Fundamental Analysis
EUR
“Ministers unanimously agreed today to grant financial assistance for the recapitalisation of financial institutions in response to the Spanish authorities' request on 25 June 2012”
- Statement by the Eurogroup
Eurozone finance ministers formally approved an agreement to loan up 100 billion euros to Spain for banks recapitalization in order to avoid a full sovereign bailout for the country.
Spanish government is expecting a first installment of 30 billion euros being available immediately for state-rescue banks. The bank rescue requires fresh austerity measures from Spain, accounting for 65 billion euros of spending cuts and tax hikes.
“The Eurogroup is convinced that the reforms attached to this financial agreement will contribute to ensuring a return of all parts of the Spanish banking sector to soundness and stability,” stated in the Eurogroup’s statement.
USD
“Yields are pretty low and there’s probably a fair bit of safe haven-type flow into them”
- RBC Capital Markets Ltd.
U.S. ten-year Treasuries advanced, pushing yields to historic lows, as fears about Spain’s ability to avert a sovereign bailout spark investors’ demand for safe-haven fixed income assets. Ten-year yields touched 1.4347 percent, while the five-year yield fell to historic low of 0.5555 percent.
"It is easy to understand that the European situation is not good, which is driving yields down. From now, a lot of the market's direction will also depend on U.S. data," said Tomoaki Shishido, Fixed Income analyst at Nomura Securities.
“Soft data in the U.S. is pretty consistent with what’s been happening across the globe,” said Michael Turner, Economist at RBC Capital Markets Ltd. in Sydney. “Yields are pretty low and there’s probably a fair bit of safe haven-type flow into them.”
GBP
"It is clear that the recession is leading to a worsening of the U.K.'s underlying fiscal position and raises more question marks over the effectiveness of the government's austerity measures"
- ING Bank.
According to the official figures released by the Office for National Statistics on Friday, the U.K. public sector net borrowing rose more than expected to 14.4 billion pounds in June, which was 0.5 billion pounds higher than in June 2011. This raises concerns whether the U.K. will be able to meet its deficit reduction target this year.
"It is clear that the recession is leading to a worsening of the U.K.'s underlying fiscal position and raises more question marks over the effectiveness of the government's austerity measures," said James Knightley, Economist at ING Bank.
"We expect the economy to grow only modestly, slowed by weak demand due to low confidence, the uncertainty due to tensions in the euro area, tight credit conditions, and lower spending from the government, businesses and households as they cut debt,” said Ajai Chopra, Deputy Director of the IMF's European Department.
CHF
“European markets and the euro have taken a turn for the worse today, smacked by headlines out of Spain”
- ETX Capital, London
Swiss stocks slid from a four-month high as Spanish bond yields jumped to Euro-era highs, escalating concerns that the Eurozone debt crisis is worsening.
The SMI, the Swiss blue-chip index, a measure of the largest and most actively traded companies, lost 0.6% falling to 6,284.81, even as the Eurozone finance ministers approved bailout of Spanish banking sector.
“European markets and the euro have taken a turn for the worse today, smacked by headlines out of Spain,” Ishaq Siddiqi, Market Strategist at ETX Capital in London.
“Although EU finance ministers have adopted the Spanish bank bailout, sentiment has been rattled by Spain painting a bleaker outlook than previously by downgrading its economic growth forecasts.”
JPY
“The slowdown in the global economy is becoming more widespread”
- The Cabinet Office
Japan cut China’s economic outlook, lowering its evaluation of Japan’s largest trading partner. This is due to a slow expansion in China.
Japan’s pessimistic sentiment reflects the IMF’s lowered 2013 world growth forecast amid deepening Euro bloc’s debt crisis and slowing expansion in the emerging markets.
“The slowdown in the global economy is becoming more widespread,” the Cabinet Office said in a monthly report.
“Sharp fluctuations” in financial markets due to global uncertainty could affect Japan’s growth prospects, the Japanese government said, while reiterating that the economy is “on the way to recovery at a moderate pace”.
