Intraday Market Thoughts

Another Chinese Pledge for Europe

by Kyle Morrison
Jun 27, 2011 6:59

China pledges to remain a key buyer of Eurozone debt, Italy and Greece concerns to keep investors cautious, US treasury yields hit 2011 low.

Euro remains under pressure, despite weekend comments from Chinese Prime Minister Wen Jaibao to European policymakers, and Europe at large, that China would remain a key buyer of European sovereign debt. While welcome news it is highly probable that any such help will more than likely come with onerous strings attached, in spite of Chinas desire to have an alternative to the US dollar as a reserve currency. With that in mind it isnt too hard to spot their motives in trying to help keep the euro project alive. Despite this pledge the fears appear to have spread beyond Greece towards Italy.

Bear in mind it is Italian banks which are likely to remain a key concern after last weeks actions by Moodys in downgrading as the focus on Europes sovereign debt crisis shifts towards both Spain and Italy with their 10 year bond yields moving inexorably higher on Friday, with Spanish 10 year yields pushing back towards the highs seen last May at 5.7%.

With respect to banks, European politicians remain concerned about French, German and Spanish bank exposure towards Greece debt with talk from France suggesting that some French banks might be prepared to roll-over up to 70% of their exposure to Greek government bonds in the hope that a default can be avoided.

GBP expected to remain under pressure ahead of the final release of Q1 GDP tomorrow.

Continued deadlock in the debt ceiling talks doesnt appear to doing US treasuries any harm for the moment with US 10 year bond yields hitting their lowest levels this year at 2.84%, breaking below the key 2.88% level. They could well continue lower as capital continues to flow out of European bond markets and into US treasuries.

Fridays slightly better than expected US economic data was brushed aside by investors.

Todays US economic data for May is personal income, spending and consumption data which is due out prior to the US open.


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