In what was probably the biggest news of the weekend, the issue of seniority of debt was front and center again with regard to the Spanish banking bailout, this is the issue of determining who gets paid back first in a Spanish banking sector bailout by the EU, the EU or current sovereign Spanish debt holders and more recently stock holders of the banks. This issue has swung back and forth and carried 10-year Spanish bond yields with it, either breaking above the insane 7% level or ,mellowing out to about 6.20% (still unsustainable).
The ECB weighed in this weekend and it wasn't good for stock holders. The ECB for the first time has done a 180 degree reversal of policy and demands that bond holders of the impaired banks shoulder the burden of the losses. This is a complete reversal from the Irish bailout in which the ECB stood up for bond holders of banks saying they should not suffer any losses. This wasn't some rumor, but came directly from Draghi himself at a Finance Ministers meeting. For now the Finance Ministers are trying to back away from the ECB's position. This could lead to full on ban runs and dumping of all banks stocks/bonds (both junior and senior).
More from the WSJ:
"The ministers rejected the advice out of concern that financial markets would react badly to the decision. A draft of the rescue agreement, which will provide as much as EUR100 billion ($122.5 billion) for the Spanish banking system, requires Madrid to force losses only on shareholders and junior bondholders in banks receiving bailout money, and doesn't mention creditors higher up in the pecking order.
A spokesman for the European Commission, the EU's executive arm, said: "It is clear that senior bondholders won't be involved in burden sharing."
The ministers' decision confirmed a pattern in the euro zone for dealing with bank troubles, in which senior bondholders have been spared even in the most brutal failures. But the ECB's shift may also be a sign that the tides are turning on the issue, as the euro zone embarks on a fundamental overhaul of the way bank failures are dealt with within the currency union.
During the July 9 meeting, Mr. Draghi argued in favor of including senior bank creditors in burden sharing between taxpayers and investors in the case of Spain, three people familiar with the discussions said. Two said Mr. Draghi favored forcing losses on senior bondholders only when a bank was pushed into liquidation."
From Germany over the weekend, the German Constitutional Court declared that there would be no ruling on the ESM until September 12. The permamnent bailout mechanism which was supposed to take effect July 1st is still further delayed with some talk that it won't take effect until 2013.
In other news the Italian Finance Minister over the weekend proposed a plan to save $100bn through privatizations and state asset sales over the next 5 years.
European markets thus far have been pretty thin volume.
In the US Citi reported a top line miss and bottom line beat via accounting gimmicks such as loan loss reserve releases. C gapped up with Financials in general showing early strength, but is now making its way back down toward the unchanged level.
Retail Sales in the US saw a large miss this morning pre-market...
Released On 7/16/2012 8:30:00 AM For Jun, 2012
| Prior | Consensus | Consensus Range | Actual | |
| Retail Sales - M/M change | -0.2 % | 0.2 % | -0.2 % to 0.4 % | -0.5 % |
| Retail Sales less autos - M/M change | -0.4 % | 0.1 % | -0.3 % to 0.2 % | -0.4 % |
| Less Autos & Gas - M/M Change | -0.1 % | 0.3 % | 0.3 % to 0.5 % | -0.2 % |
This sent gold higher on the open, it has pared back some of those gains since.
The Empire State Manufacturing Survey also came out at 8:30 with a beat, but the devil is always in the details...
Released On 7/16/2012 8:30:00 AM For Jul, 2012
| Prior | Consensus | Consensus Range | Actual | |
| General Business Conditions Index - Level | 2.29 | 4.50 | -8.00 to 6.00 | 7.39 |
More from Bloomberg:
"Weakness in orders points to slowing activity ahead for the New York region's manufacturing sector and undercuts a rise in the report's general business conditions headline. New orders fell to minus 2.69 to indicate monthly contraction from what was no more than very soft growth in June at plus 2.18. Unfilled orders are also contracting, at a very steep minus 13.58.
For the record, the headline index rose more than 5 points to 7.39 to indicate monthly growth in general business conditions. But this growth won't go very far if orders are contracting. The pace of shipments is rising this month as is employment which, at 18.52, put in an especially good showing. Price pressures in the region are moderating.
The orders readings in this report unfortunately fall in line with two months of prior weakness in the Philly Fed report and the dismal ISM national report posted at the beginning of the month. There's plenty of warning signs right now that the manufacturing sector is slowing this summer. The Philly Fed report for July will be out on Thursday."
For the record, the headline index rose more than 5 points to 7.39 to indicate monthly growth in general business conditions. But this growth won't go very far if orders are contracting. The pace of shipments is rising this month as is employment which, at 18.52, put in an especially good showing. Price pressures in the region are moderating.
The orders readings in this report unfortunately fall in line with two months of prior weakness in the Philly Fed report and the dismal ISM national report posted at the beginning of the month. There's plenty of warning signs right now that the manufacturing sector is slowing this summer. The Philly Fed report for July will be out on Thursday."
The market overnight has been pretty quiet overall and will probably remain somewhat quiet as the market waits for Bernie's semi-annual Congressional Testimony tomorrow.
Here's what ES looked like and presently looks like (very rangebound) as well as the EUR/USD pair.
And here's the US open at 9:30.
Opening indications and Market updates coming...
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