Overnight Headlines:

• Unsubstantiated reports circulated that customers were pulling money from the recently nationalised Spanish bank, Banksia. This was denied by the Spanish Deputy Finance Minister and the bank stated they do not expect big changes in deposit levels.
• Additional rumours circulated that Moody’s would soon be downgrading 21 Spanish banks.
• This proved to be somewhat true with Moody’s downgrading 16 Spanish banks but one to three notches each. It also downgraded Santander UK, a UK-domiciled subsidiary of Banco Santander (Spain). The outlook for 10 of these is now negative.
• Spain’s 1Q12 GDP fell 0.4%.
• Yields on 10-year Spanish bonds rose to 6.28%.
• Yields on 10-year Italian bonds rose to 5.8%.
• Fitch downgraded Greece to CCC, saying “the downgrade of Greece’s sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union”.
• ECB President Mario Draghi stated overnight that the bank wants Greece to remain in the Eurozone while the decision for Greece’s possible exit from the currency union isn’t an issue that the ECB would need to decide on.
• Spain sold €2.494b of shorter-dated bonds, near the maximum, but noted higher borrowing costs.

Resources Snapshot:

• A Shell executive stated the U.S. natural gas price will stay under pressure in the short term, but double by 2015.
• Global gold demand for 1Q12 fell 5% YoY to 1,097.6t as the average price rose 22% over the same period. China remained the biggest consumer for the second quarter in a row, with demand rising 10% to 255.2t. India came in second as demand fell 29% YoY to 207.6t.
• WSJ reported that the Mongolian Parliament has approved a new law that caps future foreign participation in some sectors:
  • When it goes into effect, the law will require foreign investors to obtain government review and parliamentary approval for investments at 49% and above into industries such as resources, finance, telecommunications and media. The cap is specific to deals valued above about $75 million.
• The U.S. House National Resource Committee has passed the National Strategic and Critical Metals Act, an act aimed at streamlining the permitting process in the U.S.

Markets:

• DOW JONES: Down 1.24% (or 156.06 points) to 12,332.49. Continued worry out of Europe opened the U.S. markets lower, while a host of disappointing economic data ensured it stayed there. The Dow accelerated losses late in afternoon trading. Firstly, initial jobless claims for the previous week remained unchanged at 370,000, slightly below expectations, while claims from two weeks ago were revised upwards. Secondly, the Philadelphia Federal Reserve Manufacturing Index fell -5.8 in May’12, from 8.5 the previous month and the first negative reading since Sep’11. Economists had expected a climb to 10. Additionally, the Conference Board’s leading economic indicators index declined 0.1% in Apr’12, compared with a 0.3% gain the previous month and an expected 0.1% gain. The index rose 1.8% in the six-months to Apr’12. Lastly, fixed-rate mortgages set a new record low, with the 30-year fixed-rate mortgage averaging 3.79%, down from 3.83% last week and 4.61% a year ago. 24 Dow components with JP Morgan and Alcoa losing over 4% each, while American Express, Home Depot and Boeing fell over 3%. Wal-Mart attempted to buoy the index with a 4.2% rise. Verizon jumped 1.2% while Travelers gained 0.3%.
• FTSE 100: Down 1.24% (or 66.87 points) to 5,338.38. The theme of the last two weeks continued overnight with European markets ending lower, this time on renewed fears of the Spanish banking sector. Locally, banks continued to fall with Lloyds and RBS giving up 3.6% and 3.7% respectively, while Barclays slipped 3.8%. The mining sector offered little support with BHP and Rio losing 1.4% and 1.9% respectively. Additional faller included Anglo American and Kazakhmys, while Fresnillo and Randgold Resources bucked the trend and ended higher. The energy sector fell with BG Group losing 2.9%, while Shell lost 0.9%.

Overnight Summary:

Overnight Headlines:

• Greece remains the headline grabbing issue with officials setting a date of 17 Jun’12 for new elections.
• Greece will repay €436m in maturing debt for private creditors who opted not to take part in the EU-IMF bailout.
• The WSJ reported that depositors withdrew €700m from Greek banks recently, leading to reports the ECB will not conduct monetary policy operations with banks that do not have sufficient capital. The ECB responded by voicing its support for Greece.
• The Eurozone posted an €8.6b trade surplus for Mar’12, compared with €2.3b in Feb’12.
• The Bank of England raised their short-term CPI outlook to over 3% and stated “prospects for U.K. growth remain unusually uncertain”, claiming problems in the euro area still pose the biggest threat.
• Bonds auctions in France and Germany went better than expected.
• Germany approved legislation allowing the setup of Europe’s permanent bailout fund.
• German Chancellor Merkel and French President Hollande met overnight and discussed keeping Greece in both the currency bloc and the European Union. Additionally, they claimed they were open to moves to bolster the Greek economy as long as the country remains committed to austerity.
• Yields on 10-year Spanish bonds fell to 6.25%.
• Yields on 10-year Italian bonds rose to 5.80%.
• The latest Fed minutes showed that no members were confident enough with the U.S. recovery to raise their interest rate forecasts, while some members indicated that additional monetary policy accommodation could be necessary “if the economic recovery lost momentum or the downside risks to the forecast became great enough”.
• The U.S. dollar rallied for its 13th consecutive session.

Resources Snapshot:

• WTI Crude for Jun’12 delivery fell 1.2% to US$92.81, the lowest since Nov’11.
• The impressive move by natural gas overnight was attributable to no obvious news.
• Jac Nasser, BHP’s Chairman, remarked yesterday “I cannot overstate how the level of uncertainty about Australia’s tax system is generating negative investor reaction” and warned if their investment criteria cannot be met “we will redirect our capital somewhere else or we simply won’t invest at all”.
• Tokyo Electric Power (TEPCO) is reportedly looking to invest $4.4b in the Chevron-led Wheatstone LNG Project for a 10% stake.
• A consortium including Shell, PetroChina. Mitsibushi and Korea Gas are reportedly planning to develop what is likely a US$12b LNG plant in Kitimat, British Columbia.

Markets:

• DOW JONES: Down 0.26% (or 33.45 points) to 12,598.55. U.S. markets finally looked like they were going to register broad gains overnight, largely on the back of better than expected data, but markets failed to maintain their early highs and ground lower. The Dow was up over 80 points, but closed its tenth day out of eleven in the red. In economic data, according to the Mortgage Bankers Association, mortgage applications surged 9.2% last week, outpacing the previous weeks 1.7% gain. Additionally, housing starts jumped to an annualized 717,000 in Apr’12, beating expectations of 685,000, but still well below the long-term pre-crisis average of approximately 1.5m. Lastly, industrial production for Apr’12 rose 1.1%, beating expectations of 0.7% and the largest gain since Dec’10. On the micro side, 13 components registered gains, lead by GE (+3.3%), Pfizer (+1.5%), Merck & Co (+1.3%) and Cisco (+0.9%). Three companies lost over 2%; JP Morgan, Bank of America and Alcoa.
• FTSE 100: Down 0.60% (or 32.37 points) to 5,405.25. Greece remained the story of the night and markets across Europe continued to be hammered as officials set a date for the new elections. Domestically, investors digested news the Bank of England raised their inflation outlook while jobless claims fell by their most in almost two years in Apr’12. The banking sector in Britian was mixed with Barclays and RBS gaining 1.6% and 2.5% respectively, while Lloyds slipped 0.6%. The mining sector was largely mixed, but heavyweights BHP and Rio both ended lower. Gainers included Randgold Resources, Anglo-American and Kazakhmys. Energy companies followed the mixed trend with BG Group falling 0.4% while Shell gained 0.3%.

Overnight Summary:

Overnight Headlines:

• Greece will reportedly head back to the polls on 17 Jun’12 after Socialist leader Evangelos Venizelos stated talks between parties to form a coalition government had failed. Karolos Papoulias, the current Greek President, also confirmed talks had broke down.
• Eurozone’s GDP for 1Q12 remained steady at 0% on both a QoQ and YoY basis.
• European Union GDP for 1Q12 also remained steady at 0% QoQ, but rose 0.1% compared to 1Q11.
• Germany’s economy returned to growth in 1Q12, expanding a seasonally-adjusted 0.5% from 4Q11 much higher than expected. The economy had contracted 0.2% in 4Q11.
• France’s economy remained steady, with 0% growth in 1Q12, after a 0.1% gain in 4Q11.
• Italy’s economy worsened with GDP falling 0.8% in 1Q12, a third consecutive decline.
• Timothy Geithner, the U.S. Treasury Secretary, spoke at a conference overnight claiming the U.S. economy is gradually getting stronger, with areas of strength broadening.
• The DXY’s 12-session winning streak is the longest since at least 1985.

Resources Snapshot:

• Ivanhoe Australia CEO Peter Reeve stated that the company has received interest from up to eight bidders for stakes in four key Australian projects; the Osborne Cu-Au mine, the Merlin Mo-Re Project, the Mount Dore Cu Project and the Mount Elliot Cu-Au Project.
• According to MineWeb, the Indonesian Trade Ministry announced plans to set a new quota for mineral exports, limiting companies to their 2009 or 2010 export volumes.
• CCX, a division of EBX Group, has reportedly discovered the fifth largest coal deposit in the world; 672mt in the San Juan underground mines in Columbia.

Markets:

• DOW JONES: Down 0.5% (or 63.35 points) to 12,632.00. Markets across the United States took poor leads from Europe and continued lower overnight on the back of a host of mixed economic data. Firstly, CPI for Apr’12 came in at a seasonally-adjusted 0% with core prices (excluding food and energy) rising 0.2%. Both figures were in line with expectations. Retail sales were up 0.1% in Apr’12, while business inventories rose 0.3% in Mar’12. Additionally, the NAHB housing market index jumped to 29, up from 24 last month and to a 5-year high. Lastly, the New York manufacturing activity index for May’12 rose to 17.1 from 6.6 in Apr’12. The Apr’12 reading had been the lowest since Nov’11. 24 Dow components fell, lead by >2% falls to Alcoa, Home Depot and HP. The gainers included a 1.3% bounce by JP Morgan with Wal-Mart and Verizon rising 0.5% and 0.4% respectively.
• FTSE 100: Down 0.51% (or 27.90 points) to 5,437.62. European markets, including the FTSE 100, opened higher overnight on the back of better than expected GDP data, but failed to maintain their gains as news emerged Greece was heading for a new election. The banking sector took a hit with Lloyds, Barclays and RBS losing between 1.8% and 2.3% each. Mining shares were lower with BHP and Rio slipping 1.8% and 2.9% respectively. Additional fallers included Fresnillo, Kazakhmys, Randgold Resources and Anglo-American. Energy companies followed lower with BG Group and Shell losing 1.2% and 0.7% respectively.

Overnight Summary:

Overnight Headlines:

• Greece still cannot form a government. If a government is not formed by Thursday (Eastern European Time), new elections will reportedly be held in Jun’12.
• Moody’s stated that additional provisions placed on Spanish Banks will improve the capacity of them to absorb losses, but they will remain vulnerable to the current recession and ongoing real-estate crisis.
• Eurozone industrial production fell 0.3% in Mar’12 and 2.2% YoY, the largest YoY drop since Dec’09. The monthly move was largely due to an 8.5% fall in energy production on the back of warmer weather.
• German Chancellor Merkel suffered a defeat in an election in the state of North Rhine-Westphalia over the weekend. The centre-left Social Democrats won 38.9% of the vote and were able to form a majority with the Greens. Merkel’s Christian Democrats fell to 26.3%.
• Yields on 10-year bonds in Spain hit 6.23% and Italy reached 5.7%, while Germany saw yields fall to near record lows of 1.94%.
• Spain and Italy had bond auctions overnight, selling €2.9b and €5.25b respectively. Additionally, Germany sold €3.3b.

Resources Snapshot:

• Gold for Jun’12 delivery fell 1.5% to settle at US$1561, the lowest settlement for the contract since 29 Dec’11.
• The Steel Authority of India will open a steel plant in Mongolia and has signed an MoU with the Mongolian government for the allocation of coking coal.

Markets:

• DOW JONES: Down 0.98% (or 125.25 points) to 12,695.35. Markets across the United States took negative leads from Europe overnight and continued lower. Markets seem to be discounting in a Greek exit from the Euro while other countries, including Spain, are under constant pressure due to their banking systems. No relative economic data was released throughout the session and the Dow ended its eighth consecutive day lower. 27 of 30 Dow components fell, lead by the financial sector (JP Morgan -3.2%, Bank of America -2.7%, GE -2.2%, American Express -2.1%). The resource exposed companies lost ground with Alcoa, Caterpillar, Exxon and Chevron all ending lower. The gainers included Cisco and Merck & Co, rising 1.2% and 0.5% respectively.
• FTSE 100: Down 1.97% (or 110 points) to 5,465.52. European markets, including the FTSE 100, suffered a horrible night on the back of Greece’s inability to form a government and increasing concern it may exit the Euro. Losses were largely concentrated on the banking and resource sector. Lloyds, Barclays and RBS all lost between 4.8% and 6.4% each. Heavyweight mining companies BHP and Rio fell 3.5% and 3.2% respectively. Additional fallers included Fresnillo, Kazakhmys, Anglo-American and Randgold Resources. Energy companies also suffered with BG Group and Shell falling 3.5% and 2.5% respectively.

Overnight Summary:

Overnight Headlines:

• Greece is still struggling to form a government, with the PASOK party continuing its efforts to form a working government.
• The Spanish government effectively nationalized troubled bank Banksia, taking a 45% stake in the company.
• The Spanish government is reportedly in discussions with the European Union and the European Investment Bank in an effort to shore up its struggling banking sector.
• Yields on 10-year Spanish bonds fell to 5.99%.
• As expected, the Bank of England left interest rates and its asset-purchasing program unchanged.
• The U.S. posted its first budget surplus since Sep’08 in Apr’12, hitting +US$59b.
• Bullish comments by Bernanke helped buoy the banking sector, the Federal Reserve Chairman stated “Conditions in the banking system – and the financial sector more broadly – have improved significantly in the past few years”.

Resources Snapshot:

• OPEC increased their forecast daily oil consumption for 2012 to 900,000bbls, up slightly from 860,000bbls in an Apr’12 forecast.
• The FT reported that Qatar is planning to increase its stake in Xstrata to over 10%.
• Roy Hill, although two years away from production, is expected to sell some of its output on CBMX, China’s first iron ore trading platform.
• Bloomberg reported that Goldman Sachs is forecasting a US$1840/oz gold price over the next six months after the U.S. central bank embarks on a third round of stimulus in Jun’12.

Markets:

• DOW JONES: Down 0.16% (or 19.98 points) to 12,855.04. Despite taking positive leads from Europe, posting a surplus and economic data in line with expectations, U.S. markets pared losses in afternoon trading and ended virtually unchanged. Although the Dow broke a six-session losing streak, it was up 90 points in early trading. In economic data, initial jobless claims fell by 1,000 to 367,000, roughly in line with expectations. The previous week was slightly revised up. 19 components rose, lead by Pfizer, Chevron, Travelers and Home Depot, gaining over 1% each. The biggest faller was Chevron, losing 10.4% on the back of poor guidance. Alcoa and Caterpillar, two resource exposed companies, also lost ground.
• FTSE 100: Up 0.25% (or 13.90 points) to 5,543.95. European markets finally ended a week long losing session and ended in the green overnight. Despite markets being down early on, Europe followed the U.S. higher to ensure a positive close. The banks began to bounce back with RBS and Barclays gaining 1.9% and 3.2% respectively, while Lloyds rose 4.3%. The mining sector was higher with heavyweights BHP and Rio climbing less than one percent each. Additional gainers included Fresnillo, Kazakhmys, Anglo American and Randgold Resources. The energy sector followed the trend with BG Group and Shell both noting gains.

Overnight Summary:

Overnight Headlines:

• Overnight sentiment was similar to the previous session; concerns over Greece and the nationalization of Spanish bank Banksia.
• Reuters reported that the Spanish government will ask banks to set aside another €35b in provisions against property loans.
• Yields on 10-year Spanish bonds rose to 6.10%.
• Yields on 10-year Italian bonds rose to 5.82%.
• Rumours began circulating early overnight that Eurozone leaders were debating whether to provide Greece with their next round of funding. However, these were dispelled by the EFSF.
• The EFSF stated it would hold back on disbursing €1b to Greece, but the country will receive its €4.2b payment this week, claiming the additional €1b is “not needed before June and will be disbursed depending on the financing needs of Greece”.

Resources Snapshot:

• Gold for Jun’12 delivery fell 0.6% to US$1594.20, the lowest settlement since 30 Dec’11.
• According to the Australian, Origin is in advanced negotiations for a US$2.95b loan from the U.S. governments Export-Import Bank that could provide funding for the APLNG plant expansion at Gladstone.
• Backing down from pre-election comments regarding state ownership of mines, Mongolian legislators overnight stated “A provision saying projects worth more than US$80m should be subject to Mongolian ownership has been removed”.
• Glencore is under pressure to reveal the details behind its Congo deals, including relationships with Israeli businessmen Dan Gertler, in what groups are claiming as “potentially corrupt deals”.

Markets:

• DOW JONES: Down 0.75% (or 97.03 points) to 12,835.06. Markets across the United States failed to stop a global pull back with the Dow ending lower for the sixth straight session. Despite bouncing off its early morning lows, the Dow attempted a mild recovery, before ending 97 points lower. Out of the 30 Dow components, 24 fell. The biggest losers were United Technologies (-2.3%), JP Morgan (-1.8%), GE (-1.8%) and McDonalds (-1.7%). Disney and Pfizer were the biggest gainers, rising over 1% each. The resource exposed stocks all ended lower, including Alcoa, Caterpillar, Exxon and Chevron.
• FTSE 100: Down 0.44% (or 24.50 points) to 5,530.05. European markets ended mostly lower overnight with the story virtually unchanged since the previous session. Investor sentiment continues to focus on Greece’s political issues. The banks lost ground with Barclays, Lloyds and RBS falling between 0.3% end 3.8% each. The mining sector had a better night with heavyweights BHP and Rio climbing 0.2% and 0.6% respectively. Additional gainers included Randgold Resources, Kazakhmys and Anglo American. Fresnillo countered the resource trend and fell 1.3%. The energy sector struggled with BG Group losing 0.2% while Shell shed 1.8%.

Overnight Summary:

Overnight Headlines:

• Greece continued to dominate headlines with the inability of parties to form a government. The New Democracy leader stated it is impossible to form a coalition government, leaving the door open for Syriza to attempt to form a government.
• German industrial production rose a seasonally-adjusted 2.8% in Mar’12, beating expectations of a 1% increase.
• Reports stated that Banksia, the troubled Spanish bank, will be nationalised through a €20b cash injection.
• New York Federal Reserve Bank President William Dudley commented at a conference last night that central bank’s asset purchases “will not continue the moment” they appear to be generating inflation.
• The Aussie dollar slipped as low as US$1.0087 overnight, the lowest point since Dec’11.
• The 2012 Australian budget was announced overnight, aiming for a $1.5b surplus in 2012-13. Of particular interest to the mining sector is the forecast first-year mining tax revenue being cut to $3b from $3.7b and Treasury’s decision to stick with $29/t for forecasting the carbon price when it transfers to a fluctuating price.

Resources Snapshot:

• Gold for Jun’12 delivery fell 2.1% to US$1604.50, the lowest settlement for a most active contract since 3 Jan’12.
• The Indian government has decided to withdraw the 1% excise duty imposed on gold jewellery.
• China’s gold imports through Hong Kong for 1Q12 hit 135.5t, up from 19.7t in 1Q11. Mar’12 figures were 59% higher than the previous month.
• A total of 242,000t were traded during the opening week of China’s first physical iron ore trading platform, the CBMX.

Markets:

• DOW JONES: Down 0.59% (or 76.44 points) to 12,932.09. U.S. markets took poor leads from Europe overnight and struggled throughout the session. Political uncertainty in Europe was the flavour of the session. Markets, however, did recover more than half their losses as trade wound down overnight with the Dow recovering from being down 190 points. 25 Dow components fell with McDonalds, Bank of America and HP all losing over 2% each to top the fallers. The gainers included Disney (+1.1%) and Johnson & Johnson (+0.3%). The resource related stocks, Alcoa, Caterpillar, Exxon and Chevron, all ended lower.
• FTSE 100: Down 1.78% (or 100.51 points) to 5,554.55. The FTSE 100, in parallel with other European markets, fell sharply overnight amid renewed political uncertainty about Greece. The indices accelerated their losses throughout the afternoon session. The banking sector was the hardest hit with Lloyds and RBS losing 4.7% and 4.1% respectively, while Barclays fell 2.6%. The mining sector failed to offer any support with heavyweights BHP and Rio falling 3% and 3.3% respectively. Additional fallers included Fresnillo, Kazakhmys, Vedanta and Randgold Resources, which lost over 6%. Lastly, the energy sector followed the index lower with BG Group and Shell losing 3.5% and 2.7% respectively. Tullow Oil bucked the trend and rose 3.3% after discovering new oil.

Overnight Summary:

Overnight Headlines:

• The main stories out of Europe continued to be the Sarkozy defeat and the pro-bailout Greece parties getting punished in the Greek election.
• Yields on 10-year Greek bonds rose more than 2% to 23.01%.
• German leader Merkel faced a set back over the weekend as the parties that make up the federal ruling competition lost control of the northern state of Schleswig-Holstein in a regional election.

Resources Snapshot:

• WTI crude for Jun’12 delivery fell 0.6% to US$97.94, the lowest settlement for a front-month contract since 6 Feb’12.
• According to The Australian, the World Bank’s private sector development finance arm, International Finance Corporation, is planning to invest US$150m of equity into Rio’s Simandou iron ore project in Guinea. The investment will give the IFC 5% ownership with Rio and Chalco holding 50.35% and 44.65% respectively.
• Chile’s copper export revenue fell 8% YoY to ~US$3.6b in Apr’12.
• Ivan Glasenberg, CEO of Glencore, speaking at a mining conference overnight stated mining companies will fight resource nationalism by pulling out of countries where they feel demands are too onerous.

Markets:

• DOW JONES: Down 0.23% (or 29.74 points) to 13,008.53. Despite taking strong leads from Europe, U.S. markets wavered overnight as they reacted to election results in France and Greece. Although the Dow turned lower in the final hour, it had previously bounced off its mid-morning low and maintained the 13,000 level. In economic data, U.S. consumers increased their debt by a seasonally-adjusted US$21.3b in Mar’12, the largest increase since Nov’01, almost double estimates and the seventh consecutive increase of consumer borrowing. Despite the broader market decline, 13 Dow components rose. Gainers were lead by Bank of America (+2.8%), Disney (+2.1%), Wal-Mart (+0.8%) and Verizon (+0.7%). The biggest fallers were HP, Caterpillar, Home Depot and Microsoft, who all lost over 1%.
• FTSE 100: Closed for public holiday.

Overnight Summary: