Financial markets were relatively quiet as the US and many European countries were on holiday. European share opened higher as the latest polls showed that the pro-bailout party, New Democracy, in Greece was taking the lead. Gains were, however, later erased amid news that the Spanish government proposed recapitalization of Bankia. Spain's 10-year bond yield soared +16 bps to 6.424%, the highest in months while the spread of Spain's 10-year bond yield to German Bunds widened a record of +506 bps.

The focus remained on the Eurozone. Spanish Prime Minister Mariano Rajoy stated that the government has considered using public-debt securities to fund the 19B euro bailout of BFA-Bankia. While he said that there will not be a (European) rescue for the Spanish banking system, he supported measures that would allow the Eurozone bailout fund to directly lend to banks. Rajoy also pledged that the nationalization of Bankia would not affect the country's budget deficit. In Greece, the election in mid-June is expected to be a war between pro- and anti-bailout parties. The latest polls showed that Greece's New Democracy party led by as much as 5.7% over Syriza. The former also ranked first in all 6 opinion polls published over the weekend. This has somehow eased market concerns that victory of the Syriza (the radical left party) would accelerate the pace of a Greek exit from the Eurozone.

Another key issue of the week is Ireland's referendum on the European fiscal pact on May 31. The latest polls showed that 60% of the voters supported the deal as the country would not be able to access the ESM if it does not approve it. However, the recent rising in short-term Irish bond yield indicated that the Ireland would continue to face challenge when it attempts to access public funding despite its good record in fulfilling its commitments to reduce deficits. The recent turmoil in Greece and Spain has raised uncertainty in the sovereign debt crisis in the Eurozone. This must have shaken investors' confidence in Ireland also.

Commitments of Traders:

With the exception of gasoline, speculators were bearish towards the energy complex in the week ended May 22. Net length for crude oil futures slid -392 contracts to 184 071. Net length for heating oil slipped -4 618 contracts to 5 513 while that for gasoline added +1 350 to 73 161. Net short for natural gas futures dropped -6 257 contracts to 115 681.

Similarly speculators were bearish towards precious metals with the exception of gold. Net length for gold futures gained +1 009 contracts to 115 151 while that for silver declined -677 contracts to 10 797 contracts. For PGMs, net length for platinum decreased -1 273 contracts to 13 097 while that for palladium dropped -338 to 2 581.

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