Morning Forex Fundamental

EUR

'Investors are waking up after putting too much hope in central banks' - Guillaume Chaloin, a fund manager at Meeschaert Asset Management

European stocks closed lower on Friday

Impact high

European stocks closed in red on Friday after Fitch Ratings cut Spain's credit rating and German exports fell more than expected.

The Stoxx Europe 600 Index erased 0.29 per cent to 241.93. Germany's DAX Index declined 0.22 per cent and France's CAC 40 Index slid 0.63 per cent. The U.K.'s FTSE 100 Index decreased 0.23 per cent to 5,435.08.

The Fitch downgrade 'should have been expected,' said Guillaume Chaloin, a fund manager at Meeschaert Asset Management in Paris.

'Investors are waking up after putting too much hope in central banks. We forgot that there are a lot of problems and nothing has changed. Contagion can occur. We're seeing this in Germany with exports starting to deteriorate.'

USD

'The overall global trade volume will slowdown, reflecting weakening global demand' - Joshua Shapiro, chief U.S. economist at MFR Inc

U.S. trade gap narrows

Impact High

U.S. trade deficit narrowed to 50.1 billion dollars in April from 52.6 billion dollars in March, Commerce Department figures showed on Friday.

'The overall global trade volume will slowdown, reflecting weakening global demand,' Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. 'U.S. exports and imports will continue to cool. Trade will be a broadly neutral factor for economic growth.'

'April numbers reflect the global economic environment – we are experiencing the mini-version of what happened in trade balances in 2009 during the global recession after the financial crisis. Both imports and exports fell and brought the overall number down,' said Polina Vlasenko, research fellow at the American Institute for Economic Research.

GBP

'[Decline in producer prices] bolster the arguments of those members on the MPC who are seeking to restart quantitative easing' - Samuel Tombs, an economist at Capital Economics Ltd.

U.K. producer prices decline

Impact High

U.K. producer prices retreated in May on lower petroleum costs. Factory-output prices declined 0.2 per cent from April, the Office for National Statistics said on Friday.

The producer-price report 'adds to survey evidence suggesting that the recent weakness of demand has forced manufacturers to cut their prices,' said Samuel Tombs, an economist at Capital Economics Ltd. in London.

'Today's figures bolster the arguments of those members on the MPC who are seeking to restart quantitative easing.'

CHF

'The markets wanted to see some policy action first from the ECB and then from Bernanke and they didn't get it' - Steen Jakobsen, chief economist at Saxo Bank

Swiss stocks closed little changed on Friday

Impact: Medium

Swiss stocks were little changed on Friday.

The Swiss blue-chip index SMI, a measure of the largest and most actively traded companies, gained 0.11 points, to 5,869.32. The broader Swiss Performance Index slid 0.10%, or 5.36 points, to 5,471.03.

'This week was all about hope, but unfortunately hope doesn't contain a strategy. The markets wanted to see some policy action first from the ECB and then from Bernanke and they didn't get it,' said Steen Jakobsen, chief economist at Saxo Bank.

JPY

'We can't be optimistic going forward as things are getting worse overseas day by day' - Azusa Kato, an economist at BNP Paribas SA

Japan's current account surplus shrinks

Impact: Medium

Japan's current account surplus shrunk in April, adding to signs global demand is cooling. Surplus contracted to 333.8 billion yen, said the Ministry of Finance on Friday.

'We can't be optimistic going forward as things are getting worse overseas day by day,' said Azusa Kato, an economist at BNP Paribas SA in Tokyo. 'Japan will probably maintain growth in the coming quarters because of reconstruction demand but it's not going to be as fast as last quarter.'

Japanese stocks declined by the most in three weeks on Friday.

The Nikkei 225 erased 2.09 per cent, or 180.46 points, to 8,459.26. The broader Topix lost 1.78 per cent, or 13.01, to 717.74

Press Review

Europe

After risks over Greece leaving Eurozone faded, Spain remained in focus, driving the market volatility. The Spanish financial sector requires financial aid, which the national government cannot afford. Therefore, the EZ member states have to agree on the common measures to address the issue.

Greek pro-bailout parties are leading in polls ahead of Parliament elections, which are going to take place on June 17.

Spain's Bailout Gives Rajoy Best Chance To Fix Banks

http://www.bloomberg.com/news/2012-06-10/spain-s-bailout-gives-rajoy-best-chance-to-fix-banks.html

Spain's request for as much as 100 billion euros ($125 billion) of European bailout funds should provide the country with enough money to shore up its banking system after three failed attempts in as many years.

Latest Europe Rescue Aims to Prop Up Spain

http://online.wsj.com/article/SB10001424052702303768104577458562351966868.html

Spain's acquiescence to a bailout of as much as €100 billion ($125 billion) for its banks is a prelude to a much bigger question: Will Spain need a bailout for itself?

USA

After the release of the latest US unemployment figures, some members of the Federal Open Market Committee stated that the Fed might weigh an option of launching the third round of quantitative easing to sustain the US economic recovery.

The International Monetary Fund rose U.S. economic growth forecast to 2.1 from 1.8 per cent in 2012.

Trade deficit narrows as global demand slows

http://www.reuters.com/article/2012/06/08/us-usa-economy-trade-idUSBRE8570O720120608

The trade deficit narrowed in April as slower growth in Europe and China bit into exports and the soft economy clipped import demand, a government report showed on Friday.

Mitt Romney adviser criticises Obama's comments on eurozone crisis

http://www.guardian.co.uk/business/2012/jun/10/romney-adviser-obama-eurozone-crisis

In an German newspaper op-ed, R Glenn Hubbard says White House advice to Euro leaders had been 'misleading' and 'unwise'.

Asia & Pacific

China is suffering a major economic slowdown, as growth flags in the country's real estate, construction, steel, and other sectors. As a part of fiscal opening policy, China will allow direct Yen-Yuan trades.

Japan has published a shrinking trade surplus in March after a record deficit in January.

Chinese trade numbers up, but economy sags

http://www.marketwatch.com/story/chinese-trade-numbers-up-but-economy-sags-2012-06-10?link=MW_home_latest_news

Chinese economic data for May released over the weekend suggested weaker domestic conditions, but surprising strength in exports and imports.

Why China's May Data Is So Bullish for the Economy

http://www.cnbc.com/id/47760094

The latest set of data on China's economy released over the weekend indicate that authorities' easing measures are working, with economist pointing to strong internal demand and investments as signs the country is avoiding a sharp slowdown feared by many in the markets.