Risk aversion continued overnight. EU officials said Greece is unlikely to meet its debt obligations and further restructuring is likely, according to Reuters which quoted one official as saying Greece is hugely off track'. This update, on the heels of earlier news Moody's had downgraded the outlooks for AAA Germany, Netherlands and Luxembourg, kept markets on a defensive footing. US data disappointments (PMI, Richmond Fed manufacturing) also contributed. The S&P500 is currently down 1.4%. Yesterday's decent China PMI report constrained commodities' losses, the CRB index down 0.8%, oil +0.1%, and copper -0.6%. The US 10yr treasury yield made a fresh record low at 1.39% in NY following a London squeeze to 1.46%. A 2yr auction went at a record low 0.22%. Spain's 10yr yield rose 12bp to a fresh decade high of 7.64%, while Italy's rose 26bp, Greece up 46bp.
The US dollar index (DXY) made a fresh two year high. EUR fell from 1.2130 to 1.2043 - a two year low. USD/JPY was quiet, contained between 78.10 and 78.30. AUD peaked at 1.0316 around midday London and then sank with the EU comments to 1.0215. NZD similarly peaked at 0.7923 and sank to 0.7840. AUD/NZD again tested major resistance at 1.3030 without success.
Economic wrap
US Richmond Fed factory index plunges from -3 to -17, its lowest reading since April 2009 when the economy was still in recession. Shipments and orders were especially weak at -23 and -25 respectively; jobs were down 7 pts but held positive at 1. This index is clearly more in line with the recent weak readings on the Philly Fed index than the NY Fed index which bounced in July. US house prices rose 0.8% in May according to the FHFA, the fourth gain since prices last fell in January.
Moody's questions ratings of the European AAAs. Angela Merkel insisted Germany will remain a safe haven within Europe and the risks Moody's cited when cutting the AAA sovereign's rating outlook from stable to negative were 'nothing new'. Yes, but those risks are crystallising. The Netherlands and Luxembourg also had their outlooks lowered, leaving just Finland as AAA with stable outlook.
Greek PM Samaras fears a 7% contraction in the Greek economy this year and no growth before 2014. The troika of IMF, ECB and EU officials arrived in Athens to determine whether fresh 'political decisions' will be needed by Greece's euro partners (could those be about easier budget deficit reduction targets ... another debt restructure... or something more abrupt?).
Spain not seeking a bailout and not getting one according to various Spanish and EU officials but 'in such difficult times as we are in, one has to be ready to act at any moment'. One wonders if the ECB might be considering that advice with respect to expanding its bond purchase program. Spanish 10yr bonds were trading at above 7.5% for much of today, with the Italian paper at 6.5%.
Euroland composite PMI steady at 46.4 in July, again weaker than any reading prior to September 2008. The French services PMI for July edged back above 50 but the factory PMI fell further and the services and factory PMIs in Germany are both falling.
UK mortgage approvals fell from almost 30k in May to 26k in June. The Jubilee public holidays and wet weather dampened the market according to the BBA but May had great weather and an extra business day and its figure was almost the lowest in three years, so those June distortions may be masking an underlying slowdown in the market
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