On the global arena, key summit of the European Union (EU) is scheduled on 28 and 29 June 2012 to discuss the ongoing European debt crisis. At the upcoming EU summit, European officials may reportedly launch the long process of deeper integration within Europe, starting with a push for a banking union, with the aim of finalizing a broad plan by December 2012. European nations will take all necessary measures to safeguard the integrity and stability of the euro zone, improve the functioning of financial markets and break the feedback loop between sovereign debts and banks, according to the statement released at the end of the G20 summit in the Mexican resort of Los Cabos last week on 19 June 2012. The fundamentals calendar is fairly lightly populated and focused upon German CPI and unemployment, Eurozone CPI, EC economic and industrial confidence, and UK and French GDP revisions. Italy auctions bonds on the heels of Spain’s successful auctions but in advance of the critical EU Summit which may put the auctions at greater risk of pre-Summit comments and volatility.
Europe will set much of the global risk tone next week as EU leaders gather in Belgium for the latest Summit on Thursday and Friday. Before that, Spain faces a Monday deadline to submit a formal request for aid to the EFSF/ESM to recapitalize its banks. Key questions remain such as subordination of claims within the funding apparatus and whether credible capital plans will be presented. The Summit discussions will center upon refinancing sovereign and bank capital requirements through some or all of the following options: the soon-to-be-enacted European Stability Mechanism, Eurobonds, a banking union, talk of a “growth pact”, an unappealing redemption fund proposal, or euro bills as an incremental step toward eventual Eurobonds.
There is little in the way of eco risk for the US this week, there are only 3 major reports due. Consumer confidence will take a step back as lower gasoline prices are offset by deteriorating jobs data and by weak equities up to the survey period. Durable goods are also likely to come in soft with few aircraft orders and a likely softer vehicle orders component. Personal spending isn’t shaping up well either given that we already know that retail sales slipped lower during May, although services spending may be more resilient. In all, the main releases may extend the tone of disappointing higher frequency reports on the health of the US economy in the lead-up to the following week when the big releases like ISM and nonfarm hit. Other releases next week include new home sales following a weak resale report, and pending home sales that may get a lift after the prior month’s sharp drop.
EURUSD (1.2570) climbed at the end of the week, but was still weak, news that Spain would officially submit their bailout request on Monday and word from France, Spain and Italy, that they would push the EU ministers for a 130billion euro growth package to help foster growth in the EU, combined with news from the ECB on lowering collateral standards, helped push the euro to move up against the strengthening US dollar.
The Great British Pound
GBPUSD (1.5585) Sterling tumbled, as the dollars strength continued to grow, but worries about the BoE and their outlook on the economy and their dovish attitude towards monetary policy has markets looking elsewhere.
Asian –Pacific Currency
USDJPY (80.44) The USD continued to gather strength in the risk aversion arena, as gold collapsed with investors moving back to the USD as their safety net. Worries over the BoJ ahead of their upcoming meeting and also their stealth intervention to drive the currencies above the 80 level kept investors guessing.
Gold (1573.15) spent most of Friday once again looking for direction, investors tried to push gold back to trade above the 1600 level, but the overall market is seeing gold return to its prior down trend and the 1520 level. With the dashing of investors hopes of additional QE and global growth negativity gold just could not keep the high prices.
Crude Oil (80.11) got a small reprisal on Friday to move back over the 80.00/barrel price level, as investors worried about the continue high levels of production especially from the US where production is surging to record levels. Recent inventories in the US showed an extremely high supply, with lowered demand, oil should sit at these low prices for at least the near term.