Spanish Bank Bailout Fizzles, Oil Slumps

The biggest euro flop was not on the football pitch, it was on trading floors where questions about the plan to save Spanish banks undercut the currency. The euro fell below 1.25 after surging to 1.2650 at the open. Lower-tier Japanese inflation and service sector data highlight a quiet calendar. Tonights Intermarket Insights titled Maintaining Consolidation View are out. See more info below.

A classic buy-the-rumour-sell-the-fact trade unfolded as the early details of the Spanish bank bailout were announced. The euro gapped higher at the weekly open but the gains were slowly pared until the euro was in a losing position. Commodity currencies and other risk trades followed suit while the pound found some support due to EUR/GBP selling.

Spain requested as much as 100 billion euros but questions about subordination and its growing debt load wrecked any optimism. Spanish 10-year yields fell to 6% at the open, then shot to 6.50%. The pessimism spread to Italy where yields rose to the highest since January. Spanish stocks posted an incredible turnaround, closing 0.8% lower after jumping 5.8% at the open.

Another story that weighed was a report that EU officials discussed capital controls if Greece exits the Eurozone. Oil fell to a one-week low on economic worries, a push from Saudi Arabia to hike output at the OPEC meeting on Thursday and exemptions to Iranian oil sanctions for several large consuming countries, including India.

There were no US or Canadian data and Fedspeak from Lockhart and Williams was similar to last week.

The Asian calendar is quiet until 2350 when the April Japanese tertiary industry index will be released. The consensus estimate is a 0.3% m/m gain. At the same time, the corporate goods price index is expected to fall 0.4% y/y in May.

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-AB