June 2012

Euro Zone

The Spanish government finally required European financing for its banking system. The euro area agreed to provide up to €100bn, while the IMF estimates the minimum requirement at around €40bn. By doing this, the euro area finance ministers sent
a reassuring message to markets: there will be no underestimate of the crisis this time!

Moreover, the Spanish government got what they wanted, that is to say a direct bailout for banks, as funds will channel through the Fund for Orderly Bank
Restructuring (FORB). This is therefore not a full bailout for Spain (as it has been the case for Greece, Ireland and Portugal), with tough conditions attached, such as the quarterly review of progress made in reducing deficits and reforming the economy
by the Troika.

Dayahead UK power prices have shifted higher following gas price movements. Meanwhile gains 
further out remained more modest amid an illiquid curve market with no transaction beyond Winter 
12.  Oil has rebounded to above $100 on news of a Spanish rescue package calmed market concerns. 
The weather forecast indicates temperatures below SNT levels for the next ten days.

Last Friday, Power and gas prices were broadly unchanged, reflecting the relative calm in the wider market where Oil and Equities are also taking a pause for breath.  Liquidity had been relatively strong 
for Friday, with each of the front 4 baseload power seasons trading several times.