Capital Markets Snapshot

The US dollar is mostly lower. The euro is the strongest of the majors, gaining across the board. The week’s high was set on Monday just below $1.24 and unless this is taken out, it simply seems like range trading.

Concerns that the world economy is losing momentum continues rival the European debt crisis a key factor discouraging risk taking. Although the June purchasing managers’ surveys were generally softer than May, the drop in the China’s particularly weighed on sentiment. The stronger than expected Japanese Tankan survey failed to offset the deterioration in sentiment.

Global equity markets continue their trek lower. The MSCI Asia Pacific Index slid 1.4%, its biggest decline in three weeks. The Nikkei fell for the sixth consecutive session and its 2% loss was the largest in the region. Telecom and technology led the way lower. The softer PMI (52.1 from 53.9 in May and expectations for 53.2) helped the Shanghai Composite extend its losing streak to seven sessions and new lows since April 2009 were recorded today. European bourses are off between 1-2% today. Financials are the weakest sector amid the broad based declines.

Spain’s 5-year bond auction a day after Moody’s put the sovereign’s credit on watch for a possible downgrade was successful even if not spectacular. France sold 10-year government bonds today at a record low yield. All told France sold three different tenors and raised 7.45 bln euros and only the long dated 16-year Oat did not generate a bid-cover ratio in excess of 3:1. Most peripheral European bond markets are trading firmly, allowing for a small narrowing of rate differentials.