Investors continued to speculate the likelihood of QE3 and Fed presidents' comments were causing the volatility of the financial markets. Chicago Fed President Charles Evans indicated his supports on further stimulus, sending the greenback lower and risk assets higher. This also upstaged the ongoing uncertainty in the Eurozone. Following the 3 notch downgrade of the Spanish credit rating, Ficth cut ratings of 18 Spanish banks, citing the country's economy would weaken further and would have a negative effect on business volumes which, together with low interest rates, will place pressure on revenues. The market also appeared to have ignored Austrian Finance Minister Fekter's comment that Italy might be forced to accept a bailout if its financing costs continued to rise.
Although the Fed Chairman Ben Bernanke had tried to downplay the need of further easing, Chicago Fed President Charles Evans showed his supports on further stimulus to bolster the job market. He stated that he's been in favor of pretty much any accommodative policy. For instance, he believed that extending the Twist would be useful, more asset purchases would be useful while more mortgage-backed securities purchases would be good. His comments have again raised hopes of additional unconventional measures by the Fed after operation twist expires at the end of this month.
While Evans' comments lifted sentiment, the global economic outlook has not improved indeed. In the Eurozone, it was reported that Fitch downgraded of 18 Spanish banks although the agency believe the bailout plan worth of 100B euro (tentative) would be sufficient to recapitalize the banking system. Fitch also stated that the ratings of countries within the bloc are under strong downward pressure. Besides Greece and Spain, the market also worried about Italy. However, Fitch said that it is much closer to getting to a sustainable macro-economic position. It is now running a pretty small budget deficit, has a much lower current account deficit, [and] doesn't have these problems in the banking sector.
Regarding the situation in Italy, Austria's Finance Minister Fekter surprisingly commented that the third largest Eurozone economy might be forced to accept a bailout if its financing costs continued to rise. Yet, Italy's Prime Minister Mario Monti stated that Fekter's comments were totally inappropriate and assured that Italy even in the future will not need aid from the European Financial Stability Fund (EFSF).
On US oil inventories, the industry-sponsored API estimated that crude stock increased +1.6 mmb to 385.7 mmb in the week ended June 8. The DOE/EIA probably report a -1.5 mmb drop. Gasoline inventory dropped -0.88 mmb, compared with market forecast of a +1.4 gain. For distillate, the API estimate was a +0.52 mmb increase, compared with market expectation of a +1.2 mmb rise.