Bankruptcy vs economic depression, quite a choice

The vote on bankruptcy vs economic depression in Greece awaits but the markets aren’t waiting around as the assumption that bad choice 2 will prevail is apparent with Greek stocks rallying to a 4 week high and the 2 yr yield plunging by 180 bps. Today’s vote will be followed by another one tomorrow that will focus on the actual implementation of the budget, including the privatization plan. Japan’s manufacturing sector is experiencing somewhat of a V type bottom as Industrial Production in May rose 5.7% m/o/m, a touch better than expected and follows a 1.6% gain in April after the 15.5% drop in March. The gain was specifically led by the auto sector and the Nikkei is responding positively, rallying to a 7 week high. Inflation in Canada rose to the most since March ’03, up 3.7% y/o/y in May, above expectations of 3.3% and well above the benchmark rate of the BoC of 1%. Negative real interest rates are not just in the US but are a global phenomenon notwithstanding rate hikes everywhere except here. Following two days of lackluster demand, the US Treasury will try for a 3rd time today, selling 7 yr paper. With Bernanke Capital Management largely stepping away from Treasury purchases, Geithner is going to have to make some new friends.

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