Recap 6-29-12

Main Items:

  • Chicago PMI improved to 52.9 in June vs 52.3 exp and 52.7 prev
  • UMichigan Confidence was revised lower to 73.2 vs 74.2 exp and 74.1 prev
  • US Core PCE Deflator declined to 1.8% YoY in May as exp vs 1.9% prev
  • US Personal Income rose 0.2% MoM in May, while Personal Spending was flat. Both results were expected
  • SNB’s balance sheet for May showed that the SNB sterilized half of its 63bn intervention that month, via repos and FX swaps.

EU Summit

  • A pan-EU banking regulator will be created with involvement by the ECB. Proposal for details by year end.
  • This will allow for possible direct bank recaps out of the ESM, although each recap would require unanimous EU approval
  • EFSF/ESM will be able to buy sovereign bonds, with the ECB as an agent
  • EFSF loan to Spain will not have seniority
  • the Eurogroup tasked to implement these decisions by 9 July 2012
  • At the next summit (Oct 18-19) the European “Big 4” have been tasked w/drafting a specific roadmap for European fiscal/banking union complete w/dates and milestones


  • German Retail Sales improved to -1.1% YoY in May vs +1.9% exp and -3.8% prev
  • Swiss KOF LEI improved to 1.16 in June vs 0.78 exp and 0.81 prev
  • UK GfK Consumer Confidence was stable at -29 in June as exp
  • Japan Mfg PMI declined to 49.9 in June vs 50.7 prev
  • Japan CPI declined to -0.1% YoY in May vs 0% exp and +0.2% prev

Upcoming Data:

  • Mon: ChinaMfg PMI, AustraliaMfg PMI, South Korea HSBC Mfg PMI, China HSBC Mfg PMI
  • Tues: Swiss Mfg PMI, ItalyMfg PMI, UKMfg PMI, US ISM, China Non-Mfg PMI
  • Wed: US Holiday, RBA, Australia Services PMI, China HSBC Services PMI
  • Thurs: Italy Services PMI, UK Services PMI

Commentary & Links:

The positive surprise was the agreement to allow direct bank recaps by the EFSF/ESM. The most immediate problem is the solvency of periphery banks – a problem that sovereign couldn’t’ solve because they themselves were shut out of the markets. The bank recaps will solve this problem, but only IF it is properly implemented. As the bank supervisor isn’t expected to be set up until year end (IF everyone agrees on its powers) the recaps won’t happen soon. Also problematic is that all EU national parliaments need to approve the recaps. That condition suggests that few banks will actually apply, and when they do, they will apply en masse. But the fact that a mechanism is being set up is certainly a positive.

JPM noted that historically, EU summits were a fade, although that this view is starting to become consensus…