Benzinga Market Primer, Thursday June 14
Bond markets and stock markets are not telling the same stories on Thursday morning, as stock futures are higher even as sovereign bond yields in peripheral Europe continue to spike. Spanish 10-year yields touched just shy of 7% on the back of the Moody's downgrade on Wednesday, the last of the three major ratings agencies to downgrade Spain to below sub-A quality.
This is significant because now Spanish debt, as viewed by the ECB, is of lower quality and could require an additional 5% haircut on all repo'd Spanish paper. Just a fun fact: the last time Spanish bond yields were this high was 1999, when Ricky Martin's "Livin' La Vida Loca" was top of the Billboard charts.
Overnight, these other news stories broke:
- Moody's downgraded Spain three notches to Baa3 from A3 and maintains a negative watch.
- Merkel: G20 to discuss growth measures, says debt crisis is central theme of meeting.
Swiss National Bank defends cap on currency, stands ready to act.
- Eurozone May inflation -0.1% month-over-month, +2.4% year-over-year, in line with expectations.
- Italian 3-year yields climb at auction from 3.91% to 5.3%, showing that contagion is spreading.
Equity futures are slightly higher this morning, with S&P 500 futures marginally higher. Overnight, Asian shares closed lower following the weak US session yesterday, with Chinese equities being the weakest. European shares are mixed this morning, with Spanish and Italian shares rising and other markets trading lower.
Commodities are also showing a mixed bag this morning, with WTI crude trading slightly higher to $82.93 per barrel and Brent crude trading 0.04% lower at $97.09 per barrel. Copper is trading higher by 0.22% to $334.70, potentially signaling that the market is less concerned with growth scares and more concerned with Europe. Gold is higher by 0.14% and silver is almost flat.
As mentioned before, Spanish 10-year yields continue to move higher this morning, having touched 6.999%. Italian 10-years have moved in suit and now trade at 6.259%. The yield on the benchmark 10-year US treasury bond is also slightly higher at 1.61%.
Currencies are largely flat following the overnight session, with the EUR/USD trading in a range with buyers protecting the low 1.25 range. Overall, most pairs are trading near where they were at the close yesterday, as the market awaits the Greek election this weekend.
On the economic front, today's releases include CPI inflation, initial jobless claims, and a whole host of treasury auctions. In terms of initial jobless claims, the market is expecting 375,000 new claims vs. last week's 377,000, so a largely flat number. For inflation, the market is expecting a -0.2% change month-over-month in CPI inflation and +0.2% change in the Core CPI reading.
Good luck and good trading.
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