TOP:
The results of the stress tests – due at 5pm UK time – are expected to see about 10 of the 91 banks tested fall short of having the required 5 per cent core tier one capital, including a clutch of four smaller Spanish savings banks and as many as three Greek banks {http://on.ft.com/qen3hU}
Ratings agency Standard & Poor’s has warned there is a one-in-two chance it could cut the United States’ prized AAA credit rating if a deal on raising the government’s debt ceiling is not agreed soon {http://reut.rs/n4YclI}.
The White House suggested it was beginning to look for novel ways to protect the US from a default on its debt in the event that a deal could not be reached with congressional Republicans to shrink US deficits. A second rating agency also warned that the country’s bonds could lose their top rating {http://on.ft.com/roTEPE}.
Pressure mounted on Merkel, the German chancellor, to make a quick decision on how to get private bondholders to pay part of a new €115bn Greek bail-out, with senior Italian officials and the IMF warning that continued uncertainty risked undermining the EZ {http://on.ft.com/quQXvx}.
DJ – Westpac expects RBA to cut rates 100 bps through 2012.
EUROPEAN:
German FinMin reported telling press that “euro bonds” are not a solution to current problems. He adds the Italy cannot be compared to Greece.
Italian lawmakers are poised to give final approval to a beefed-up austerity plan intended to insulate their country from the financial wildfire raging on the eurozone periphery.
Portugal’s government expects the economy to contract by 2.3 percent this year and 1.7 percent in 2012 as the country implements tough austerity measures under a 78 billion euro EU/IMF bailout, Finance Minister Vitor Gaspar said.
Italy, caught in the cross-hairs of financial markets, is renewing its push for common European bonds as the answer to a growing loss of confidence in European governments’ ability to contain a crisis that is engulfing 40% of the euro zone’s economy.
Italy vs US – playing a different game Italy’s problem can be summed up in three letters: ECB. The ECB is banned from buying government bond issues directly. It is prevented by German politics from buying heavily in secondary markets {http://on.ft.com/rgAITO}.
For the first time since Greece’s credit crisis began, the Cabinet met on Thursday to discuss how the government would manage the public impact of a selective default on its debt, a development which now seems inevitable.
No single party would win a general election if it were held tomorrow and almost four in 10 voters would abstain, according to a new opinion poll that suggests nearly all Greeks feel insecure about their future.
Fin min Venizelos is set to issue a Europe-wide appeal to governments asking them to persuade investors to participate in the Greek privatizations program.
UK: Mortgage approvals surged in June but only so that the banks could meet their half-year lending targets, according to a new report by one of the country’s leading surveying firms, the Independent reports.
A former head of the US Federal Reserve has warned that Europe is a long way from creating a resilient financial system as the drive to improve regulation risks slowing “to the point of ineffectiveness”, the Times says.
The number of UK company insolvencies fell in the second quarter of the year but PwC, the accounting firm, warned that corporate failures could rise in some sectors as consumer spending remains weak and public spending cuts begin to bite.
GERMAN FINANCE MINISTER SAYS GREEK CRISIS IS NOW ENDANGERING EURO AS A WHOLE – PAPER. GERMAN FINANCE MINISTER SAYS EUROBONDS ARE NOT A SOLUTION – PAPER
The international authorities overseeing Ireland’s bailout praised the country for “steadfastly” following a prescribed reform program and hitting benchmarks for government finances, making an urgent effort to distinguish Ireland from its more-troubled peer Greece.
Merkel warned on Greek bail-out …“Today in Europe there is an appointment with destiny. Salvation does not come through finance but from politics. But politics cannot make any more mistakes,” Mr Tremonti said. “Just as on the Titanic, not even first class passengers can save themselves.” {http://on.ft.com/qHde9p } .
Europe’s debt crisis has stoked tension in its interbank lending markets as some financial institutions find it harder to raise money ahead of bank stress tests due on Friday {http://on.ft.com/oakD8L} .
US:
The ratings agency warns, as did Moody’s yesterday, it may lower the US sovereign rating within the next 90 days because of “signficant uncertaint” as to the creditworthiness of the United States.
US Rating is downgraded by S&P:
– US SOVEREIGN AAA/A-1+ RATINGS ON NEGATIVE CREDIT WATCH
– AT LEAST ONE-IN-TWO LIKELIHOOD COULD LOWER US IN 90 DAYS
– EVENTS PRESENT SIGNIF UNCERTAIN RE US CREDITWORTHINESS
A backup plan to cut the federal deficit and keep the U.S. government from default gained momentum Thursday even as President Barack Obama and congressional leaders paused their negotiations to determine if they can reach a deal, the WSJ reports.
President Barack Obama pressed Republican and Democratic congressional leaders to give him options for a deficit-cutting deal that lawmakers could support as part of raising the nation’s $14.3 trillion debt limit by an Aug. 2 deadline {http://bloom.bg/nDTlnK}.
Federal Reserve Chairman Ben Bernanke told Congress the CB isn’t prepared to take immediate steps to boost the economy via QE3.
Republicans rejected a deal at a White House meeting on Thursday that would have included a payroll tax-cut extension and a number of tax breaks for certain business sectors, a Democratic aide said.
ASIA:
Japan: Demand for electricity from major industrial users in Japan fell 2.8% on year in June, posting the fourth consecutive monthly y/y drop, following -3.3% in May, -6.2% in April and -6.3% in March, data from the Federation of Electric Power Companies showed
Japan: The government is considering reviving its reward program for buying energy-saving consumer electronics in a bid to help ease long-term power shortages caused by the lingering nuclear radiation crisis in Fukushima.
Nearly 40% of Japan’s major firms believe that they may be forced to shift some operations overseas within the next three years if the current domestic environment does not improve, a Nikkei Inc. survey of top executives showed.
The PBoC sets the yuan central parity rate at Cny6.4665 against the dollar today, compared with Cny6.4640 set for the previous trading day.
The Bank of Korea (BOK) has lowered its GDP forecast for 2011 to +4.3% for the year from an earlier estimate of +4.5% made in April. For H2, the economy is expected to grow 4.7% y/y, down from an earlier estimate of 4.9%.
Inflationary pressures in New Zealand are expected to have continued in the second quarter, rising by the same pace as the March quarter driven by higher fuel and food prices.
President Barack Obama will soon send a free trade pact with South Korea to Congress for approval despite Republican threats to vote against it because of a retraining program for workers displaced by trade, White House Chief of Staff Bill Daley said
Many Bank of Japan policy board members recognised that overseas economies pose a growing risk to Japan’s recovery and a few expressed concern about the adverse effects of a strong yen, June meeting minutes showed, suggesting the board was becoming more cautious even as it upgraded its view on the economy.
China will expand home-purchase restrictions into some second-tier and third-tier cities where property prices are rising too quickly, the State Council said Thursday, indicating a fresh attempt by Beijing to rein in a sector key to economic and social stability.
The EU has accused China of restricting exports of rare earth metals essential for the production of mobile phones and other high-tech gadgets.
CORPORATE:
The veteran fund manager Anthony Bolton has admitted that he may have been caught out by Chinese fraudsters. His Fidelity China Special Situations fund has lost money in two investments in companies that have been accused of fraud.
Top global miner BHP Billiton will buy U.S. gas producer Petrohawk Energy Corp for $12.1 billion, ramping up its bets on the booming but environmentally controversial shale gas industry
ELSEWHERE:
To the untrained eye, Brazil’s sugarcane plantations have never looked better. Rare, feather-like violet flowers have shot up from the top of the plants, filling the shimmering skyline of Sao Paulo’s countryside {http://on.ft.com/qQ6IWm} .
Central banks have bought more gold in the first half of this year than in all of 2010 as a long-anticipated reversal in so-called “official sector” sales gathers pace, a gold group reported {http://www.cnbc.com/id/43763980}
Fitch on Thursday upgraded Uruguay’s credit ratings by one notch, saying the country has been able to reduce fiscal and external vulnerabilities while maintaining political stability
DATA:
China: JUNE ACTUAL FDI +2.83% Y/Y AT $12.9 BLN – 1H ACTUAL FDI +18.4% Y/Y AT $60.89 BLN
MARKETS:
STOCKS: The Dow Jones Industrial Average closed down 54 pts at 12437.12 after trading in a range of 12414.41 to 12581.98. The Nasdaq Composite closed down 34 pts at 2762.67 after trading in a range of 2755.90 to 2817.38 Globex traded US index futures are trading modestly higher across the board. The S&P Sep contract was last up 1.9 points at 1308.6, with the Nasdaq Sep contract 11.75 points higher at 2345.75. Dow futures are also higher, up 22 points at 12404. Japan’s benchmark stocks are trading modestly higher Friday, just above the gain line. The Nikkei 225 was last 9.76 points, or 0.1%, higher at 9945.88, while the broader-based TOPIX was ahead by just 0.39 points, or 0.05%, at 857.27. The Shanghai Composite Index ends morning down 0.04% at 2809.38. The Hang Seng Index ends morning down 0.26% at 21,883.89.
TREASURIES: Treasuries are trading lower across the board Friday, trading lower as advancing US index futures weigh. The yield on the 2Y was last at 0.37%, with the 5Y at 1.51%, the 10Y at 2.97% and the Bond at 4.28%.
COMMODITIES: Crude futures are trading modestly higher Friday, although well shy of session best levels. The front-month WTI contract was last 13 cents higher at $95.82, with the Sept WTI/Brent spread at 19.65
CALENDAR:
0600/0200 ACEA Jun new car registrations
0630/0230 France Jun BoF retail survey
0645/0245 France Apr foreign trade
0700/0300 Spain May industrial orders
0900/0500 EMU May trade balance
1230/0830 Canada May-11 Mfg survey
1230/0830 US Jun-11 Consumer Price Index
1230/0830 US Jul-11 NY Fed Empire State Survey
1315/0915 US Jun-11 Industrial Production, Capacity Use
1355/0955 US Jul-11 Consumer Sentiment (UM) (p)
1600/1200 European Banking Authority publishes results of bank stress tests
1600/1200 Bundesbank and BaFin press conference on EU bank stress tests
– IMF Board meets to discuss the annual Article IV review of China’s economy in Washington
Eastern Europe
BUDAPEST – Development minister Fellegi and IEA Director Tanaka hold news conference on Hungary’s energy policy (0930)
BUDAPEST – OTP Bank <OTPB.BU> stress test results published (1600)
ROMANIA – May C/A (0500)
CZECH – PPI, June (0700)
CZECH – Import/export prices, May (0700)
BULGARIA – May C/A (0800)
Poland – May C/A (1200)
HSBC Global Research