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Moody’s downgraded Italy by two notches to Baa2

Friday, July 13, 2012 4:12 AM GMT

Good Morning ,


-Yesterday, the euro stayed under (moderate)pressure as sentiment on risk remained fragile.  EUR/USD reached a new  low, but EUR/GBP avoided to do so .The trend in most key euro cross rates is still down,but the pace of the decline is slowing. Some consolidation after the recent steep losses might be on the cards.


-Overnight Asian equities trade with small gains, as weaker Chinese andSingapore GDP  figures were alreadylargely discounted.


-Moody’s downgraded Italy by two notches to Baa2, the lowest rating of thethree main agencies. Italy’s vulnerability to political shocks was the mainreason Behind the downgrade. Moody’s kept its negative outlook on Italy.


-Moody’s downgrade of Italy will get a lot of attention and togetherwith the BTP auction   might lead to an underperformance of Italianbonds. The Italian debt agency issues   a new 3-yr BTP(€2.5-3.5B % Jul2015).Yesterday’s downgrade might make thinks complicated     but wethink the Italian treasury will have drummed up enough local demand to digestthe,  mostly short term, and in general,relatively low, amount of debt.


-Some ECB policymakers said that the ECB might still lower interestrates further. Banks reacted to last week’s deposit rate cut to zero by puttingtheir Cash on their interest bearing reserve account instead of on the depositrate.


-Ireland eyes a 10-year bond sale by next March, while Greekunemployment Rate reached a new high in April


-Yesterday, Irish GDP data for the first quarter of 2012 showed asomewhat weaker than expected out turn for GDP (-1.1% Q/Q) and GNP. Revisionsto growth data back to 2007 mark a smaller drop between 2007 and 2009 and strongergrowth in 2011. The Troika concluded its latest Irish bailout review andconfirmed that Dublin remains on track despite the challenging  economic environment.


-Chinese Q2 growth slowed to 7.6% Y/Y from 8.1% Y/Y previously,confirming that the Chinese economy is still on slowing trajectory, but maybenear the bottom.


-Singapore Q2 GDP unexpectedly shrank by 1.1% (on annualized basis), reversinga strong Q1 performance and suggesting the Asian economy is feeling The bruntof weakness elsewhere in the world.


-Today,the market calendar remains unexciting. On the economic side, onlythe US PPI and Michigan consumer sentiment warrant some attention. Theevents are limited to a speech of Atlanta Fed Lockhart, after the Europeanclosure.  Lockhart is an interestingspeaker and currently FOMC speaker. Heis a moderate who votes currently with the majority at the FOMC meetings . Herecently was open to more easing, but not yet convinced.  Haverecent reports convinced him one or another way on future policy. 



Have a  nice wknd !

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