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Commodities Weaken as EU Leaders Fail to Compromise on New Greek Bailout

Failing to re-test 100, the front-month contract for WTI crude retreated in European session amid renewed worries over debt problems in Greece. EU leaders failed make much progress after an emergency meeting. Apparently, it will take longer than expected earlier to compromise on the new bailout plan. Gold moved steadily around 1525. Price will advance as sovereign crisis concerns in the European periphery persist and inflationary pressures intensify.

EU leaders were discussing about injection of more money to Greece in addition to the 110B euro fund pumped last year. While it's likely another bailout plan will be approved, details of the plan remained uncertain. The more complicated part is that Germany and France insist the involvement of private sectors in sharing the burden. Concerning this, S&P said Greece may be downgraded to 'selected default', SD, if private sectors are involved. The ECB also commented on private sector involvement. Governing Council member Mario Draghi said the plan 'should exclude all concepts that are not purely voluntary or that have any element of compulsion'. Therefore, involvement of private investors should be voluntary.

Indeed, debt problems in Greece have significant impacts on other EU nations. Moody's had put 3 French banks (Credit Agricole, Societe Generale and BNP Paribas) under review, with possibilities of downgrades, on their exposures to Greek debts. While Credit Agricole and Societe Generale both hold majority stakes in Greek banks, BNP Paribas is estimated to have held about 5B euro of Greek government debt as of December 2010. According to Moody's, the moves reflect Moody's 'concerns about these banks' exposures to the Greek economy'.

On the macro front, good news was heard as Eurozone's industrial production unexpectedly rose +0.2% m/m in April, compared with consensus of a -0.2% drop. March's reading was revised up (to +0.05 from -0.1%). From a year ago, production grew +5.2%, following an upwardly revised +5.8% in March.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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