EU Grants Spain More Time for Deficit Target

Chinese CPI and PPI lower; Spain could get till 2014 to lower deficit; Swiss unemployment rate steady; German trade surplus lower; Eurozone Sentix declines further. Focus on Draghi, Tucker and Williams; BOC business outlook. Details on Fridays Premium Insights found below.

AUD and NZD came under pressure during the Asian session in response to a lower than anticipated Chinese inflation data. Annual CPI eased to 2.2% in June from previous 3% which is 29 month low while PPI declined by 2.1% from previous -1.4%. If Q2 GDP that is due on Thursday night disappoints, then further interest rates cuts will be likely. Shanghai index is losing nearly 2.5%.

Sentiment improved slightly during the London session after Reuters published a report that EU finance ministers will grant Spain one extra year to reach a deficit target of 3% of GDP. The ecofin meeting takes place tomorrow in Brussels.

On the data front we learned that Swiss unemployment rate remained steady in June at 2.9% while analysts forecasted an increase to 3.2%; German trade surplus declined in May to EUR 15 bln from upwardly revised April's EUR 16.2 bln and that Eurozone Sentix investor confidence index declined further in July to -29.6 from -28.9.

Spanish 10 year yield moved higher and reached 7.1% before easing slightly. Italian counterpart rose to 6.17% which is still below pre-summit 6.28%.

There are no reports due during the US session. However, markets are likely to respond to the ECB president Mario Draghi who testifies at 8:30 am ET before the European parliament; to the MPC member Paul Tucker who testifies on LIBOR submissions in London at 11:30 am and to San Francisco FED president and the FOMC member John Williams who will speak at 11:55 am on the US economy.

CAD traders should not miss the BOC's quarterly business outlook survey that is due at 10:30 am ET.

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