Investors scrambled to snap up a second £4.1bn bond issue by the EU yesterday, with the book oversubscribed to a value of 10bn by noon. The European Commission said the cash will go towards boosting theEurozone’s main bailout fund, the Financial Stabilisation Mechanism. The issue takes the total value of debt sales to fund Portugal’s 78bn bailout to 19bn this year.
European Central Bank officials may have more scope to cope with a Greek restructuring than they are letting on even as policy makers warn that such a move could trigger the beginning of a “horror story”. While German and French officials say the ECB would no longer accept Greek debt as collateral in its money-market operations should the country be forced to default, the ECB’s rules are less clear and only say that such a step “may be warranted”. The ECB’s rhetoric may be as much about forcing Greece to step up budget cuts as it is about drawing a line in the sand, say Citigroup Inc. and Deutsche Bank AG economists.
MARKETS:
EUROPEAN stocks are seen as mixed for today’s trading, following the previous session’s tentative rally, as a report that China will be interested in buying “bailout bonds” for Portugal was offset by lingering concerns of Greek debt. Europe’s heavyweight mining and oil companies will find support in rising commodities with Brent futures rising above $115 a barrel, boosted by a weaker dollar.
FINANCIAL spread betters expect to see the FTSE 100 open 10-14 points higher this morning, with the German DAX to also open up by as much as 0.3%. The French CAC-40 however is predicted to open down by around 2-5 points or 0.1%.
CURRENCIES:
THE EURO strengthened the most in a week against the dollar and yen on speculation that China will increase purchases of European bonds, boosting confidence that the region will emerge from its sovereign-debt crisis. The single currency gained against 11 of its 16 most-traded peers after the Financial Times reported that European Financial Stability Facility Chief Executive Klaus Regling had said Asian investors may buy Portuguese bailout bonds when the EFSF begins selling in June.
ENERGY:
OIL rose to a two week high in New York on signs of increased U.S. fuel demand after a government report showed inventories of diesel and heating oil fell. Futures advanced as much as 0.6% after the Energy Department said yesterday that U.S. distillate supplies declined 2.04 million barrels to 141.1 million last week, the lowest since April 2009.
COMMODITIES:
WHEAT climbed for a second day on speculation dry weather may have hurt crops in France, Germany, and the UK, the largest European producers. Wheat for July delivery advanced as much as 1.2%. Allan Wilkinson, head of agriculture for HSBC Bank, said that the dry weather may cut UK grain and oil seed yields by as much as 20%. Corn and soy beans also gained amid planting delays in the U.S., the biggest exporter.
