Overnight and in to the open

After hours yesterday, Spain lost its final A rating when Moody's, the second rating agency to cut Spain in 24 hours, took them dow to Baa3 from A3. It seems the market is a whole lot less concerned with the rating agencies than the actual sovereign debt situation as it should be.


That apparently isn't the end of the downgrades for Spain as the banking sector saw several more banks downgraded today. These downgrades are not just exercises in futility, many funds are not allowed by their charter to hold an asset that isn't rated at least A or better, meaning many of these institutions will be sold off by large funds that have to abide by their rules, this includes the Spanish bonds as well, making matters worse. The number of Spanish sovereign downgrades this week just goes to show how big of an error the EU Finance Ministers made with their Spanish Banking Bailout announcement.

If the downgrades weren't proof enough, just remember Sunday night when the futures were flying high on the news, I warned, "watch Spanish debt yields". This morning at 5 a.m. the 10 year Spanish bond hit a new record yield of 6.98% (some trading platforms have the yield above 7%-Greece sought a bailout at 6% yields) , that is utterly unsustainable and will lock Spain out of the debt/credit markets, which means next up... Spanish Sovereign Bailout.

As Spain is in trouble, eyes are shifting toward Italy on contagion fears, they could be clearly seen in an Italian debt auction today of 3, 7 and 8 year bonds with yields soaring:

• €3 billion in 2015 bonds, B/C 1.59 vs 1.52 in May 14, yield soared to 5.30% vs 3.91% a month ago
• €627 million in 2019 bonds, B/C dropped from 2.27 on April 27 to 1.99; yield soared from 5.21% to 6.10%
• €873 million in 2020 bonds, B/C dropped from 2.08% on May 14 to 1.66%, yield soared from 5.33% to 6.13%

It seems the purse strings of the EU are starting to tighten up on some disgust, that would be none other than Germany as the FT reports:

"Senior government officials in Germany have cautioned anew against expectations in the financial markets – and the capitals of its eurozone partners – at the introduction of radical new measures to defuse the crisis in the eurozone in coming days or weeks.

In a series of interviews, leading politicians and members of the government warned that even Europe’s most powerful economy is not capable of assuming responsibility for the debts of all its partners in the eurozone. They rejected demands for urgent introduction of jointly guaranteed eurozone bonds or the creation of a publicly funded bank deposit guarantee scheme."

One news item or I should say EU sewing circle rumor that is driving some risk on trade, comes from Greece:

"Stefanos Manos, the leader of the small liberal party Drasi, claims that leftist SYRIZA will not scrap Greece’s bailout if it comes to power because it is the only way it can guarantee salaries for its supporters in the civil service." 

Is Syriza bluffing to win the election? I doubt it, but rumors are enough for now, especially with all political polling blacked out ahead of the Greek elections.

In the US this a.m., Initial Claims missed...
Released On 6/14/2012 8:30:00 AM For wk6/9, 2012

	Prior	Consensus	Consensus Range	Actual
New Claims - Level	377 K	375 K	370 K to 385 K	386 K
4-week Moving Average - Level	377.75 K			382.00 K
New Claims - Change	-12 K			6 K

Claims came in above consensus with the prior (as usual) being revised higher to 380k, the 4 week moving average is moving up; continuing claims also missed. Another 135k people fell off the extended 99 week cliff this week.


Also this a.m. the Consumer Price Index (CPI) followed the Producer Price Index (PPI) and missed

Released On 6/14/2012 8:30:00 AM For May, 2012 Prior Consensus Consensus Range Actual CPI - M/M change 0.0 % -0.2 % -0.3 % to 0.1 % -0.3 % CPI - Y/Y change 1.7 % CPI less food & energy 0.2 % 0.2 % 0.1 % to 0.2 % 0.2 % CPI less food & energy - Y/Y change 2.3 %

This wasn't only a miss, but the biggest decline since December of 2008.

Strangely though, gold didn't see the kind of increase one would expect with this horrible data that  many associate with increased probabilities of new QE or easing measures. We've been noticing some trouble in GLD lately, so we'll take a closer look. Finally, EUR/USD and ES trade. Yesterday I speculated that shares of ES may have been picked on on the cheap as it was obvious yesterday that some news had been leaked in the Euro as we saw the 3C divergences hours before the news came out. Initial indications after the close suggested that was the case and overnight trade seems to confirm it.

 ES off yesterday's closing lows, the green arrow is the European open.

 ES in to the US open.

 The Euro has remained largely rangebound just under major resistance.

The Euro since the 9:30 open. GLD and market updates coming...