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Financial Focus

SPAIN warned that it is locked out of markets yesterday as an emergency call by G7 leaders failed to stem rising fears that the country will soon
need a bailout. Although yields fell slightly yesterday, markets are currently
demanding well over 6% to lend to Spain for 10 years, with Madrid facing a
crucial test at a €1-2bn debt auction tomorrow.

ALL FOUR of the largest Eurozone economies (Germany, Spain, Italy and
France) contracted last month, survey data showed yesterday, as official
figures revealed retail sales are plummeting across much of the area.

THREE of Portugal’s biggest lenders are to receive a €6.6bn bailout,
mostly from the country’s €78bn EU/IMF rescue money, after failing to
make ends meet. The banks will receive the money in the form of
convertible bonds that turn into equity if not paid back in five years.
US SERVICE industries sustained their pace of growth in May, showing
the biggest part of the US economy is withstanding the impact of the
European debt crisis.

JOB growth in the US braked sharply in May and the unemployment rate
rose for the first time since June, putting pressure on the Federal Reserve
to ease monetary policy further to shore up the sputtering recovery.

AUSTRALIA’s economy expanded last quarter at more than twice the pace
forecast by economists. First-quarter gross domestic product advanced
1.3% from the previous three months, the Bureau of Statistics said in
Sydney today.
Markets:

YESTERDAY, US stocks rose, while Treasuries retreated, as an increase in US service-industry growth tempered
concern the largest economy was slowing and a report said Europe’s bailout fund was preparing a credit line for Spain.

OVERNIGHT, the MSCI Asia Pacific Index and the Nikkei rose sharply as news that Australia’s GDP advanced strongly
and US service industries are withstanding the impact of the European debt crisis.

TODAY, European shares are set to rise sharply, mirroring strong gains in Asia and on the expectation that disappointing
European economic figures will prompt central banks to announce fresh stimulus measures.

Currencies:
THE DOLLAR and yen slid versus most of their major peers as Asian stocks advanced amid speculation officials from the
world’s leading economies will collaborate on a response to Europe’s crisis, damping demand for haven assets.

INVESTORS should sell the euro against the pound as indicators suggest the British currency is poised to strengthen
relative to its fair value, according to Michael Sneyd, a currency strategist at BNP Paribas SA. The euro’s recent rise
against the pound provides “an attractive opportunity to short the euro-pound and take advantage of the medium-term
outlook for the pound to outperform the euro,” Sneyd wrote, citing the firm’s fair-value model.

Energy:
OIL ROSE for a third day in New York after economic reports bolstered speculation fuel demand will increase and crude
stockpiles dropped in the US, the world’s biggest consumer of the commodity.

Commodities:
GOLD is stuck in the longest slump in a decade as investors shun bullion for the dollar and bonds, just seven months
after Bank of America said Europe’s debt crisis would send prices to a record $2,000 an ounce. Now, after gold fell 10% t
in a four-month slide through May, they say prices will rebound this year or next as the Fed shores up the world’s biggest
economy by easing monetary policy and devaluing the dollar.

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