• BOE Miles – QE definitely reduced the cost of borrowing for large companies
  • BOE Miles – EZ problems pose risk to fragile UK economy
  • BOE Miles – Inflation should start to fall to 2% target over next 6-months
  • China planning agency says confident will keep full year CPI at about 3%
  • China says European crisis impact “not to big” globally
  • UK Treasury Minister Laws – Tougher spending decisions to come in June 22 budget and autumn review
  • UK Osborne – we have found and agreed to cut 6.25bln Stg of wasteful public sector spending
  • Spanish union leader Toxo says would prefer not to call general strike

Asia started the day off on a generally positive note (Shanghai Composite up 3.5%) but EUR/USD weakness in early London built and built with stops tripped below 1.2450 pushing the pair down to 1.2360. No particular trigger just all round nervousness – the Spanish $500mln savings bank bailout was probably the first nail in the coffin with talk of a general strike (again in Spain) forcing the hand of Euro sellers. Markets overall remain very thin and illiquid with moves exaggerated – this was especially the case during the Asian timezone.

[EUR/USD] – the slide started in Asia from its early high of 1.2586 and after holding just above 1.25 heading into Europe eventually succumbed to selling pressure tripping stops below 1.2470 and 1.2450 and continuing to slide. The news over the weekend of a $500mln bailout of a Spanish savings bank weighed on sentiment as did talk of a general strike – there has been little bounce throughout the European session with stocks going from black to red numbers with the losses continuing to mount. Intraday range 1.2360-1.2586; last at 1.2390.

[USD/JPY] was buffeted in Asia on JPY cross moves but has hardly budged in Europe despite the near 150 pip slide in EUR/USD. Intraday range 89.74-90.75; last at 90.07.

[GBP/USD] held its own for most of the European morning despite the collapse in EUR/USD. EUR/GBP fell to 0.8585 but on the move below 1.24 in EUR/USD, GBP/USD “tanked” taking out the stops below 1.44 and continuing to slide. The pair just made a fresh intraday low at 1.4354; high 1.4529 – last at 1.4377.

[AUD/USD] was another pair to witness a volatile, whippy start to the week. The pair fell sharply in Sydney on dubious mining tax stories and AUD/JPY sales. The pair hit a low of 0.8185 but the bounce back was again savage. The pair made a fresh intraday high in London before peeling off a big figure in line with the last slide in EUR/USD, GBP/USD and stock futures in the US. Intraday range 0.8185-0.8364; last at 0.8279.

[Equities]

A mixed bag in Asia with China up 3.5% on talk that tightening might be done for now. Sydney up 2% as banks bounce. Tokyo down 0.3%.

Europe got off to a positive start but it didn’t last long – gains were quickly pared with the Dax now down 1.3% after being up 0.5% earlier.

US futures were in the black throughout the Asian session but the slide in the Euro on the Spanish bank bailout appears to have spooked investors – Dow down 1%, S&P 1.2%.