Spain Yields at 6.70% as ECB says No to Madrid

Spain 10-yr yields hit 6.70%, German and US 10 year yields at record lows; Eurozone consumer confidence improved but economic and business confidence fell further; UK mortgage approvals rose; KOF economic barometer improved; poor Italian auction. Market turns to pending home sales and Draghi's and Dudley's speech. Latest on the adjustments from Tuesdays Intermarket Insights is below.

The markets escalated their sellof after the ECB refused Madrid's attempts to inject Govt bonds into Bankia and exchange that for fresh funds from the LTRO. But the ECB said such move would be an indirect form of govt funding from the ECB, which is illegal.

USD continues to push higher across the board except the JPY. European equities are losing about 1.5% and JPY leads while NZD lags.

Flight to safety continues today as the German 10 year hit a record low at 1.315% and the US counterpart fell below 1.6820%. At the other end of the spectrum, the Spanish 10 year yield hit 6.7%, which is the highest level since 11/2011 and the Italian 10 year broke above the psychological 6% level.

Eurozone consumer confidence slowed its fall by printing -19.3 in May from April's -19.9 but business confidence deteriorated further (-0.77 from -0.51) and economic confidence also declined (90.6 from 92.9). The labor market is therefore unlikely to improve in coming months making any recovery improbable in the short term. EURUSD fell to 1.2433.

UK Mortgage approvals rose in April by 51.8K from previous 51.1K which is the highest level this year but still low compared to historical averages. Net consumer lending was GBP 1.4 bln in April compared to GBP 1.7 bln in March.

KOF economic barometer rose in May to 0.81 from April's upwardly revised 0.43. This is the third back to back increase but rather than reflecting any improving fundamentals it is more likely that it is caused by a significant decline seen between 05/2011 and 1/2012. EURCHF continues to be stuck in the absurd 6 pip range.

Italian auction was rather poor today as Italy failed to reach a full take up, average yields rose and cover declined. 5 year BTP yielded 5.66% from 4.86% and 10 year BTP yielded 6.03% from previous 5.84%.

US reports are limited to pending home sales due at 10:00 am ET that are expected unchanged in April after growing 4.1% in March.

Markets also await ECB president Mario Draghi's speech in Brussels that is scheduled to start at 11:30 am and FOMC member William Dudley who will deliver a speech and also answer audience questions at 1:30 pm.

Tuesdays Intermarket Insights were adjusted for their entries in EURUSD, EURJPY and gold following the sharp moves around the London close. 1 of the 2 adjusted EURUSD shorts has been filled and hit all targets. One of the 2 USDCAD hit all targets. Since the adjusted entry in gold remained unfilled (changed to 1560 but market rebounded to only 1558), we adjusted it a second time by pushing the entry lower. For the latest on those insights and chats, please click here for direct access: http://ashraflaidi.com/products/sub01/access/?a=641 To subscribe, click here: http://ashraflaidi.com/products/sub01/