Stress test: no stairway to heaven

- FI Strategizer: "Next week, many factors will be bond-friendly: macroeconomic data should come in on the soft side both in the EU and in US, while the message in Bernanke’s testimony should be cautious, in line with the recent FOMC Minutes. Only positive US 2Q earnings releases could support risky assets. In the EU, focus will be on the stress test results."
- EU banks stress test: "On 23 July, only consolidated results at country level will be published. Market reaction will depend on the disclosure and credibility of hypothesis and on the relative weakness of EU countries."
- EU Portfolio Strategy: "We increase holdings of Germany, which would benefit from a rise in market tensions. On the peripheral side, we did not make any major changes."
- Trade Idea: "Germany will issue the new Bund Jul42, which will be the longest 30Y on the eurozone curve. The coupon should be 3.25%. A first calculation suggests that the fair value of the new Bund Jul42 should be SW+14bp, 4bp more expensive than DSL Jan42."
- MM: "This week, ECB borrowing has fallen further by EUR 16bn, bringing excess liquidity to around EUR 115bn (a lower level than during the first months of this year). Banks tried to lengthen maturity, bidding more at the 1M LTRO and less at the 1W MRO."
- Supply Corner: "Next week, gross supply should be EUR 6/6.5bn, almost all coming from Germany with the new 30Y, Bund Jul42, and the rest from Ireland. Liquidity will come from France, with the redemption of BTAN-ei Jul25 (EUR 9.3bn). Greece will issue EUR 1.5bn of 13W T-bills."
- FX Strategizer: "Market perspectives may easily become much cloudier, as signs that the global economic cycle is cooling down have increased further. Risk lovers may easily find a less smooth road from now on."
- EUR: "As long as the mix of healthy US stock markets and poor US data releases persist, a EUR-USD rally up to 1.32-1.33 may be in the offing. Yet, we would not bet again on a sustained rise well beyond that area."
- JPY: "Risks of less "brilliant" global economic growth should offer the JPY an extended period of relative strength: USD-JPY is set to test 86.50 at least, locking EUR-JPY further in the 110/114 band."
- CHF: "We still warn to handle with care any EUR-CHF bounce, as global uncertainty will keep demand for the Swiss franc high, paving the way for a EUR-CHF retreat towards and below 1.30 in the medium term."
- GBP: "Next week, UK retail sales for June and the advance GDP for 2Q10 should come in firm enough, both to take cable above April’s highs at 1.5525 and to drag EUR-GBP again towards the edge of 0.83."
- Pacific Rim & CAD: "The three dollars should be handled with caution at present due to risk of large swings. USD-CAD will be also influenced by the BoC meeting outcome on Tuesday that has become a close call."
- Nordics: "The full break of 9.40 and 7.90 won’t be immediate, thus exposing both EUR-SEK and EUR-NOK to big swings ahead, but selling these two EUR crosses above 9.45 and 8.00 is still recommended."
Unicredit Curves & Crosses 20100716

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