Risk Aversion Continues As Greece Could Be Hugely Off Track

Situations in Spain and Greece continued to weigh on Euro while overall sentiments in the market remained weak in Asian session. The Spanish 10-year yield jumped to as high as 7.636% yesterday and could possibly accelerate further higher towards 8%. The development makes a full sovereign bailout for the country somewhat inevitable and that could happen within weeks. Meanwhile, as the Troika is in Greece, three EU officials were quoted saying that it's unlikely for Greece to meet the bailout conditions.

Greece was criticized to be "hugely off track" with its austerity programs and the "debt-sustainability analysis will be pretty terrible." Another office criticized that nothing has been down in Greece for the past three or four months as the country was engaged in two important elections and the situation just "goes from bad to worse". It's reported that Greece could need further debt restructuring with cost falling on the ECB and other Eurozone governments.

Also, sentiments were weighed down by IMF's comment that China's economy is facing significant downside risks even though "soft landing" remains the likely scenario. IMF noted that "global headwinds are increasing" and urged China to gear its policies towards achieve this year's growth targets. It said in case of "worsening of the external outlook," China has "ample room to respond forcefully, using fiscal policy as the main line of defense."

Nonetheless, it also warned of a number or risks to the economy, and in particular, if economy were to have significant deterioration, it questioned whether banks of local government could bear the burden of non-performing loans. IMF lowered growth projection for China in 2012 to 8% last week, above the government's target of 7.5%.

On the data front, Australia CPI rose less than expected by 1.2% yoy in Q2 while conference board leading indicator rose 0.4% in May. New Zealand trade surplus came in wider than expected at NZD 331m in June. Japan trade deficit narrowed to -JPY 0.3% in June. German Ifo will be a focus in European session and is expected to dropped to 104.5 in July. UK GDP will be more important and is expected to show -0.2% qoq contraction in Q2, following -0.3% contraction in Q3. That is, the UK was still in recession. New home sales from US will be released later today.