Spanish Bank Bailout Provides Global Markets Relief

June 11, 2012 01:02 AM

What Traders are Talking About:

* Spain gets bailout for banking sector. Euro-zone finance ministers agreed over the weekend to lend Spain up to 100 billion euros ($125 billion) to bail out its banking sector. The Spanish bank bailout deal is providing relief in global markets as investors are now optimistic Spain won't be the reason for a potential collapse of the euro-zone -- if banks agree to what will be strict guidelines to secure the emergency funding. Even if the bailout funding goes through, this is likely a temporary fix and the euro-zone still has plenty of other problems. The focus is now on Italy and the June 17 elections in Greece.

The long and short of it: There's a broad risk-on attitude to start the week, but the relief rally is likely to be short-term in nature as it's just a matter of time before investors turn their attention to other problem areas in the euro-zone.

* Weather watch -- something for bulls and bears. A band of rains rolled across the western Corn Belt overnight, but the showers appear to be fading as they move across the Mississippi River this morning. Temps are expected to be cooler this week after a very warm weekend across the Corn Belt, but precip chances are limited. Forecasts call for heat to return by the weekend and last into the at least the middle of next week. The 6- to 10-day outlook from the National Weather Service indicates above-normal temps across the Corn Belt June 16-20, while most of the region is expected to see below-normal precip. The exception is the northwestern Corn Belt, which is expected to see above-normal precip during the period.

The long and short of it: It's a matter of what traders want to focus on weather wise to start the week. But if above-normal temps remain in the mid-range outlook and rainfall chances are limited, the urgency to build weather premium into the market will increase.

* Chinese data explains surprise interest rate cut. China's consumer price index (CPI) rose 3% from year-ago last month, which was a 23-month low, while the producer price index (PPI) declined 1.4%. Meanwhile, industrial output grew at a 9.6% clip last month, but that was slower than hoped and China's trade surplus widened to $18.7 billion. Part of the reason for the expansion of China's trade surplus is soybeans as imports rose to 5.28 MMT last month. That's 8.2% higher than April and 16% above year-ago. Through the first five months of this year, Chinese soybean imports are up 20.7% at 23.43 MMT.

The long and short of it: The widening of the trade surplus underscores what is wrong with China's economy -- it's having to import too many necessities (primarily food) and not exporting enough of the goods it makes. With inflation easing at the same time, there's justification for the surprise cut to Chinese interest rates last week. The May economic data also suggests additional monetary policy easing is likely as the country tries to jumpstart its economy.


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