Overnight and In to the open.

The next bailout coming in days?

According to the FT, Cyprus which hinted at this yesterday, is set to seek a bailout within days.

Also overnight...

UK Industrial /Manufacturing Production missed at -0.7 on expectations of -0.1 (previous +.9)

As explained yesterday the Euro Finance Ministers came up with a bailout number larger than what consensus sees Spanish banks as needing as a way to create a Bazooka effect, the problem was bond subordination that could force Spain from needing a bank bailout to a full blown sovereign bailout as their bonds were dumped en masse yesterday on news that the bond holders' rights were subordinated to the banking loan.

As such, Spain is in danger with rising yields of being locked out of the credit markets.

As expected, there is market talk the ECB has reactivated the SMP after nearly 4 months of no activity and was buying in the secondary bond markets; yet Spanish 10 years are still higher on the day. The Spanish 10 year last seen earlier this morning at 6.644% and Italian 10 year at 6.123%, but since then Spanish bonds have seen higher yields with these comments from Merkel regarding Euro-bonds which Germany opposes and is becoming a key argument in the North/South divide...

• *MERKEL SAYS WRONG TIME TO DISCUSS POSSIBILITY OF EURO BONDS
• *MERKEL SAYS STATES MUST GIVE UP SOME SOVEREIGNTY TO EU
• *MERKEL SAYS JOINT LIABILITIES IN EUROPE REQUIRE JOINT CONTROLS
• *MERKEL SAYS INVESTORS' INTEREST NOT IDENTICAL WITH EUROPE'S-

That last bullet point statement could easily be taken as the market took the news yesterday that the ESM loans are senior to any private creditors (bond holders), it may even expand the view beyond the ESM.

This sent Spanish 10 year yields to their 15 year highs at 6.67%.

The NYSE short interest data is out, May saw an increase of 800 million bringing the total to 14.3 bn, which is a bit higher than where the short interest was at November 30 of 2011.

The last time the NYSE short interest was at these levels in November 2011, the market fell 6% and that's when we saw the globally coordinated easing.

Aslo just as I have been explaining, the test of resistance brings in more shorts, look at the May activity as May short interest gained by 800 mn.

In the US, Import/Export Prices were released at 8:30

Released On 6/12/2012 8:30:00 AM For May, 2012

Prior Consensus Consensus Range Actual Export Prices - M/M change 0.4 % 0.1 % -0.2 % to 0.1 % -0.4 % Export Prices - Y/Y change 0.7 % -0.1 % Import Prices - M/M change -0.5 % -1.1 % -1.9 % to -0.4 % -1.0 % Import Prices - Y/Y change 0.5 % -0.3 %

Exports -month to month- missed consensus as did the year on year. Month to month Import prices saw the largest drop in 2 years, but actually coming in pretty close to consensus, although the prior of -.5% was revised to 0%. The year over year import prices saw the first drop in 32 months.

As for ES and the Euro/Dollar...

 Shortly after market last night I saw a 3C positive divergence developing, I chose not to post it as it didn't seem sufficiently large enough to be game changing, but it did lift ES, at least until the European open at the green arrow (chart continued below).

 Since the Euro open to the US open, lots of chop.

 The Euro/Dollar held up at the short term uptrend line overnight.

The larger view, the blue arrow is the May 1 downtrend, the green arrow is the short term uptrend, the red is major resistance and the yellow is the start to FX trade this week.

Market updates coming.