Merkel Silences Eurobond Debate

Angela Merkel said shared debt liabilities will not exist as long as she lives. The Australian dollar was the leader and the euro lagged as risk assets recovered. The Asia-Pacific calendar is empty. Latest Premium Insights from Tuesday night includes new trades on EURUSD,USDJPY, GBPUSD and existing trades in gold and USDCAD. See more below.

The German Chancellor emphatically ended speculation about Eurobonds in a closed-door meeting, attendees reporting that she said total shared liability will not happen as long as I live. Later reports sought to play down the remarks but it is clear that debt sharing is a long-term solution to a problem with a short-term deadline.

Periphery yields leapt higher with Italian 10-years up 17 bps and Spanish 10s climbing 24 bps to 6.87%. EUR/USD fell to 1.2442 on the worries but later climbed back to 1.25, which has been a magnetic level.

Expectations for the Thursday-Friday EU Summit have been pared back to hopes for a road map to a banking union. Clever spin may ignite a short-term risk rally but the foundations for a European recovery remain elusive.

Meanwhile, the US economy continues to deteriorate. Consumer confidence fell to 62.0 in June from 64.4 in May. The Richmond Fed manufacturing index fell to -3 from +4. Both reports were below expectations.

The S&P 500 gained 0.5% to 1320.

The Asia-Pacific calendar contains no significant releases. The focus will remain on Japanese politics after the sales tax was doubled by a contentious vote yesterday. Rebellious DPJ members have threatened to form a new party but after the vote, leading critic Ozawa said he will make a final effort to reconcile with his party before making a decision.

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-AB