Weekly Market Review 25 of May

The markets and commodities were mostly down Friday after a weaker economic growth data. The Euro area manufacturing PMI fell from 45.1 in May to 44.8 this month, the lowest level in 3 years. The preliminary reading of the HSBC Chinese PMI index was 48 in June, the eighth month below the 50 level, which signals contraction. On Thursday, U.S. initial unemployment claims were 387,000 in the week ending 16 June, higher than the 383,000 level polled by Bloomberg. The Philly Fed Factory index plunged to -16.6, the lowest level since August, 2011. The U.S. existing home sales also fell in May, confirming the lower revision by the Fed for growth in 2012, a higher revision of unemployment rate, and the extension of the Operation Twist program.

The disappointing data didn’t surprise investors and they only reflected the slow deterioration we had seen In past few month around the globe. The European Central Bank didn’t stay shay this time (finally) and he announced later on this day (Friday) on a new measures to ease collateral rules and allow banks greater access to liquidity.

The ECB decided on additional measures 'to improve the access of the banking sector to Euro-system operations in order to further support the provision of credit to households and non-financial corporations', says the ECB in a statement.

Today, Spain has formally requested European aid for its banks, though it has not asked for any specific number, according to the Economy Ministry spokeswoman. Details on how this would be funded or how soon it would come into operation were not forthcoming, failing to steady the nerves of even the most optimistic of investors.

This week’s highlight will be the EU leaders gathering for the much awaited two day summit beginning Thursday. Analysts note that negotiations on various growth-supporting measures do appear well along, with “decisions possible on boosting the capital of the EIB, reallocation of structural funds, and project bonds.” With German leaders consistent in their opposition and unwillingness to endorse more radical steps towards debt mutuality, such as Eurobond issuance or direct involvement in bank recapitalization by the EFSF/ESM, broader Euro issues are expected to be only “incremental this week.” Persistent Euro debt market relief remains a ways off, again allowing spec investors to probably reset freshly minted EUR and growth sensitive short positions. The market again seems rather bullish on the dollar.

In additional to the to the Euro summit, a few more important data will be relist in the upcoming week;

The GFK German Consumer Climate report to be released on Tuesday will be one of the main events of the week. The survey takes into account opinions of 2000 consumers and it is expected to remain stable at 5.7 after it dropped from 6 points in the last reading. The German CPI which is expected on Wednesday will probably show that German inflation remained at 0.2 percent for June.

Out of the US; New Home sales numbers will go out today at 14:00GMT, Core Durable Goods Orders on Wednesday 12:30GMT, GDP QoQ and Initial Jobless Claims on Thursday, Chicago PMI and Consumer Confidence on Friday.

EUR/USD The pair increased the highest at the beginning of last week following the Greek election result. However, the pair was unable to hold as poor regional data was released and attention shifted to Spain and Italy. By the look at the EUR/USD chart we gather that Investor optimism appears to be fading quickly ahead of the upcoming EU summit. Subsequently, the euro came under steady selling pressure throughout the European session, with Spanish and Italian bonds widening across the curve and equity markets trading in the red.