Eurozone nominal hourly labor costs, workday-adjusted y/y:

total wage costs non-wage costs

1Q12 +2.0% y/y +2.0% y/y +2.0% y/y
4Q11 +2.8% y/y +2.6% y/y +3.5% y/y
3Q11 +2.5% y/y +2.4% y/y +3.0% y/y
2Q11 +3.3% y/y +3.2% y/y +3.9% y/y
1Q11 +2.5% y/y +2.2% y/y +3.3% y/y
—

PARIS (MNI) – The annual rise in Eurozone labor costs slowed more
than generally expected in 1Q to 2.0%, the slowest pace since the end of
2010, reflecting weaker gains in both wages and especially employer
payroll contributions, Eurostat said Thursday.

After recovering from mid-2010, labor cost trends peaked a year ago
with an annual rise of 3.3% and have come down since. Wages in 1Q were
up 2.0% on the year, as were non-wage costs, which include social
security contributions and employment taxes.

Quarterly changes obtained from Eurostat show that labor costs rose
0.3% in 1Q after +0.7% in 4Q.

The slowdown in labor cost gains was most pronounced in
construction, where the annual rise narrowed to 1.9% in 1Q from 2.9% in
4Q. In industry, the annual gain slowed to 2.5% from 3.3%, while
services posted a slowdown to 1.8% from 2.6%.

Among the larger economies, Italy registered the greatest slowdown,
as labor costs were up 1.5% on the year after +2.7% in 4Q. Annual cost
increases in France and Spain both slowed to 2.2% from 3.4% and 2.9%,
respectively. No 1Q data were released for Germany, which posted a 3.6%
annual rise in 4Q.

Most smaller reporting countries also posted a slowdown, with the
exception of Austria, where the annual rise accelerated to 5.3% from
3.9% in 4Q, and Portugal, where the increase rebounded to 1.5% after a
1.7% annual fall in 4Q. Luxembourg slammed on the brakes, dampening the
cost increase to 0.9% from 4.2%. In Slovenia, the annual decline
deepened to 1.2% after -0.3% in 4Q.

The decline in labor costs in bailout countries should continue
this year and next, helping to overcome some of the imbalances at the
root of the Eurozone crisis. Even if labor costs in the most of core
economies moderate with the slowdown in economic activity and the rise
in unemployment, this should not derail the convergence process.

Based on wage deals agreed through February, the ECB concluded last
month that “wage developments in the euro area are likely to be more
moderate in 2012 than in 2011.”

However, more important than nominal labor costs for boosting
competitiveness in the lagging economies and allowing exporters to
benefit from more dynamic demand outside the Eurozone are trends in unit
labor costs.

Since firms often tend to adjust payrolls more slowly than
production in a downswing, labor productivity gains are likely to
diminish or even reverse this year before picking up again with the
recovery in output.

“In the medium term, labor cost pressures are likely to remain
contained, given the rather weak outlook for growth and the continued
slack in the labor market,” the ECB predicted.

The OECD noted in its spring Economic Outlook that unit labor costs
in the bailout countries have been declining since 2009. “By 2013 they
are projected to be much more closely aligned with the majority of euro
area members, although a prolonged period of adjustment on both sides
would be necessary to make them more closely aligned with costs in
Germany.”

The European Commission expects nominal pay gains in the Eurozone
to slow from an average of 2.2% last year to 1.9% this year and next. At
the high end this year are Germany (+2.7%), Luxembourg (+3.2%), Finland
(+3.3%), Austria (+3.6%) and Estonia (+4.0%). Gains in Spain would slow
markedly (+0.1%), while further declines are foreseen in Ireland
(-0.8%), Portugal (-3.1%) and Greece (-8.0%).

Assuming a slowdown in average labor productivity gains to just
0.1% this year before a recovery to 1.0% next year, the Commission sees
unit labor costs rising 1.6% on average this year and 0.8% next year. In
real terms, however, unit labor costs would “almost stagnate” this year,
it estimated.

“The magnitude of the expected decline of unit labor costs in 2013
will depend on the degree of persistence of slow productivity growth
once economic growth gains traction again,” it said.

Across countries, real unit labor costs are seen rising fastest
this year in the core countries (except for Finland), declining slightly
in Italy and to a much greater extent in the bailout countries.

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

[TOPICS: MT$$$$,M$X$$$,M$XDS$,MTABLE]

May: -0.1% m/m, +2.4% y/y (unrevised)
April: +0.5% m/m, +2.6% y/y
March: +1.3% m/m, +2.7% y/y
February: +0.5% m/m, +2.7% y/y
January: -0.8% m/m, +2.7% y/y
–

FRANKFURT (MNI) – Eurozone consumer price inflation was confirmed
at the 15-month low of +2.4% in May due to cheaper energy, while the
core rate was stable, Eurostat reported on Thursday.

The 0.1-point upward revision in German HICP was evidently not
enough to alter the previous flash estimate for the Eurozone.

On the month, prices fell by a weaker-than-expected 0.1% after
rising 0.5% in April.

Energy was 1.4% cheaper, bringing the annual rate to +7.3%, its
lowest level since August 2010.

Nevertheless, energy components remained the principal inflation
driver, adding a combined 0.51 percentage point to the annual rate.

A slowing Chinese economy, the ongoing Eurozone debt crisis and
rising oil inventories have pushed Brent crude prices below $100 a
barrel for the first time since February 2011.

Oil developments in the coming months, however, are uncertain, the
International Energy Agency said in its latest Oil Market report.

“Looking ahead, if the Eurozone or Chinese economy slows more
quickly than envisaged here, weaker customer demand would naturally see
producers scale back output,” the IEA reasoned.

“A simple extrapolation of current OPEC output through end-2012
could indeed result in OECD stock overhang,” it acknowledged. “But
equally, starting from our base case assumptions, and adjusting for
potentially lower Iranian output on the one hand, and for some further
Chinese crude buying on the other, leaves an outlook that is hardly
overflowing with oil.”

Food, alcohol and tobacco prices managed a modest 0.2% monthly
rise, slowing the yearly pace to +2.8%.

Excluding the above components, the annual core rate remained at
+1.6% for the third consecutive month.

The European Central Bank’s preferred measure of core inflation,
which excludes energy and unprocessed foods, eased slightly to +1.8%,
its lowest since August.

Price pressures continue to ease in the private sector, May’s PMI
report indicated, as cheaper commodities and subdued wage demands cut
input price inflation to six-month lows, while strong competition and
weak demand led to further selling-price discounts.

Anemic demand has undermined companies’ pricing power. A European
Commission survey showed that the proportion of firms looking to raise
prices in the near term fell below or further below average across all
major sectors of the economy last month. Consumers have also revised
down their outlook for price trends over the next year to the lowest
level since the start of last year.

The ECB staff’s latest projections foresee Eurozone inflation
ranging between +2.3% and +2.5% in 2012 and between 0.0% and +2.0% in
2013.

“The Governing Council continues to view the risks to the
medium-term outlook for price developments as broadly balanced,” ECB
President Mario Draghi said last week. “Upside risks pertain to further
increases in indirect taxes, owing to the need for fiscal consolidation,
and higher than expected commodity prices over the medium term. The main
downside risks relate to the impact of weaker than expected growth in
the euro area.”

The latest hard and soft data suggest that these downside risks may
already be materializing. Industrial output in April was down 0.7%
compared to the first quarter, while the most recent manufacturing PMI
showed both output and new orders falling further in May.

With underlying price pressures easing and risks to the economic
outlook skewed downward, calls for a cut in the ECB’s main refinancing
rate are growing. Draghi fed expectations of a rate cut when he revealed
that a few members of the Governing Council “would have preferred” a cut
this month.

One Bundesbank Board member, however, feels that monetary policy is
already “rather accommodative.”

“In effect, monetary policy is more expansive than the key interest
rate of 1% might suggest,” Andreas Dombret said Tuesday.

– Frankfurt bureau: +49 69 720 142; e-mail: frankfurt@marketnews.com —

[TOPICS: M$X$$$,MT$$$$,M$XDS$,M$$CR$,MTABLE]

EMU DATA: 1q total hourly labour costs +2.0% y/y; 4q +2.8%; 3q +2.5%
– EMU 1q hourly wages and salaries +2.0% y/y; 4q +2.6%; 3q +2.4%
– EMU 1q non-wage labour costs +2.0% y/y; 4q +3.5%; 3q +3.0%
– See MNI MainWire for details

EMU DATA: May HICP unrev +2.4% y/y, April +2.6%, March +2.7%,
February +2.7%
– EMU May HICP y/y matches MNI median fcast
– EMU May HICP -0.1% m/m, above MNI median fcast (-0.2%)
– EMU May ex-energy/food/alc/tobacco HICP +1.6% y/y, April +1.6%
– EMU May ex-energy/unprocessed food HICP +1.8% y/y, April +1.9%
– EMU May ex-energy/seasonal foods HICP +1.9% y/y, April +1.9%
– EMU May ex-energy HICP +1.8% y/y, April +1.9%, March +2.0%
– EMU May fruit +2.6% m/m, restaurants/cafs +0.2%
– EMU May electricity +0.5% m/m, tobacco +0.5%
– EMU May meat +0.2% m/m, rents +0.1%
– EMU May telecommunications -0.6% m/m, air transport -2.9%
– EMU May heating oil -2.2% m/m, vegetables -1.7%
– EMU May package holidays -2.0% m/m, fuels for transport -2.9%
– See MNI MainWire for details

Up from 20.7% in Q4 2011  :(

Don’t get any betta do it………

    More or less in line with expectations of -0.2%m/m and +2.4% y/y

LONDON (MNI) – Mortgage lending fell sharply in April, in the wake
of the expiry in March of the stamp duty holiday, with first-time buyers
hard hit, according to Council of Mortgage Lenders data.

The CML reported that the total number of loans for house purchase
and remortgaging fell to 36,000 in April, a 30% fall on the month and a
3% decline on April last year. The CML said first time buyers took out
just 12,600 loans, down 48% from March and down 12% from last April.

The looming expiry of the stamp duty holiday saw a sharp pick-up in
housing market activity in March, which then fell away in April.

The April decline was “caused by the distorting effect of the
March ending of the stamp duty concession,” the CML said.

The Bank of England comprehensive mortgage lending figures for May
will be published on July 3, with the May British Bankers Association
data out on June 27.

These CML data simply confirm the already well documented weakness
in the housing market in April, while fleshing out some details on which
sectors of the market suffered.

-London bureau: +4420 7862 7491; email: drobinson@marketnews.com

[TOPICS: M$B$$$,MABDS$]

Hitting fresh lows on the day now around 122.78 after a large sell order earlier  led a plunge from the  123.40  level.

Tech support is now  down at 122.55/60 with a break there opening the way to Friday’s lows around 121.90/00

An inglorious milestone

European stocks don’t like it, giving ground.

EUR/USD slips to 1.2545.

BERLIN (MNI) – Chancellor Angela Merkel on Thursday warned not to
overestimate Germany’s ability to shoulder the burden of the struggle
against the Eurozone debt crisis.

“Germany’s strength is not unlimited,” Merkel said in a government
declaration in the German parliament on the upcoming G20 summit. “All
measures would be in the end for the birds if it should become obvious
that they would overburden Germany,” she said.

“That is why the seemingly simple considerations of joint
liabilities [in the Eurozone] are completely counterproductive,” the
chancellor stressed.

Merkel reaffirmed her belief that the sovereign debt crisis can
only be overcome by reducing budget deficits and strengthening the
competitiveness of Eurozone member states.

The chancellor praised the reforms undertaken by the Spanish
government as well as its decision to request European aid for its
banking sector. “The faster it files the application, the better,” she
said.

Noting that the European banking stress tests had not revealed the
weakness of the Spanish banking sector, the chancellor called for a
stronger role of the European Central Bank in supervising Europe’s
banks.

Merkel said the sovereign debt crisis in the Eurozone will be the
main topic at the G20 summit in the Mexican coastal town of Los Cabos
next week. Yet, she stressed, that she will oppose any calls for
debt-financed growth stimulus programs at the meeting: “We all have to
resist the temptation to again finance growth by more debt.”

All regions have to contribute to overcoming the weakness of global
growth, Merkel said. The Eurozone by solving its debt crisis, the U.S.
by reducing its public deficit further “and China and the other emerging
economies by allowing a more flexible currency regime,” she insisted.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

[TOPICS: M$X$$$,MGX$$$,M$$CR$,M$G$$$,MT$$$$,M$A$$$,M$$EC$,M$$FX$]

PARIS (MNI) – Spanish banks borrowed a record E287.8 billion from
the European Central Bank in May, the Bank of Spain reported Thursday on
its Web site.

The record May net borrowing total compared with E263.5 billion in
April and E53.1 billion a year earlier.

Spanish bank borrowing from the ECB ballooned following the central
bank’s three-year financing operations in December and February. Banks
from Spain and Italy were the biggest borrowers in both operations

The data also showed that Spanish banks’ deposits at the ECB
declined to E36.8 billion in May from E53.4 billion in April.

The deposits, which have been seen by markets has a proxy for how
much firepower the banks have left to invest in Spanish government
bonds, soared to a peak of E88.7 billion in March following the second
of the ECB’s LTROs.

Spanish bank holdings of Spain government bonds rose to E143.6
billion in April, or about 30% of the total, from around 13% of the
total outstanding a year ago, according to Spanish Treasury data.

–Paris newsroom, +33142715540; jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,M$S$$$,M$$EC$]

 The bank will look at  further measures and contigency plans if crisis escalates, but declines to say what stepos these would be…

 SNB’s Danthine:  Credit Suisse and UBS need to keep bolstering their capital bases by halting dividends and/or issuing shares, as protection against an escalation in the EU crisis.

• Says Germany benefiting from low euro
• Says Germany benefiting from low bond yields
• Calls on Germany to have ‘longer-term vision’
• Calls for mutualization of debt in euro area

He don’t sound very happy, do he……..

Meanwhile 10 year Spanish government bond yield up again, presently at 6.93% 

EUR/USD trades at 1.2563, some 10 pips down on the day.  If SAMA wasn’t about you’d have to think we’d be alot closer to 1.2500.

HELSINKI (MNI) – Europe is currently in a tough situation and risks
emanate in particular from Spain and Italy, European Central Bank
Governing Council member Erkki Liikanen said Thursday.

“The European situation is difficult” and policymakers face major
challenges, said Liikanen, who heads the Bank of Finland, at a press
conference to present the bank’s quarterly bulletin with the latest
growth forecasts for the Finnish economy.

With respect to Spain and Italy, he said, “the situation is a
severe risk to the Finnish economy.”

“It is important that Italy continue its economic reform,” he
urged.

In general in the euro area, “it is important to address public
deficits and ensure financing of banks simultaneously,” he emphasized.

Liikanen affirmed that “oil prices will decrease in the near
future,” which will have a direct and beneficial effect on inflation.

“Global trade is to rebound at the end of 2012, and this will
affect the Finnish economy positively,” he said.

Frankfurt bureau tel.: +49-69-720142. Email: frankfurt@marketnews.com

[TOPICS: M$X$$$,MT$$$$,MGX$$$,M$$CR$,M$$EC$]

FRANKFURT (MNI) – The European Central Bank sees weakening Eurozone
business investment growth over the first half of this year – the result
of a high degree of uncertainty – but expects a modest rebound towards
the end of 2012.

In its Monthly Bulletin released Thursday, the ECB pointed to
indicators of industrial production and orders that “suggest a further
weakening of euro area investment growth in the first half of 2012.”

“In general, short-term indicators suggest a continuously slow
momentum in investment in the near term. This may be related to cautious
investment behaviour of companies in the face of persisting high levels
of uncertainty,” the ECB said.

But the ECB said “fundamental determinants” including demand and
conditions for bank financing “are still assessed to be relatively
favourable.” Indicators of gross operating surplus at firms also suggest
the drop-off in investment will be “contained.”

“Looking further ahead, business investment — although subject to
downside risks should the sovereign debt crisis deepen — is expected to
start growing modestly towards the end of 2012, in line with the
expected weak rebound in domestic demand and exports,” the ECB said.

The contribution of business inventories to GDP over 2012 is
expected to be “close to zero,” the ECB said, forecasting the destocking
rate seen at the start of the year suggested the “inventory adjustment
process may have already taken place.”

– Frankfurt bureau: +49 69 720 142; email: ccermak@marketnews.com

[TOPICS: M$X$$$,M$$EC$]

PARIS (MNI) – The Swiss National Bank on Thursday called on the
nation’s two largest banks, Credit Suisse and UBS, to add to their
loss-absorbing capital in order to be prepared in case the Eurozone debt
crisis deepens further.

Presenting the central bank’s Financial Stability Report, SNB Vice
Chairman Jean-Pierre Danthine said that while both banks had only
moderate exposures to peripheral countries, loss-absorbing capital “is
still below the level needed to ensure sufficient resilience.”

If the debt crisis were to worsen, “a general deterioration of
economic and financial conditions could be expected,” Danthine said. “In
such a case, the potential losses for the banks would extend to a
significant portion of their credit and trading positions.”

Danthine said that at the end of March, loss-absorbing capital was
2.7% of the net balance sheet at UBS and 1.7% at Credit Suisse.

The SNB vice chairman recommended that UBS “continue with the
capital strengthening process – including, in particular, pursuing a
policy of dividend restraint.” He said Credit Suisse “should accelerate
the process and take all action necessary to expand its loss-absorbing
capital base significantly during the current year.”

–Paris newsroom, +33142715540; jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,M$$EC$]

With 1.2600 (last poll topside parameter)  having been breached yesterday, it’s time for another poll methinks.

We sit at 1.2570. What’ll we see first, 1.2450 or 1.2650. There, the bulls get a 20 pip headstart…..

Reasoning/s for choice always welcome, but not compulsory.

Guess it gives me the chance to get another one wrong

BERNE (MNI) – Recent Eurozone troubles have further increased the
upward pressure on the EUR/SFR exchange rate, but the Swiss National
Bank will not tolerate any appreciation of its currency, SNB President
Thomas Jordan said Thursday in a speech accompanying the central bank’s
quarterly interest rate decisions.

Jordan also rejected recently floated ideas that Switzerland should
create a sovereign wealth fund with the SNB’s foreign currency holdings,
noting it would not help monetary policy objectives and could undermine
the central bank’s independence.

“The debt problems in some euro area countries have deteriorated
seriously over the recent period,” Jordan said. “Accordingly, the euro
has lost value against most countries since May. This has lead to
increased upward pressure on the EUR/SFR exchange rate. Even in this
difficult environment, we have consistently enforces the minimum
exchange rate of Sfr1.2 per euro.”

“Another appreciation would have a serious impact on both prices
and the economy in Switzerland; the SNB will not tolerate this,” Jordan
asserted, adding that it is therefore “necessary to accept an expansion
of the balance sheet arising out of the enforcement of the minimum
exchange rate.”

MORE

–Frankfurt Bureau tel.: +49-69-720 142, email: jtreeck@marketnews.com

[TOPICS: MT$$$$,M$$EC$,M$X$$$,M$$CR$,MGX$$$,M$$FX$]

• Surveys show no deflation expectations at present, also no danger of inflation
• SNB balance sheet will expand due to enforcing cap on franc, can bear risks
• SNB has bought S.Korean won; eyes other bond, share investments in emerging, advanced economies
• Sovereign wealth fund would do little to assist Switzerland, Swiss monetary policy
• Sovereign wealth fund would not help enforce cap on swiss franc vs euro

GBP/USD broken down through 1.5500 to session lows of 1.5473. The move triggered by another bump up in EUR/GBP as well as a sell order in GBP/JPY.

EUR/GBP’s  heading up towards some buy stops  postioned on a break of 0.8155, but currently stalling into offers around 0.8120

GBP/USD now has some reasonable tech support sitting down at 1.5450/55, but there are currently some bids sitting just above around 1.5470/75 to fill first.

Cable’s around 1.5495 with EUR/GBP sitting around 0.8118