Daily Clueless Musings 7/06

The ISM nonmanufacturing index declined from 54.6 to 53.3 in June. The new orders index declined 3.2 points in June but still came in at a decent level of 53.6. The employment is up 0.1 points to 54.1. Although the data start to beat the lowered expectation, global PMI (ex Japan) continue to decline. 9 out of 14 available country level PMI declined in Jun. Euro area wide service PMI declined to 53.7, the lowest since last October. Futures rallied again after Monday's move, as people rushed to covered their short position which they put on before the EU/IMF approving the 12 Billion Euro to Greece. Front contracts are sold off again, as people now realized no problem can be solved by throwing 12 billion Euro to the insolvent Greece. European banks are meeting to sweeten Greek terms and German Financial Minister insisted that private investors must play central role in Greek aid and saw “many arguments for alternatives” to French plan. CDS on many European Sovereign debt all widened today. Moody's released a list of 26 banks (out of 91banks) that will fail the second European stress test. Market has been trying to sell fronts to trade/hedge the credit risk, however fixing has barely moved yet. BBA announced that it would change calculation method for dollar Libor on August 1, removing highest and lowest 5 rates (instead of 4). The move will reduce the volatility in LIBOR fixing by removing one more low quality banks.