Market sentiment was lifted by Spain's request for financial assistance for recapitalization of it banking system. The net impact to the market should be positive in the near-term as it has greatly reduced the need for the Spanish government to seek funding from the market for some time. China reported the latest set of macroeconomic indicators. As expected after the surprising rate cut, economic developments in May weakened further. It's likely for the government to lower interest rates further or cut RRR in coming months. While the economic calendar is light today, this week comes meetings of the RBNZ and the SNB.
The Spanish Finance Minister Luis de Guindos announced on Saturday that the country would request financial assistance from the EU for recapitalization of the Spanish banking system. While the final amount would be released after the results of 2 independent audits due June 21, the sum is estimated to be 100B euro, covering estimated capital requirements and additional safety margin. Both the EU and the IMF welcomed the move. The most critical part of the financial assistance is the accompanying conditionality on public finance management. As mentioned in the Eurogroup statement, the policy conditionality should be focused on specific reforms targeting the financial sector. The Eurogroup stated that it is confident that Spain will honor its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester. Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance. For investors, the move is expected to lift market sentiment in the near-term. However, it does not resolve the long-term problem in the peripheral European economies that is the lack of growth prospect without which the 17-nation bloc would find it impossible to get out of the crisis.
In China, expansion in economic activities moderated further in May. Headline CPI eased to 3.0% in May from +3.4% a month ago. Moreover, IP growth rebounded but only climbed +9.6%, compared with +9.3% in April. Slowdown growth in May was largely anticipated as the PBOC unexpectedly cut interest rates last week. The set of disappointing May data indicated that further easing from the government is anticipated for boosting growth.
The RBNZ and the SNB will hold meetings this week for rate decisions. We expected both central banks to leave interest rates unchanged.
Commitments of Traders:
With the exception of natural gas, speculators were bearish towards the energy complex in the week ended June 5. Net length for crude oil futures slid -32 048 contracts to 146 837. Heating oil reported net short for the first time since 2011. Net length for gasoline dipped -5 924 contracts to 66 219. Net short for natural gas futures dropped -4 833 contracts to 95 402.
Speculators were bullish towards precious metals. Net length for gold futures gained +18 152contracts to 128 864 while that for silver gained +1 236 contracts to 9 794 contracts. For PGMs, net length for platinum increased +647 contracts to 14 734 while that for palladium rose +707 contracts to 3 450.