· Euro is trading off 1.5% overnight on top of yesterday’s 1.6%. The Euro has now returned nearly the entire rally from the back-half of last week and is near lows (1.214 was the low last Wednesday). The WSJ this morning notes that the Euro is increasingly becoming the funding currency of choice among carry traders, placing additional pressure on the currency in addition to renewed concerns over Spanish banks.
· Spanish Banks – Yesterday during US trading, reports hit that 4 Spanish savings banks agreed to merge. Pressure is now building on the Spanish saving banks after the Bank of Spain bailed out Cajasur over the weekend. A Bloomberg article overnight noted that at least 16 Spanish savings banks are currently engaged in talks or have already sealed plans to merge. This comes after the IMF yesterday made cautious commentary re Spain’s economy saying “Spain’s economy needs far-reaching and comprehensive reforms. The challenges are severe: a dysfunctional labor market, the deflating property bubble, a large fiscal deficit, heavy private sector and external indebtedness, anemic productivity growth, weak competitiveness, and a banking sector with pockets of weakness.”
· European Banks – Also important to note is that a number of headwinds are building for European banks with the FT reporting that EU countries may be forced to levy a fee on their banks to raise capital to help pay for future financial bailouts while the WSJ notes that European banks are being hit w/higher funding costs vs. their peers in the US and Asia.
· Eurozone Eco Data – A few eco datapoints out overnight but keep in mind they are for Q1 or Mar – March Industrial Orders and the UK GDP numbers are unlikely to impact trading at this point as the focus is now on Apr./May with concerns that the Icelandic Volcano Ash and the Sovereign debt crisis may weigh on numbers. Italy’s May Consumer Confidence fell more than expected to 105.4 from 107.9 vs. St. 107.8 w/the decline mainly being driven by household’s less favorable view of the country’s economy in the near-term.
· European short sales – European securities regulators are said to be in “intense” discussions over the German short sale ban w/a “possible agreement on greater co-operation as early as this week”; the Dutch gov’t is being pushed to lobby for a Europe-wide short sale ban – FT
· European bailout plan sees change - The European rescue fund to be backed by 440 billion euros ($537 billion) in national guarantees would lend to euro-area countries needing aid rather than buy their bonds as originally planned. Bloomberg
· German politics – Merkel’s coalition weakens – key politician steps down - Roland Koch, a powerful leader in Chancellor Angela Merkel's conservative party and state premier of Hesse, will stand down and leave politics (Reuters)
· Korea – tensions heighten in Korea – media reports have suggested that Kim Jong Il, the North Korean leader, had ordered his military to prepare for combat after Pyongyang was accused by Seoul of torpedoing a South Korean navy vessel (FT)
· China & the US – the US/Beijing strategic dialogue wraps up today; in any other week, this would be a big event…however, w/the focus on Europe, the China/Geithner headlines are largely non-events. The European sov debt crisis has delayed any action from the Chinese on the yuan (China reiterates that it will make an independent decision on the yuan and that “outside noise” will only delay any move). The next leg of Geithner’s trip (he will land in Europe early Wed) will be much more important.
· Steel price cuts in the headlines – for the first time in a long while - JSW Steel, Ispat may consider price cuts in June – JSW Steel may consider cutting prices of flat steel products in June due to a decline in int’l steel prices. Prices have come under pressure as countries recover from the economic downturn and the European debt crisis. Reuters
· Junk companies shut out of market thanks to market rout; worst junk environment since depths of the credit crunch last year; 7 high-yield deals have been delayed or dropped since Apr 29 – WSJ
· Mortgages - Mortgage Delinquencies Fall For 1st Time Since '06 per TransUnion (DJ)
· SP500 equity technical update - Nearby supports are 1070 and 1056.
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