• US Equities closed broadly unchanged on Friday as financials bounced back, but the decline in oil prices dragged commodity shares lower. This morning, Asian shares start the week in positive territory.

  • The World Bank warned that prospects for the global economy remained “unusually uncertain”, despite the recent signs of improvement in parts of the world and cut its 2009 growth forecasts for most economies.

  • On Sunday, ECB President Trichet warned that governments which have borrowed billions to fight the crisis had no room for more debt and would have to start brining down budget deficits.

  • Asking prices for homes in most of Britain fell in June after four consecutive rises, but the annual rate of decline continued to moderate, property website Rightmove announced this morning.

  • The US Federal Reserve is considering changes to the repo markets, where banks around the world raise overnight dollar loans, the Financial Times reports on its website.

  • Crude oil ($69.46) dropped more than 2% on Friday caused by a sell-off in the gasoline market.


Markets

On Friday, most markets traded quite choppy, as the eco calendar was devoid of market moving data and due to triple-witching day, which may have added to the underlying volatility. As such, we would be careful to draw many conclusions out of Friday’s trading session.

Overall, government bonds had a strong session, even though equities moved higher too. As such, government bonds reversed (part of) Thursday’s huge losses, especially in the euro zone, but in the US, Treasuries lagged the rebound ahead of this week’s supply. This week, the US Treasury will sell a record $104B in 2-, 5- and 7-year Note auctions on Tuesday, Wednesday and Thursday. In the euro zone, Belgium (3-year), France (30-year) and Ireland (10-year) are all planning to issue a new benchmark via syndication, while the Netherlands and Italy will tap the market on respectively Tuesday and Friday. Last week, the intra-EMU sovereign spreads widened again somewhat, as investors’ risk appetite waned after the three-month rally on the equity and commodity markets ran out of steam. From a technical point of view, the short-term picture of the Bund is bullish, as long as it remains above the neckline of a short-term double bottom formation at 119.31. In the US, the shortterm technical picture is still bearish, as long as the T-Note future hasn’t reversed the break down at 115-06+. Besides the auctions, Wednesday’s Fed monetary policy meeting will draw close attention.

On the currency markets, the dollar traded mixed, as it gained some ground against the euro, but lost against the yen. Sterling on the other hand extended its recent gains against both the dollar and the euro, even though the Minutes of the Bank of England had shown that the MPC does favour a weak pound to help the rebalancing of the UK economy. EUR/GBP is currently testing the recent lows. This week, the calendar in the UK is almost empty. The testimony of the MPC on the inflation report before the UK parliament on Wednesday will therefore be the most important event.

Today, the eco calendar is thin as it only contains the German IFO indicator (June). Last month, the German IFO indicator came out somewhat weaker than expected as the current assessment sub-index dropped to a new cyclical low. For June, the consensus is looking for in improvement from 84.2 to 85.0 in the headline index, with both the current assessment and expectations rising. The outcome will provide some indication with regard to tomorrow’s advance PMI surveys.

On the ECB front, ECB President Trichet will speak in Madrid.