Focus Turns to Madrid, IMF Stop Greece Aid

Spain 10-y yield at 6.56% as focus turns to Spains sovereign debt, Doubts on IMG Greek aid, Australian PPI rose q/q; higher risk of Greece insolvency; Spanish and Italian yields soar; JPY ignores BOJ jawboning. A new set of Premium Insights will be issued today.

Risk trades came under heavy pressure right after the Asian open which sent USD and JPY broadly higher. The AUD ticked slightly higher after the Australian PPI rose 0.5% in Q2 from previous -0.3% q/q which was more than analysts expected. Soon these gains were reversed and AUDUSD fell lower, currently trading around 1.0285 from Friday's close at 1.0362.

More negative growth from Spain and another request for help from the Valencia raises the possibility that Spain will remain in recession until 2014. This has driven Spain 10 year bond yields to a new high of 7.56%

One factor that contributed to heightened risk aversion came from the IMF that signaled that it will not continue to provide financial aid to Greece, raising the risk of insolvency. MNI reports that the risk of Greece leaving the EZ is seen as manageable now but governments want to wait till the ESM is in operation. The German constitutional court will rule on the ESM on September 12th.

Spanish and Italian 10 year yields surged higher pushing the common currency to below the 1.21 handle. Yields rose to 7.56% and 6.40% during the London session as the flight to safety pushed the 2 year German Schatz yield to a -0.0836% record low. 5 year Spanish CDS hit a record high of 630 bps. There were no fundamental reports released today.

The market yet again ignored BOJ governor Shirakawa's comments that the MOF is monitoring the markets and is ready to take decisive steps. USDJPY fell to 77.94 and EURJPY plunged to 94.23.

The NY session will start at 8:30 am ET with Chicago FED national activity index followed by Eurozone consumer confidence at 10:00 am ET that is expected to decline marginally in July to -20 from previous -19.8.