01.06.12 Friday Morning

Bailouts, elections, bond yields, Spain. All seem to be synonymous with Europe at the moment and a resolve does not appear to be very close. A back-and-forth match has developed between Spain and Greece as to who is more in the mire with mixed emphasis this week. Talk of a Bankia bailout stirred markets after the recapitalisation bailout plan was announced by the Spanish government, but then reportedly shot down by the ECB. According to an ECB minister they were not consulted by the Spanish on any plan. If the bailout is completed then the Spanish government will own 90% of the bank.

Risky bond yields continued to surge as investors relocated their positions into risk-off yields. Germany and the U.S recorded low yield marks whilst Spanish and Italian snuck towards the unsustainable 7% level as 10 year spreads widened. The European Commission said on Wednesday that the euro zone should move to a banking union and considers directly recapitalising banks from its permanent bailout fund. It is believed that the IMF has begun contingency plans for a Spanish bailout although these are not set in stone.
 
Greece though did not want its Mediterranean counterpart to steal all the headlines. As the election draws closer conservative New Democracy party led in two polls, the last before elections on June 17th that are viewed as a de facto referendum on the country's future inside the euro zone.

The selloff in light crude continued as the black gold dropped to its lowest level since last October. If this drips down to retail levels it will be of relief for consumers as we head towards the summer holidays. The same effect of price reduction will not be felt in Italy though after it was announced that an increase it excise duty will be put on petrol to fund aid after this week’s earthquakes.

The month of May saw the Dow contract by the most since last September as the years gains were wiped off the index. Low consumer confidence and poor ADP employment figures were the catalyst ahead of today’s non-farm figure. Corporate profits for the period were also poor, down 4.1% after strong earnings reports in the early part of the year. The prospect of further QE however seems unlikely as the US posted GDP prelim growth of 1.9% as their borrowing rates continued to decrease. It seems the focus for them remains on the euro zone situation.

In equities, Research in Motion, the Blackberry producer issued a profit warning and announced significant job cuts as problems continue. The company’s value has contracted by 75% in the last year alone. Wolseley saw Q3 trading profit up 10% but lower than expectations whilst De La Rue, the currency printer, revealed pre-tax profit of 73% as their order book fills up. BP revealed Friday of the potential sale of its Russian arm TNK-BP, having received interest.
 
Ithaca Energy ended takeover talks having been under bid rumours for a while. The stock plummeted from 175p to uncross at 125p. Kingfisher announced that sales and profits had been hit by adverse weather whilst Thomas Cook stated that tough trading conditions continue.