Financial markets recovered in European session as China and other emerging countries committed more money to the IMF's firewall. Yet, gains would likely be limited amid investors' cautiousness ahead of the Spanish bond auction. The market is also awaiting the June FOMC meeting as it's a 50-50 bet on whether the Fed would add additional easing measures to stimulate the economy. In the commodity sector, the front-month contracts for WTI and Brent crude oil remained under pressures after yesterday's reversals. Price drifted lower searching for temporary bottoms. On the contrary, gold steadied as price rebounded after meeting buying interests at around 1600.
Following contributions from Russia and Mexico (US$ 10B each), China announced to pledge US$ 43B to the IMF's reserve in fighting against global economic and financial crises. Other emerging countries including India, Brazil and South Africa also committed certain, albeit smaller, amount of money. In a joint statement released by BRICS, the contributions are being made in anticipation that all the reforms agreed upon in 2010 will be fully implemented in a timely manner, including a comprehensive reform of voting power and reform of quota shares. IMF Managing Director Christine Lagarde stated that the new money would act as a second line of defense, only deployed after existing resources are used up.
While the market sentiment appeared to have been lifted by the news, investors remained cautious as Spain would have 2 bond auctions today, after the debt yields surging to unprecedentedly high levels. The oil market was also depressed as oil producing countries continue to raise outputs despite weakening economic outlook. The Iraqi government announced that the country would boost its crude oil production capacity to 3.4M bpd by the end of the year and has planned to expand capacity to 9.5M bpd by 2017. The Joint Organizations Data Initiative (JODI) reported that Saudi Arabia's crude oil output increased +1.8% to 10.1M bpd in April from the prior month. Crude exports also dropped -1.6% to 7.58M bpd in April from March.
The UK's inflation eased further with headline CPI moderating to +2.8% y/y in May from +3.0% a month ago. Core inflation edged higher to +2.2% from +2.1%. In the Eurozone, the ZEW economic sentiment slumped to -20.1 in June from -2.4 in the prior month. The market had anticipated a drop ot -5.7. In Germany, the economic sentiment index plunged to -16.9 in June from 10.8 a month ago while the current situation index slipped -10.9 points to 33.2, compared to market forecast of 39. The US housing starts probably increased +3K to 720K in May while building permits gained +15K to 730K.