TOP
S&P puts Italy on downgrade watch (implying a 1 in 3 chance of downgrade over next two years) citing weak outlook for growth and reduced prospects for slashing its debt mountain.
Spanish regional election: Spanish Socialists suffer worst electoral defeat in 30 years. In the aggregated municipal vote nationwide the PP had a 10-percentage point lead over the Socialists. Socialists lose Barcelona first time in 32 years.
China factories expanded in May at their slowest pace in 10 months while price pressures eased, adding to evidence that the economy is moderating as a tighter policy starts to bite. HSBC flash PMI eases to 51.1 in May.
EUROPE
French FinMin Christine Lagarde signaled Paris might support a rescheduling of Greek debt, warning that Greece is at risk of default if it doesn’t do more to bring its public finances into order. The comments mark a shift in France’s position in a debate that has pitted Germany and other euro-zone governments against the ECB, which opposes any form of restructuring of Greek debt.
Greek PM George Papandreou will discuss new measures with his cabinet on Monday to cut the budget deficit, in an effort to convince lenders Greece can deal with a debt crisis without a restructuring.
ECB governing council member Christian Noyer said he did not expect a domino effect in the euro-zone debt crisis as countries such as Greece and Portugal face problems that are different in nature, Japan’s Nikkei business daily reported.
Merkel repeats that Greek restructuring before 2013 would be changing the rules, and this would risk credibility with markets and threaten other countries
Greece must avoid debt restructuring and push on with budget cuts and privatisations to overcome its debt crisis, the country’s Prime Minister George Papandreou and senior ECB officials said on Saturday.
UK joins all other Europeans in endorsing Lagarde as next IMF head. Mexican FinMin also in with a shot
The Bank of England must start to raise interest rates from record lows to tackle inflation or risk damaging the economy, its chief economist Spencer Dale said in an interview with the FT over weekend. Britain’s recovery from a deep recession is still not assured, he added, and persistently high inflation is an even greater concern.
Inflation is likely to stay high for a “prolonged period”, according to an outgoing member of the BoE Andrew Sentence
UK manufacturing pay deals edged up in three months through April, a key period in the pay calendar, to hit their highest level since January 2009. The average manufacturing pay deal came in at 2.5% compared to 2.4% in the first quarter, according to EEF/JAM Recruitment data
FT- Corporate governance at the Bank of England is coming under increasing scrutiny from senior bankers and politicians concerned that its court of non-
executive directors is not robust enough to hold its executives to account for the central bank’s greatly expanded functions. They warn that the court – which
in earlier years was more like a sounding board rather than a corporate board – may not have the expertise, experience or authority to challenge senior Bank
officials as they extend their responsibilities beyond monetary policy into broader financial regulation
Juncker says Greece needs an independent privatisation agency, a la Eastern Germany’s Treuhand.
FT- The Greek government has fallen sharply behind on payments to healthcare companies only months after restructuring its €5.4bn ($7.6bn) debt to
suppliers, raising doubts about patient safety while revealing the looming cash flow crisis faced by the state. The pharmaceutical industry says only 30 per
cent of €1.2bn in payments owed by public hospitals since the start of last year have been made. Of debt due from the start of 2011, just 1 per cent has so
far been paid.
European companies have written off debt of E312bn in the past year, exceeding the combined bail-out packages secured by Greece, Ireland and Portugal, according to an authoritative study, the FT reports. The annual survey of some 6,000 European businesses by Intrum Justitia, a Stockholm-based credit management company, revealed an accelerating problem with 2.7 per cent of all transactions across Europe being written of, compared with 2.6 per cent in 2009, the paper says.
Polish Central Bank Governor Marek Belka said on Saturday that market expectations that policymakers will raise interest rates by half a percentage point by the end of the year are similar to his own thinking. Belka said the Finance Ministry’s conversion of euros on the open market had stabilised the zloty and made it tougher to speculate against, while inflation was nearing its peak.
Hungary’s plan to fix conversion rates on foreign currency loan repayments will ease households’ burden in the short term, while it should not weigh on the forint as it does not affect banks’ FX positions
US
Republican chairman Ryan says US debt agreement may take until August
Former Minnesota Governor Tim Pawlenty announced on Sunday that he is seeking the 2012 Republican presidential nomination, adding some weight to a field of candidates seen as struggling to defeat President Barack Obama
America may be facing a second dotcom bubble, according to former US Treasury Secretary Larry Summers, the Telegraph reported. His warning came as shares in professional networking site LinkedIn surged for a second day in New York, the paper says
ASIA
Japan won pledges of help on Sunday from China and South Korea in its efforts to recover from an earthquake, tsunami and nuclear crisis that rocked the nation in March, with Beijing promising to start easing curbs on Japanese food imports.
Japan’s EconMin Yosano said that quake reconstruction may cost up to USD184bn.
JAPAN PRESS: The government will relax plant-construction rules to prevent an overseas production exodus due to the strong yen and the impact of the Great East Japan Earthquake, the Nikkei reports.
JAPAN: The Reconstruction Design Council has agreed that raising taxes may be necessary to fund the huge fiscal outlays needed to help rebuild quake-hit areas, Makoto Iokibe, head of the council, said over the weekend
JAPAN PRESS: The national budget deficit may exceed Y10 trillion in 2015, not including the costs of rebuilding the disaster-stricken northeast, the Nikkei reports. The sales tax rate would need to be raised by about 5 percentage points from the current 5% to make up the difference, it says. Economic and Fiscal Policy Minister Kaoru Yosano will present the budget forecasts next month as part of a proposal to a government council on social security reform, it says
CHINA PRESS: An expected slowing of economic growth in the second half of this year will help in the fight against inflation, a government economist said in comments published Monday. Fan Jianping, chief economist with the State Information Center, in the official China Securities Journal, also suggested that policy-makers should be more careful from now on in tightening policy.
The People’s Bank of China sets the dollar-yuan central parity rate at Cny6.4998 today, compared with Cny6.4983 set for the previous trading day.
SINGAPORE APRIL CONSUMER PRICE INDEX +4.5 PCT VS YEAR AGO; REUTERS POLL +4.50 PCT
Thailand: Q1 GDP, at 3.0% y/y (Higher than expected)
The first Chinese company to raise new money on Aim for almost a year will join London’s junior market on Monday. However China New Energy, which designs and builds bioethanol and biobutanol projects, is raising only ?655,210 through a placing at 7p a share. The company, which is advised by Cairn Financial, will be left with a net ?60,000 after costs. The market capitalisation will be about ?21m
MENA
Saudi Arabia has agreed to lend Egypt $4bn in emergency funding, according to official press agencies in both countries.
OTHER MARKETS
NIKKEI 9453 (-1.6%), HANGSENG 22779 (-1.8%), S&P/ASX 4647 (-1.8%), SHANGHAI SE COMPOSITE 2796 (-2.2%), KOPSI 2062 (-2.4%) – As of 07.00GMT
TSYS: The yield on the 2Y was last at 0.51%, the 5Y at 1.77%, the 10Y at 3.12% and the Bond at 4.27%.
OIL: WTI crude at 98.3 (-1.7%). Brent Crude at 110.60 (-1.5%)
Gold last trades at 1508 (-0.3%), Silver at 34.65 (-1.2%)
COMING UP TODAY( times GMT/ET)
0500/0100 Bank of Japan: economic report for May
0500/0100 Japan: revised March leading indicators
0628/0228 Germany May-11 flash manufacturing/services PMI
0658/0258 France May-11 flash manufacturing/services PMI
0658/0258 EMU May-11 flash manufacturing/services PMI
0830/0430 UK Q1-11 BOE lending data
1230/0830 Bank of England’s Paul Tucker Speaks At ICSA
1300/0700 ECB Governing Council member Lorenzo Bini Smaghi to speak at Austrian National Bank conference in Vienna. EU Commissioner Olli Rehn speaks at 0800GMT
– UK DMO to hold qrtly consultation meeting GEMMs & End-Investors
– UK 0.75% Mar 2034 IL Gilt Syndicated
– Belgium 4.25% Sep 2013 OLO41 TBA 20 May
– Belgium 3.50% June 2017 OLO63 Tap
– Belgium 4.25% Sep 2021 OLO61 Tap
– Beligum 4.00% Mar 2022 OLO48 Tap
1300/0900 Mexico Mar-11 Retail, Wholesale sales
1300/0900 Mexico Feb-11 Service sector index
1330/0930 US 20-May MNI Capital Goods Index
1430/1030 US 21-May MNI Retail Trade Index
1900/1500 US May-11 Treasury Allotments By Class
0010/2010 St. Louis Federal Reserve Bank President James Bullard speech on the economy and monetary policy to the Mineral Area College Cozean Foundation in Park Hill
HSBC Global Research