Moodys to Review Italian Banks, CFTC Says EUR Longs Cut

Another rout hit markets on Friday with concerns about Greece and Italy outweighing positive US economic data. CAD was the worst performer, followed by EUR; the yen and Swiss franc were the top performers. Fridays CFTC data showed euro longs cut by 41%.

Moodys sent a shiver through markets Friday by placing 16 Italian banks and two government-related financial institutions on review for possible downgrade. Another 13 banks had their outlook cut to negative from stable. This comes on the heels of Moodys announcement last week of a review of Italys public debt.

Greece continues to be a top story. The ECBs Stark said the latest bailout deal is the nations last chance. The market is also growing increasingly concerned about votes on Greeces austerity package on Tuesday. The governing majority has thinned to 154 votes after a defection; 151 votes are needed.

The S&P 500 closed down 1.2% to 1268. The market closed virtually at the days lows but above Fridays low and critically -- above the 200-day moving average. Gold fell $17 to $1503, oil was flat. The bond market continues to flash warning signals. We must stress that its likely that a major round of risk aversion is likely to show up in bonds first. Ten-year Treasury yields fell to 2.87% -- the lowest since the credit crisis. Two-years are near record territory at 0.33% and T-Bills are down to 0.007%.

Positive US economic data was cast aside by the market. The final report on Q1 GDP was revised to +1.9% from 1.8%. May durable goods orders at +1.9% were above the +1.6% expected. The key line on non-defense capital goods ex-aircraft rose 1.6% compared to the +1.0% expected. More importantly, all the priors were revised much higher with non-def ex-air to -0.8% from -2.3%.

On the week, CHF was the best performer, followed by USD. Sterling lagged followed by AUD. Cable closed out the week below 1.60 for the first time since February due to weak CBI data, dovish BOE minutes and turmoil on the continent.

The weekly CFTC data showed dollar shorts trimmed against everything but JPY. Euro longs were cut to 29.7K from 49.8K. Positions in all the commodity currencies were cut back, especially in CAD which fell to +2.2K from +18.8K. The position in GBP switched from positive to negative, falling by 22.5K to -11.4K. The yen net long position increased to 32.6K from 24.7K. The data is through Tuesdays close.

Adam Buttom