Global Currencies and Interest Rates- Spain Needs Life Boat- Spainsh Banks “RAGE”; Roubini Spain should Default NOW

 

• Spain will need rescue according to Merrill - "Spain's debt crisis may force the country to tap the EU-IMF rescue fund over the next two to three months and set off a political storm, according a confidential report by the Bank of America Merrill Lynch." London Telegraph
• Spanish banks “rage” at end of ECB 12 month liquidity tender - Spain’s banks have been lobbying the ECB hard to take action and alleviate the stress that will arise as a result of the 12 month expiration. Spanish banks accuse the ECB of “absurd” behavior by permitting the tender to expire. “Any central bank has to have the obligation to supply liquidity. But this is not the policy of the ECB. We are fighting them every day on this. It’s absurd.” FT 
• Greece - N Roubini oped in the FT this morning - says Greece should default now - “Greece’s best option is an orderly default.” The country’s austerity measures will impose cutbacks that are too large for its economy to bear. FT  
• ECB takes the place of the interbank market in Europe - The ECB is currently lending close to €900bn ($1,098bn, £728bn) to eurozone commercial banks, jumping to near-record levels since the creation of the central bank 11 years ago. The ECB has become a lifeline for some of Europe’s ~3K weaker banks. FT
   

Market Update – The SP500 has been down now for 9 of the last 10 sessions “buyers are no where to be seen” $SPY

• Market Update – equities extended their decline this week, w/the sp500 dropping ~5% (on back of last week’s ~3.6% decline), although late on Thurs and into Fri, it appeared like the worst of the selling pressure had been exhausted. 
• The SP500 has been down now for 9 of the last 10 sessions (and 4 of those 9 days have been declines of more than 1%, inc. the 3.1% drubbing experienced on Tues June 29).  The big underlying catalyst behind the weakness has been a theme present in the marketplace for a couple weeks now but gaining more adherents every day – a concern that economic growth is quickly slowing and potentially heading for a “double dip”. 
• US investors have endured a slew of economic readings coming in below consensus really since the May jobs report back on June 4 (when the private sector adds of just 41K badly missed St expectations of +180K; that 41K has subsequently been revised lower to +33K). 

China Headlines $CNY-Obama said he “thinks” WTF??? China is serious about its pledge for greater FX flexibility

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· China Yuan - the PBOC sets a record high fixing for the yuan today, although the currency  actually falls slightly - the country's central bank set the dollar-yuan central parity rate at  another record low of 6.7890, down from the previous low of 6.7896 on Friday. However,  the yuan actually ticked up small – DJ
· China insists its yuan shift didn’t come about as a result of int’l pressure on the country  (DJ)
· China’s ministry of commerce tells reporters that exports from his country will slow this  year b/c of the rising yuan – Bloomberg
· China – Economy still faces a “complicated situation” but is rebounding, Vice Premier L.  Keqiang said. Bloomberg
· Global companies increasing seek China listing – the London Stock Exchange and Seaspan  are among the firms that are considering a Shanghai listing – Bloomberg
· China – Obama said he “thinks” WTF??? China is serious about its pledge for greater FX flexibility and
believes the yuan will rise “significantly” (Reuters)

New yield forecast Greece still putting a lid on German yields

Greek woes still keep a lid on German yields despite increasing risk appetite and a better outlook for indicators in coming quarters.Short rates have range traded over the past month and the 2Y-10Y curve has remained unchanged. Going forward, we expect the curve to flatten.The first ECB rate hike will probably occur in Q1 2011, though the market is not discounting the first hike till Q3 11.We expect the Danish central bank to deliver another CD rate cut within the next month.The US recovery is leading the eurozone so the Fed will act before the ECB. We expect a first US hike in November 2010.Yields should rise on both sides of the Atlantic in 2010.Next yield forecast due 14 May 2010

(IGM)[JAPAN FIN MIN KAN] is over the wires, saying that the likelihood of Japan escaping a double dip recession has increased,... $EWJ

 

JAPAN FIN MIN KAN] is over the wires, saying that the likelihood of Japan escaping a double dip recession has increased, with economic indicators having improved a lot. That said, he still wants more efforts to end deflation; and confirms earlier press rpts that BOJ Gov Shirakawa is meeting today with Prime Minister Hatoyama for the first of what will be periodic meetings, likely to be every three months between the government and the central bank. Otherwise on the Yen, he notes its recent weakening has been good for Japanese businesses. Even though BOJ sat pat on policy this week; pressure from the Govt on the BOJ to adopt further QE measures looks set to continue, especially heading into the July elections and or if the Yen strengthens