Euro Still Can't Sustain Upticks

The US dollar eased in Asia as a modicum of an appetite for risk returned, but the greenback rebounded in the European session. The euro returned to the $1.19 area after being unable to rise above the $1.20 level.

Comments by Fitch, that the UK fiscal challenge is “formidable” ahead of Chancellor of the Exchequer Osborne’s speech before the House of Commons later today sent sterling though yesterday’s lows (~$1.4389). News that the Swiss National Bank reserves rose CHF78.8 bln in May, on intervention, seemed to embolden the market as it had managed to absorb the full amount. The euro has been pushed to new lows today below CHF1.38. Meanwhile, the dollar-bloc currencies remain firmer, as do most emerging market currencies.

Asian equities managed to shrug off the 1.3% decline in the S&P 500 yesterday with MSCI Asia-Pacific Index rising 0.3%. Telecoms and materials were the best performing sectors. Bourses open the latest seemed to have been dragged lower, though buy the failure of European bourses to match sustain a recovery. Initial gains in Europe quickly gave way to fresh selling, with most markets off 1.25%-1.65% near midday. Telecoms, oil and gas and financials are the biggest drags, but all sectors are lower.

The Swiss market was holding up better than average, but note that late yesterday the lower house of the Swiss parliament rejected the government’s plan to modify its banking laws to allow one of the largest Swiss banks to report names to the US to avoid criminal charges, and this appears to be taking a toll on Swiss banks today, with financials off more than twice the overall market.

The European bond market remains the key focus and spreads over Germany by both other countries regarded as core, like France, Belgium and the Netherlands continue to widen out. The Austrian and Dutch bond sales seemed to have been adequately, if not impressively, absorbed. Italy, Portugal and Spain will be selling paper this week. It will be the first Spanish auction since the Fitch downgrade. The US Treasury will sell $70 bln in notes and bonds this week beginning today with $36 bln 3-year notes. The safe haven demand is likely to offset the low yields to attract buyers.