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Who Knows?

“Who knows, maybe they are much better off the way they are.”

-Mitchell Zuckoff


That’s a quote that I underlined this weekend in an unbelievably true WWII story of disaster, discovery, and survival – Lost In Shangri-La, by a professor of Journalism at Boston University, Mitchell Zuckoff.


Since last Thursday I’ve been lost in my own cash position. It’s weird, people keep asking me when and where I am going to put some cash to work. Who Knows? I’m in no hurry. All I can tell you is that I am getting longer of books, in US Dollars.


If you can tell me, precisely, how this all ends (other than not well), I’ll have to risk manage the timing of your view. These markets are as volatile and reactionary as the central planners who are attempting to “smooth” them.


Back to The Global Macro Grind


I have no idea what risk management moves I am going to make each and every day. I wake-up in the morning, put one shoe on at a time, then grind through the process. Embracing the uncertainty of what Mr. Market is going to signal is what I do.


Last week’s uncertainty was solely concentrated on 1 central planning event – Ben Bernanke’s presser. After he didn’t deliver the drugs, the Dollar went straight back up – and everything big beta priced in US Dollars went straight back down.


Here’s how that looked week-over-week:

  1. US Dollar Index = +0.77% (up for the 1st week in 3)
  2. SP500 = down -0.5% (down for the 1st week in 3)
  3. CRB Commodities Index = down -1.8%
  4. WTIC Oil = down -5.2% (crashing, down -27% since February)
  5. Gold = down -3.9% (testing down for 2012 YTD)
  6. Russian stocks (RTSI) = -5.1%

Russian stocks? Yep. Russian stocks have been crashing alongside the price of The Petro since March. That’s why we call Russia a Petro-Dollar tape. Get the Petro and the Dollar right, and you’ll get Russian stocks right.


Whatever happened to the bull case for “de-coupling”? Is Oil going down because of the Dollar or Demand? They’ve changed their bullish thesis so many times already in 2012 that it’s getting hard to keep track.


Who Knows?


What I do know is that people who didn’t pay attention to the Correlation Risk in this market are Lost In Q2. Where do we go from here? Do we beg, print, and bail some more? Maybe doing more of the same will work this time? Maybe ‘this time is different.’


Right. And Ben Bernanke is going to bailout China this morning too.


Chinese stocks have been leading decliners for the last few weeks as Chinese #GrowthSlowing appears to be accelerating on the downside. Last night the Shanghai Composite Index was down another -1.6%. It’s been down -9.2% since the beginning of May.


At the beginning of May, there was plenty of opportunity to get out of stocks and commodities. But that’s not how consensus rolls. Instead, those addicted to the Qe drugs keep going back to the same old well of hope.


Look at last week’s CFTC Commodities speculation data (ahead of the Fed decision):

  1. Net long contracts on the Commodities basket were up +7% wk-over-wk to 628,540 contracts
  2. Agriculture bets ripped a +13% wk-over-wk move
  3. Gold saw a net long ramp of +5% wk-over-wk to the highest net long (notional) position since May 1st

Go back to May 1st and tell me how buying Gold around $1660 played out. Or go back to the beginning of last week, when these net long contracts perked back up, and tell me how not selling into the expectation of a Bernanke Bailout bounce to $1628 paid.


It’s all the same trade, over and over, and over again. With the difference being that this time Ben S. Bernanke’s Fed is out of bullets. Could he poke his head back into our lives in the coming days, weeks, or months? Who Knows. All I can do is proactively prepare for what I can see in front of me and, at the same time, have Mr. Market signal to me whatever else I might be missing.


In the US, I’m not missing this week’s Macro Catalyst Calendar:

  1. Monday: US New Home Sales “expected” to be a lofty 346,000 (an acceleration from April’s high, Who Knows?)
  2. Tuesday: US Consumer Confidence (June) “expected” to rise to 63.5 vs 61.9 in May? (Who Knows?)
  3. Wednesday: US Durable Goods (May) “expected” to rise +0.5% vs May (doubt that, but Who Knows?)
  4. Thursday: Will US GDP for Q1 be revised lower than 1.9%? Will Jobless Claims eclipse last week’s high for 2012?
  5. Friday: US PMI for June “expected” to be in-line with May’s 52.7, Who Knows?

All the while, of course, we’ll have the Eurocrats saving the world by piling more debt-upon-debt (EU Summit June 27-28th). Even though the German Parliament needs to ratify anything ESM after the EU Summit (June 29th); and even though the Italians are publically patronizing the Germans ahead of that vote; Who Knows?


All I know is that I don’t know until I know. And that’s why, for now, I’m largely in Cash.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, German DAX, and SP500 are now $1, $89.06-94.79, $81.95-82.62, $1.24-1.26, 6075-6235, and 1, respectively.


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Who Knows? - ChartoftheDay


Who Knows? - vp 6 25


Key Takeaways


* US/European bank swaps were broadly tighter last week on the heels of favorable Greek elections and Moody's downgrades being less bad than feared. We'd remind investors that (a) even if Greek austerity terms are eased, the rate of contraction in the Greek economy will make compliance nearly impossible, setting the stage for another showdown, and (b) Moody's downgrades have costs. While we saw lots of commentary about funding costs not being affected by the downgrades, the more salient takeaway is that institutions that moved to triple-B should see derivatives flow move away, on the margin.   


* Risk took a breather last week as large declines in high yield, MCDX and higher leveraged loan prices were indications that the temporary calm in Europe was enough for a broad-based rally. Interestingly, the one measure you'd have expected to contract actually expanded: Euribor-OIS.


* The 2-10 spread widened modestly WoW. We expect this increase to be short-lived as the the Fed extended Operation Twist on Wednesday, which will put downward pressure on the long-end of the curve. 


* Looking at the week ahead, the setup in the XLF in the short term is roughly even, with 2% upside to $14.62 and 2.5% downside to $13.98. 


Financial Risk Monitor Summary  

• Short-term(WoW): Positive / 5 of 12 improved / 0 out of 12 worsened / 8 of 12 unchanged  

• Intermediate-term(WoW): Neutral / 3 of 12 improved / 3 out of 12 worsened / 7 of 12 unchanged  

• Long-term(WoW): Positive / 5 of 12 improved / 2 out of 12 worsened / 6 of 12 unchanged




1. US Financials CDS Monitor – Swaps tightened for 26 of 27 major domestic financial company reference entities last week.   

Tightened the most WoW: JPM, WFC, RDN

Tightened the least/ widened the most WoW: UNM, TRV, AON

Tightened the most MoM: GS, MS, RDN

Widened the most MoM: LNC, UNM, MMC




2. European Financial CDS - 31 of the 39 European financial reference entities we track saw spreads tighten last week. The median tightening was 7.4% and the mean tightening was 1.8%. It's notable that the Spanish banks were the worst performers of the group.




3. Asian Financial CDS -  Japanese banks were broadly wider last week, while Indian and Chinese banks tightened. It's interesting to note that Nomura is 383 bps, the widest of any major Japanese Financial Institution.




4. European Sovereign CDS – European Sovereign Swaps were mostly tighter last week. Portugal saw the strongest rally as swaps fell by 195 bps to 847 bps. Spain and Italy tightened by 21 bps and 27 bps, to 570 bps and 510 bps, respectively 








5. High Yield (YTM) Monitor – High Yield rates fell 22 bps last week, ending the week at 7.65 versus 7.87 the prior week.




6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 9.84 points last week, ending at 1654.




7. TED Spread Monitor – The TED spread rose 0.6 bps last week, ending the week at 38.3 bps this week versus last week’s print of 37.7 bps.




8. Journal of Commerce Commodity Price Index – The JOC index fell 1.5 points, ending the week at -17.41 versus -15.9 the prior week.




9. Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread has been moving higher of late for the first time in a long time. It ended the week at 43 bps.




10. ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis. This data shows through Thursday.  




11. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1. Last week spreads tightened 8 bps, ending the week at 153 bps versus 161 bps the prior week.




12. Chinese Steel - We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy. We look at the average Chinese rebar spot price. Steel prices in China fell 0.10% last week, or 4 yuan/ton, to 4,075 yuan/ton. Notably, Chinese steel rebar prices have been generally moving lower since August of last year.




13. 2-10 Spread – We track the 2-10 spread as an indicator of bank margin pressure.  Last week the 2-10 spread increased by 8 bps to 137 bps.




14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.0% upside to TRADE resistance and 2.5% downside to TRADE support.




Margin Debt - April: +0.93 standard deviations 

We publish NYSE Margin Debt every month when it’s released. NYSE Margin debt hit its post-2007 peak in April of 2011 at $320.7 billion. The chart below shows the S&P 500 overlaid against NYSE margin debt going back to 1997. In this chart both the S&P 500 and margin debt have been inflation adjusted (back to 1990 dollar levels), and we’re showing margin debt levels in standard deviations relative to the mean covering the period 1. While this may sound complicated, the message is really quite simple. First, when margin debt gets to 1.5 standard deviations or greater, as it did last April, it has historically been a signal of extreme risk in the equity market - the last two times it did this the equity market lost half its value in the ensuing period. We flagged this for the first time back in May 2011. The second point is that margin debt trends tend to exhibit high degrees of autocorrelation. In other words, the last few months’ change in margin debt is the best predictor of the change we’ll see in the next few months. We would need to see it approach -0.5 to -1.0 standard deviations before the trend runs its course. There’s plenty of room for short/intermediate term reversals within this broader secular move. Overall, however, this setup represents a long-term headwind for the market. One limitation of this series is that it is reported on a lag.  


The chart shows data through April. 



Joshua Steiner, CFA


Robert Belsky


Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser. 

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


The Economic Data calendar for the week of the 25th of June through the 29th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.





As we expected (DRI: SHAPING UP TO DISAPPOINT 6/21/12), 4QFY12 traffic trends disappointed at Olive Garden.  What we didn’t expect, is that Red Lobster and LongHorn would also post such poor same-store sales numbers.  Hiking the dividend is one way to keep investors happy but tough questions have to be asked of management.


Darden is an impressive company that has earned the investment community’s respect through years of producing strong financial results.  CEO Clarence Otis, speaking on CNBC immediately after the print, was shining light on the full year results but the trajectory of comps during this most recent fiscal quarter is a concern going forward.  What’s more concerning to us, is the lack of clarity on when consistent results can be expected at Olive Garden and how they will come about.



FY2013 Guidance and Outlook


Management's FY13 guidance lowered the bar versus the company’s long-term guidance.  EPS growth is expected to be 8-12% versus the 10-15% longer term target while blended same restaurant sales growth guidance is 1-2% versus long-term guidance of 2-4%.  During FY13, we expect EPS growth to benefit from more favorable food costs and other cost reduction initiatives.  We cannot advise clients, with sufficient confidence, that a turnaround is afoot at Olive Garden.  While we respect the operational acumen of the companies’ management teams, we are adopting a “show me” stance toward Darden’s numbers over the next couple of quarters.  Hiking the dividend by 16% this morning is likely to help retain long-term holders, but believe that more intermittent volatility is likely for Olive Garden before the chain achieves consistency in its operational performance. 


Olive Garden’s new menu and remodel program not being finalized at this point does not inspire confidence that a solution to the difficulties at Olive Garden is around the corner.  Management cannot possibly predict consumer reaction to promotions and, while investors are waiting for the transition at Olive Garden to be completed, we feel that results at Olive Garden are going to continue to be inconsistent.


Below we go through our thoughts on the company’s three largest brands, their 4QFY12 results, and their individual outlooks for FY13.



Olive Garden


Darden’s largest chain, and a key focus for investors heading into this morning’s print, posted a disappointing same-restaurant sales number of -1.8% for the fourth fiscal quarter.  According to Consensus Metrix, the Street was looking for 0.5% growth.  Management apportioned most of the blame for Olive Garden’s disappointing comp store sales growth to performance during the month of May; the “Taste of Tuscany” promotion, which started at a price point of $10.95, failed to live up to management’s expectations.  The Tuscany promotion extended into June so, as far as read-through for 1QFY13, the promotion proving ineffective is a negative indication.  A decision not to advertise around Mother’s Day this year was also cited as a factor in the poor momentum at Olive Garden.


Looking forward to 2013, management is shifting towards a more “single-minded” approach to affordability.  To that end, management is launching a new promotion, 2 for $25, which offers unlimited soup, salad, or bread sticks plus an appetizer or dessert plus an entrée. We are not convinced that this strategy will meet management expectations; there are many similar offers in the casual dining space.


One short-term concern we have is that the new menu is not going to be released at Olive Garden until 3QFY13.  The menu is currently being tested at 40-50 stores.  In the event that any adjustments need to be made to that menu, the start date could be pushed back further.  Additionally, the Olive Garden remodel program – aimed at updating and refreshing 430 of the total ~800 stores – is in its final testing phase.  The Street will be looking for more specificity from the company on the timetable of this initiative.  Any protraction of the remodel program will only delay Olive Garden becoming a more consistent business.


DRI: ORLANDO, WE HAVE A PROBLEM - olive garden comps versus unit growth


DRI: ORLANDO, WE HAVE A PROBLEM - olive garden pod1



A Darden earnings call without commentary on the Gap-to-Knapp (performance versus industry benchmark Knapp Track) is about as perturbing as a visit to Olive Garden without breadsticks.  This break from tradition, while unsettling, is not a major surprise when we consider that Knapp Track results comfortably outperformed Olive Garden and Red Lobster monthly comps during 4QFY12.  As keen as COO Andrew Masden was to highlight Olive Garden’s increasing strength versus the industry during 3QFY12, no such color was provided this morning.  Here is the comment from 3/23, on Olive Garden trends versus the industry “Olive Garden same-restaurant sales were up 2% during the third quarter, roughly 60 basis points below the full-service restaurant industry benchmark. However, this is a sharp improvement from the 320 basis point shortfall in the second quarter.”


The new menu and remodel program may help end Olive Garden’s travails, but our near-term view is that the concept needs to find a way to become less price-dependent for top-line growth.  On mix at Olive Garden, management had the following to say this morning: “the biggest dynamic is that we experienced at all of our large casual dining brands during 2012, we experienced a meaningful amount of menu mix, negative menu mix. So, guests trading down to lower priced items. Ordering fewer appetizers, fewer desserts. And we think that step-down is going to moderate during fiscal '13. So we wouldn't expect that negative trend in guest behavior to continue.”  Looking at the chart paints a different picture.  Mix was positive in May and negative for 17 consecutive months prior to that. 


DRI: ORLANDO, WE HAVE A PROBLEM - olive garden comps monthly



Red Lobster


The Lenten period shift negatively impacted Red Lobster’s 4QFY12 results by 130 basis points.  Same-restaurant sales came in at -3.9% versus Consensus Metrix expectations of +1.3%.  Lobsterfest, a signature promotion for Red Lobster that typically coincides with the Lenten season, performed poorly this year due to the spike in gasoline prices occurring during the Lenten season.


The Festival of Shrimp promotion began at Red Lobster in late April and continued through May.  The company took a price increase for the promotion of $1 from $11.99 to $12.99 based on its success last year and on research that suggested consumers were largely indifferent between $11.99 and $12.99.  The same-restaurant sales decrease in May, according to management, shows that the price increase turned out to be too aggressive.  This highlights a key concern we have for the Red Lobster business, as well as Olive Garden; the comps at their two largest businesses are overly dependent on price and the customer is highly sensitive to increases in price.







LongHorn Steakhouse


LongHorn’s comps came in lower than expected, which we highlighted as a possibility in our preview post.  Increased competition in the steak category is making it difficult for LongHorn to take share as rapidly but, as a part of the Darden portfolio, we see this concept as a bright spot for the company.  As the chart below indicates, comps sequentially slowed to 3% from 6.7% the quarter prior and Consensus Metrix 4QFY12 expectations of 4.5%.  This stock is important for the longer-term TAIL story, but as we wrote in our preview note published yesterday morning, Olive Garden and Red Lobster are more important for the immediate-term TRADE and intermediate-term TREND.




DRI: ORLANDO, WE HAVE A PROBLEM - longhorn comps monthly





The underlying fundamentals of Olive Garden are a concern for Darden’s business over the near-term.  We see the transition period as possibly lasting longer than some investors are expecting and there is substantial risk, in our view, of mishaps occurring as the company makes adjustments to its most important brand while accelerating unit growth.   We are content to sit on the sideline for now.  The dividend yield will continue to provide support for the stock but our expectation is for the first and (possibly) second quarter to be a difficult period for Darden. 



Howard Penney

Managing Director


Rory Green




Weekly European Monitor: No Bazooka! Go Figure!

-- For specific questions on anything Europe, please contact me at to set up a call.


No Current Positions in Europe: Covered EUR/USD (FXE) on 6/21; Covered Spain (EWP) on 6/18; and Sold German Bonds (BUNL) on 6/18


Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed up +1.0% week-over-week vs +2.9% last week. Top performers:  Greece +8.6%; Finland +5.0%; Cyprus +3.0%; Portugal +2.9%; Spain +2.3%; Italy +2.0%; Denmark +1.7%. Bottom performers: Russia (RTSI) -5.0%; Slovakia -1.9%; Norway -1.8%; Ireland -0.9%; Austria -0.8%.
  • FX:  The EUR/USD is down -0.59% week-over-week vs -0.58% last week.  W/W Divergences: HUF/EUR +2.28%, NOK/EUR +0.70%, TRY/EUR +0.54%, GBP/EUR -0.24%; PLN/EUR -0.53%, CZK/EUR -1.27%, RUB/EUR -1.84%.
  • Fixed Income:  Yields came in dramatically this week. Portugal saw the biggest move, falling -104bps week-over-week to 9.54%. [Portugal’s 10YR has not seen sub 10% in over a year!] Greece also saw a large decline, falling -67bps to 27.06%.  Spain dropped -35bps and Italy fell -20bps to 6.53% and 5.80%, respectively.   Germany bounced +5bps week-over-week to 1.55%.

Weekly European Monitor: No Bazooka! Go Figure! - 111. yields



No Bazooka! Go Figure!

With the Greek elections over, and some insight into Spain’s bank recapitalization needs behind us, what’s next for Europe? This week we saw a few interesting phenomenon: peripheral yields and risk metrics (CDS) came down dramatically, while new peripheral sovereign paper was issues at significant premiums (vs pervious auctions as recent as last month), and data—including confidence figures and PMIs—were bombed out! [See below in Data Dumb].  Now all eyes are peeled on the EU Summit next week (June 28-9) for the delivery of a “panacea” to cure Europe’s ails. Even a major investment bank was out this morning saying that it has heard from participants at the recently ended G-20 meetings in Mexico that there could be a “bazooka” of sorts in the works!


Our response: there’s a fat chance Eurocrats can craft anything close to a bazooka/panacea next week.


What will the Eurocrats discuss? Well, there’s actually a ton of programs on the table for discussion, which in and of itself lends to a higher probability that nothing concretely gets issued. The main topics of discussion should include:

  • Fiscal Compact
  • Pan-European Deposit Insurance
  • Eurobonds
  • European Redemption Fund
  • ESM (and EFSF)
  • European Financial Transactions Tax

We continue to view Ms. Merkel as the Eurozone’s paymaster, the lead horse pulling the Eurozone cart along, but also a party at the table not willing to fold her cards. In this light, we expect Merkel to argue for more fiscal integration (signatures on the Fiscal Compact from a majority of the 27 EU members), the first step before such programs as Eurobonds and a European FDIC can even be imagined. This week the Germans largely pressed forward in support of a financial transaction tax, with or without the backing of the other member states. We’re slightly surprised by the positioning and will wait to see how this development plays out.   


However, a more pressing question that should be discussed in earnest at the Summit surrounds the capabilities of the existing EFSF and ESM. Importantly, the ESM still needs to be ratified by the German Parliament, which is expected to take place on June 29th. Already, EU leaders have said that it is now expected to come online on July 9, versus the original proposal of July 1. In any case, there needs to be clarification on the terms of the ESM, namely if it can be directed for bank recapitalizations, and if borrowing from the ESM contributes to the debt of the borrowing country. Here the problem is that Europe doesn't have a TARP-like facility to lend directly to the banks, but must lend to the sovereigns first. 


Our longer-term read through is that this Summit, like most in the past, will disappoint investors. We believe that 1.) the IMF may need to take a larger role in bailing out Europe, as individual countries will not post more money to existing bailout facilities, and 2.) Eurobonds may be the only quasi “bazooka” left, however the coordination of such subsidized bonds are many months, if not years, ahead.


Enjoy today’s match between Germany and Greece at 2:45pm EST!




Below is an updated EUR/USD price level chart. Our immediate term TRADE support is $1.24 and resistance is $1.27. Our intermediate term TREND support level remains at $1.23. Our call is that if $1.23 breaks, look out below! We’re not EUR parity folks because we see Eurocrats stepping in to prevent it.


Weekly European Monitor: No Bazooka! Go Figure! - 111. EUR USD


Call Outs:


Spain - According to stress tests conducted by the consultants Roland Berger and Oliver Wyman, Spanish banks recapitalization needs could reach €62 billion in a worst-case scenario. The base line scenario implies a 1.7% drop in real GDP this year and a 0.3% fall in 2013 alongside a 5.6% fall in housing prices this year and 2.8% the following year.


Spain - Spain has notified the four firms (Deloitte, KPMG, PwC and Ernst & Young) currently working on a second and more detailed audit of Spanish banks that the deadline to present their reports has been moved to September from 31-Jul.


IMF - says that emerging market economies have formalized funding pledges bringing total size of firewall up to $456 billion from $430 billion in April (China will give $43 billion while Mexico, Russia, India, Brazil commit to $10 billion each). 


Eurogroup Chief - The press is reporting that French President Hollande will lobby his German, Italian and Spanish peers about the possibility of making his finance minister, Pierre Moscovici, head of the Eurogroup. Hollande's efforts may challenge German Finance Minister Wolfgang Schaeuble’s path forward; he was long thought to be the frontrunner to take over for Jean-Claude Juncker.


ECB - ECB Executive Board member Benoit Coeure, said in an interview that an interest rate cut was likely to be discussed at next month's meeting (5-July). However, he noted that while cutting rates was certainly an option as far as monetary policy is concerned and could help to some extent, it would not fix the fundamental problems in Europe. Recall that ECB President Draghi said that three members had pushed for a rate cut at the last ECB meeting on 6-June.


UK - Minutes from the BOE’s latest meeting showed that Governor King was overruled 5-4 to keep its bond- purchase target at 325 billion pounds this month. This is the first time since 2009 that King was overruled. King, Adam Posen and David Miles called for a 50 billion-pound expansion, and Paul Fisher’s bid for 25 billion pounds. 



CDS Risk Monitor:

Like sovereign yields, sovereign CDS saw a large down move this week. Portugal saw the largest decline in CDS w/w at -195bps to 847bps, followed by Ireland -44bps to 625bps, Italy -28bps to 509bps, and Spain -21bps to 569bps. [Portugal hasn’t been sub 900bps since 7/6/2011!].


Weekly European Monitor: No Bazooka! Go Figure! - 111. cds   a


Weekly European Monitor: No Bazooka! Go Figure! - 111. cds   b


Data Dump:

Manufacturing PMIs JUN Preliminary:

Eurozone 44.8 JUN vs 45.1 MAY

Germany 44.7 JUN vs 45.2 MAY

France 45.3 JUN vs 44.7 MAY


Services PMIs JUN Preliminary:

Eurozone 46.8 JUN vs 46.7 MAY

Germany 50.3 JUN vs 51.8 MAY

France 47.3 JUN vs 45.1 MAY


*Eurozone Composite PMI 46.0 JUN vs 46.0 MAY


Eurozone ZEW Economic Sentiment -20.1 JUN vs -2.4 MAY

Eurozone Construction Output -5% APR Y/Y vs -2.6% MAR   [-2.7%  APR M/M vs 11.4% MAR]


Germany ZEW Current Situation 33.2 JUN (exp. 39) vs 44.1 MAY

Germany ZEW Economic Sentiment -16.9 JUN (exp. 2.3) vs 10.8 MAY

Germany IFO Business Climate 105.3 JUN (105.6) vs 106.9 [2yr low]

Germany IFO Current Expectations 113.9 JUN (exp. 112) vs 113.2 MAY

Germany IFO Expectations 97.3 JUN (exp. 99.8) vs 100.8 MAY

Germany Producer Prices 2.1% MAY Y/Y vs 2.4% APR (slows to a 23-month low)


France Own Company Production Outlook -4 JUN vs -4 MAY

France Production Outlook Indicator -30 JUN vs -28 MAY

France Business Confidence Indicator 92 JUN vs 93 MAY


UK Retail Sales w Auto Fuel 2.4% MAY Y/Y vs -1.1% APR   [1.4% MAY M/M vs -2.4% APR]

UK CPI 2.8% MAY Y/Y (exp. 3%) vs 3.0% APR   [-0.1% MAY M/M vs 0.6% APR]

UK RPI 3.1% MAY Y/Y vs 3.5% APR

UK ILO Unemployment Rate 8.2% APR vs 8.2% MAR

UK Jobless Claims Change 8.1K MAY (exp. -4K) vs -12.8K APR


Italy Consumer Confidence 85.3 JUN (exp. 86) vs 86.5 MAY

Italy Industrial Orders -12.3% APR Y/Y (exp. -8.6%) vs -14.3% MAR

Spain Mortgages on Houses -31.3% APR Y/Y vs -42.0% MAR


Switzerland ZEW Credit Suisse Expectations of Economic Growth -43.4 JUN vs -4 MAY

Switzerland Exports 1.8% MAY M/M vs -0.7% APR

Switzerland Imports -0.1% MAY M/M vs 3.1% APR

Switzerland M3 Money Supply 6.2% MAY Y/Y vs 6.3% APR


Holland Unemployment Rate 6.2% MAY vs 6.2% APR

Holland House Price Index -5.5% MAY Y/Y vs -5.2% APR

Holland Consumer Confidence -40 JUN vs -38 MAY


Austria Industrial Production 0.4% APR Y/Y vs 0.8% MAR


Sweden Unemployment Rate 8.1% MAY (exp. 7.8%) vs 7.8% APR

Sweden Consumer Confidence 3.1 JUN (exp. 4) vs 5.9 MAY

Sweden Manufacturing Confidence -4 JUN (exp. -2) vs -1 MAY


Russian Industrial Production 3.7% MAY Y/Y vs 1.3% APR

Russia Disposable Income 3.6% MAY Y/Y vs 2.1% APR

Russia Real Wages 11.1% MAY Y/Y vs 11.1% APR

Russia Producer Prices 3.1% MAY Y/Y vs 6.7% APR

Russia Retail Sales 6.8% MAY Y/Y vs 6.5% APR

Russia Unemployment Rate 5.4% MAY vs 5.8% APR

Russian Investment in Production Capacity 7.7% MAY Y/Y vs 7.8% APR


Poland Core Inflation 2.3% MAY Y/Y vs 2.7% APR

Poland Producer Prices 5.0% MAY Y/Y vs 4.3% APR

Poland Producer Prices 3.2% MAY Y/Y vs 3.6% APR


Slovakia Unemployment Rate 13.2% MAY vs 13.4% APR

Slovenia Unemployment Rate 11.8% APR vs 12.0% MAR

Ukraine Industrial Production 1% MAY Y/Y vs 0.0% APR

Turkey Consumer Confidence 92.1 MAY vs 91.1 APR


Interest Rate Decisions:

(6/20) Norwegian Deposit Rate UNCH at 1.50%

(6/20) Bank of England voted 5-4 to maintain asset purchase program



The Week Ahead:


Sunday: Jun. Germany Import Price Index (Jun. 24-30)


Monday: Jul. Germany GfK Consumer Confidence Survey; May Spain Producer Prices


Tuesday: Jun. France Consumer Confidence Indicator; May France Jobseekers; May UK Public Finances, Public Sector Net Borrowing; May Italy Hourly Wages; Apr. Italy Retail Sales; Spain Budget Balance YtD


Wednesday: Jun. Germany Consumer Price Index - Preliminary; May Germany Import Price; Jun. UK CBI Reported Sales; May UK BBA Loans for House Purchases; May Spain Retail Sales; Jun. Italy Business Confidence


Thursday: EU Summit in Brussels (Jun 28-29) aim to formally sign off on growth proposals; EC meets to discuss Institutional Affairs; Jun. Eurozone Consumer Confidence – Final, Business Climate Indicator, Economic Confidence, Industrial Confidence, Services Confidence; Jun. Germany Unemployment Data; 1Q Germany GDP – Final, Current Account, Total Business Investment – Final; Jun. UK Nationwide House Prices, GfK Consumer Confidence Survey; Jun. Spain CPI - Preliminary; Apr. Spain Total Housing Permits; Jun. Italy CPI - Preliminary; May Italy  PPI


Friday: Jun. Eurozone CPI Estimate; May Eurozone Money Supply; May Germany Retail Sales; May France Producer Prices, Consumer Spending; 1Q France GDP – Final; Apr. UK Index of Services; Apr. Spain Current Account; Apr. Greece Retail Sales; German Parliament to ratify the ESM and Fiscal Compact


Saturday: June 30th is the deadline for EU Banks to meet 106 Billion EUR capital target.


Extended Calendar Call-Outs:


JULY:  France – extraordinary session of parliament in July is due to re-draft the 2013 budget 


1 July:  ESM to come into force


5 July: ECB governing council meeting


19 July: ECB governing council meeting


18-19 October: Summit of EU Leaders



Matthew Hedrick

Senior Analyst

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