drain €210.5B in 7-Day Term Deposit Tender vs. €169.0Be

- 7:00 (ES) ECB member Linde to be sworn in as Bank of Spain Gov

- 7:00 (BR) Brazil Jun FGV Construction Costs M/M: No est v 1.3% prior

- 7:45 (NL) Netherlands Upper House debate ESM

- 7:45 (US) Weekly ICSC Chain Store Sales

- 8:00 (HU) Hungary Central Bank Interest Rate Decision: Expected to leave the Base unchanged at 7.00%

- 8:55 (US) Weekly Redbook Retail Sales

- 9:00 (US) Apr S&P/CaseShiller 20 City M/M: 0.30%e v 0.09% prior; Y/Y: -2.50%e v -2.57% prior; House Price Index: 134.85e v 134.1 prior

- 9:00 (MX) Mexico Apr Global Economic Indicator: No est v 3.6% prior

- 9:00 (EU) ECB Forex Reserves

- 9:30 (BR) Brazil May Total Outstanding Loans (BRL): No est v 2.100T prior; M/M: No est v 1.2% prior; Private Banks Lending (BRL): No est v 1.169T prior

- 9:30 (EU) ECB calls for bids in 3-Month Tender (MRO)

- 10:00 (US) Jun Consumer Confidence: 63.0e v 64.9 prior

- 10:00 (US) Jun Richmond Fed Manufacturing Index: 3e v 4 prior

- 10:00 (US) OECD U.S. Economic Survey press conference

- 10:30 (UK) DMO to announce size for upcoming auctions (4.75% 2030 Gilt on July 3rd and 1.0% 2017 Gilt July 4th)

- 11:00 (BR) Brazil to sell IPCA CPI-Indexed 2016, 218 and 2022 Notes

- 11:00 (US) Fed to purchase $4.50-5.50B in Notes

- 11:30 (DE) WTO's Lamy holds lecture on trade issues in Berlin

- 11:30 (US) Treasury to sell $25B in 52-Week Bills

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

- 12:00 (ES) Spain Econ Min De Guindos explains bailout in Parliament

- 12:00 (FR) France May Net Change in Jobseekers: +10.0Ke v +4.3K prior; Total Jobseekers: 2.895Mev 2.889M prior

- 13:00 (US) Treasury to sell $35B in 2-Year Notes

- 13:30 (BR) Brazil May Tax Collections (BRL): 78.2B v 96.2B prior

- 15:00 (AR) Argentina May Shop Center Sales Y/Y: No est v 8.7% prior

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