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Money market fund net redemptions totaled C$180mln.

FTSE Up 0.21% DAX Down 0.42% GBP/USD @ 1.6335 EUR/USD @ 1.3994 EUR/GBP @ 0.8564

Says market conditions continue to be very challenging. Trading at levels well below last year.

The plan will still need approval by the upper house of parliament.

European equities failed to meet expectations of recovering from the yesterday's losses. The session was very calm as Wall Street was closed due to US Independence Day holiday tomorrow. The FTSEuroFirst 300 was down 0.6%. The FTSE 100 fell 0.2%. The Dax dropped 0.7%, falling below the 4,700 threshold. The CAC declined 0.5%. On the macroeconomic front EZ June composite PMI was up. EZ May retail sales were down on both a monthly and annual basis, slightly below forecasts. Sterling headed south after a lackluster recovery petered out early in the session. Cable drifted to fresh lows for the week. CHF lost against the dollar and euro on rumors of SNB intervention. EUR/USD was up 60 pips to 1.3990. USD/JPY remained unchanged at 95.95. EUR/GBP was up 30 to 0.8560. EUR/JPY jumped 59 to 134.22. GBP/JPY dropped 15 at 156.55. Most European bonds were flat to slightly lower. The Bund future lost 13 ticks to 121.52. In the cash market, the Schatz, the Bund and the 10yr Gilt were little changed. The 2yr Gilt eased 5bp to 1.26%. Oil prices remained lower in sideways trade. WTI was down 20 cents to $66.52. Brent fell 25 to $66.42.

The ratings agency confirmed the state's grade of "AA+" for long-term debt and "A-1+" for short-term debt.

Could be in form of a loan or loan guarantees

The European morning saw range bound activity as today's US holiday limited activity. EUR/USD options strikes at 1.4000 saw very narrow ranges, while Cable was knocked lower by a US name and traded back in to the 1.6330 area. JPY and USD were supported for the most part, although the JPY did pull back from its Asian highs amid bargain hunting. The CHF was range bound for a large part of the morning before interbank names had a scare after a US name executed a good sell-order, which sparked quasi-official bid-talk in EUR/CHF from a number of desks, but there was no confirmation in very quiet trading conditions. We look for continued range bound activity during the European afternoon.

Quelle, who call itself Europe's largest home-shopping company, has stopped catalog production, German news broadcaster N-TV reported. Quelle is a unit of Arcandor, which has been seeking fiscal support from the German government.

GBP found a modicum of support around 1.6340 after UK June services PMI held up, after showing only a slight deterioration to 51.6 versus 51.7 in May. This was a bit better than expected and indicated that the service sector is still experiencing an expansion, which will offer hopes that the UK recession is coming to an end. The break down indicated that expectations remain highs, but new business and job cut continue within the sector and highlights that any recovery will be fragile and protracted.

Moody's Investors Service downgraded its financial strength rating of VTB Bank of Austria, VTB Capital and VTB Bank of France to D- from D, with a negative outlook. All three banks are owned by the Russian Bank VTB, which is currently rated D-. At the same time, Moody's affirmed the banks' Baa3 long-term global local currency (GLC) deposit ratings, with a stable outlook. The negative outlook reflects Moody's medium-term expectation that the operating environment in Russia, and globally, would continue to 'negatively impact their financial fundamentals, particularly capitalisation, asset quality, profitability and liquidity.'

If US joblessness hits 11% by year's end, then expected loan losses are going to be much higher than the ones banks estimated in recent stress tests, said American economist Nouriel Roubini in an article in his daily RGE Monitor. "You plug an unemployment rate of 11% in any model of loan losses and recovery rates and you get very ugly losses for subprime, near-prime, prime, home equity loan lines, credit cxards, auto loans, student loans, leverage loans, and commerical loans -- much bigger numbers than what the stress tests projected," he said. Roubini is predicting the US unemployment rate could reach 10.5% by the end of summer and possibly hit 11% by the end of the year. The latest US jobs report showed that the unemployment rate rose to 9.5% in June.

Footsie hovers just above par at 0.04% higher Session lows

Italian service sector business expectations hit a two-and-a-half year high in June, sources said of the latest PMI survey.

UK Treasurer Alistair Darling said that some bankers 'need to be brought back to earth' over bonuses. In an interview with London's daily 'The Independent,' Darling said there were signs of the old bonus culture creeping back into the City and promised tougher regulatory measures to prevent future booms turning into bubbles. The UK's chief regulator, the Financial Services Authority (FSA) could also be ordered to take a more proactive approach to prevent a return to bonuses as a reward for short-term profits, Darling said in an interview published in today's edition of London daily newspaper 'The Independent.' The UK Treasury will unveil its 'White Paper' on banking supervisory reforms next week. Click here to read the full interview.

JPY pulled back from its Asian session highs amid reports of bargain hunting in the crosses following reserve management interest for GBP and EUR. USD/JPY stabilised after hitting 95.71 and is changing hands in the low 96s, although the dollar is generally a touch easier in early trade and further gains are capped. EUR/JPY pushed back in to 134.75 versus the 133.60 area in Asia and GBP/JPY traded back in to the 157.80 area versus 156.40 lows. There have been reports of Japanese investor demand due to more investment trust launch activity. Most of the flow has tended to favour US corporate bonds, but lower US yields has resulted in selling from those hedging structured derivative products. The JPY crosses are likely to lead in holiday thin trade, while USD/JPY option congestion remains at 96.00-96.50.

European equities were called higher, recovering from yesterday's losses driven by the highest US unemployment figure in more than 2 decades. A lackluster trading day is expected due to Wall Street being closed today. The DAX future and the CAC future were both up 0.5%. Most Asian stocks pared losses, but were still in the red. The Nikkei fell 0.6%. The ASX dropped 1.3%. The Shanghai Index contiuned its 2day rally and gained 0.7%. The European calender starts with Swiss CPI at 715 GMT. German, UK, EZ Services PMI and UK Halifax house prices will be released around 800 GMT. Eurostat will publish EZ retail sales at 900 GMT. The Euro and Sterling recovered from yesterday's declines as investors thought that weak US employment data and vanishing recovery hopes had exaggerated demand for safe haven currencies. EUR/USD was up 80 pips to 1.4015. Cable jumped 92 to 1.6421. USD/JPY was flat at 96. EUR/GBP was unchanged at 0.8530. EUR/JPY increased 90 to 134.60. GBP/JPY gained more than a number to 157.75. The worse-than-expected US NonFarm Payrolls data spurred global bond demand as investors sought more security. All major bond yields slipped between 5 and 14 bp compared to the quotes before the release of the US employment data. The Bund future lost 7 ticks to 121.58. The Schatz was flat at 1.23%. The Bund gained 1 to 3.34%. The 2yr and the 10yr Gilt were flat at 1.29% and 3.74%, respectively. Elsewhere, the 10yr T-note was flat at 3.50%. The 10yr JGB was unchanged at 1.33%. Oil prices fell below $67 on bleak US employment data. WTI was up to $66.83. Brent gained 8 cents to $66.72.

Job losses dampen hopes for recovery WP http://www.washingtonpost.com/wp-dyn/content/article/2009/07/02/AR2009070200354.html New GM almost ready to roll FT http://www.ft.com/cms/s/0/90a5d97e-675c-11de-925f-00144feabdc0.html Stocks careen lower, but in light pre-holiday trade IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=NDAyNjg0MQ== Big June job losses heighten concerns about US revival IBD http://license.icopyright.net/user/viewFreeUse.act?fuid=NDAyNjg0NA==

Merkel calls for sustainable growth WSJEhttp://online.wsj.com/article/SB124655964143087545.html US unemployment dampens recovery pace WSJEhttp://online.wsj.com/article/SB124653569538485257.html#mod=testMod ECB holds interest rates, EZ unemployment hits 9.5% WSJEhttp://online.wsj.com/article/SB124651760324884833.html Rogue trader causes oil spike FThttp://www.ft.com/cms/s/0/e0ae2b2a-66f7-11de-925f-00144feabdc0.html Brussels says crisis will stunt EU growth in the long-term FThttp://www.ft.com/cms/s/0/247ffa48-66f0-11de-925f-00144feabdc0.html Stocks soar in China IHThttp://www.nytimes.com/2009/07/03/business/global/03chistox.html?_r=1&scp=1&sq=chinese%20growth&st=cse

Equities finished significantly lower with the Dow down 2.5%, the S&P plunging 2.8% and Nasdaq tumbling 2.7%. The S&P opened the session lower after the worst-than-expected NonFarm Payrolls data and continued to fall sharply in the first hour of trade. The pace of decline slowed in the afternoon but the index continued to make lower lows. All ten sectors in the S&P500 were negative with Energy stocks plummeting 4.4% and Consumer Discretionaries falling 3.7%. At 10am, June ISM-NonManufacturing Index is expected at 47.5 from 44. New Orders are forecast at 44.4 and Prices Paid is predicted at 46.9.

Supply, supply, supply is the focal point next week amid an otherwise light data and Fedspeak calendar. The Treasury could sell over $170 bln in bills, notes, bonds, and TIPS next week, assuming a $35 bln 4-week bill auction (details announced Monday). For the first time ever, the debt managers will conduct 4 coupon/TIPS offerings. Despite the advent of this massive supply, yields are still sharply lower as stocks are down over 2%. Monday's ISM Non-Manufacturing index highlights the data calendar. The rest of the week is virtually empty until Friday when trade, import and export prices, and consumer sentiment will be released. Other factors that will influence trading are the start of earnings season, and the G8 meeting.

From the FDIC: "The FDIC Board today authorized publication of a Proposed Statement of Policy on Qualifications for Failed Bank Acquisitions. This proposed policy statement would provide guidance to private capital investors interested in acquiring or investing in the assets and liabilities of failed banks or thrifts regarding the terms and conditions of the investments or acquisitions. "How investments in insured depository institutions are structured is critical for the banking system as well as the FDIC," said FDIC Chairman Sheila C. Bair. "We are particularly concerned with the owners' ability to support depository institutions with adequate capital and management expertise. This proposed policy statement is intended to provide those essential safeguards. We are trying to find the best way to have a balanced approach, and we look forward to comments that can help us accomplish that." "The FDIC has reviewed various elements of private capital investment structures and considers that some of these investment structures raise potential safety and soundness considerations and risks to the Deposit Insurance Fund (DIF) as well as important issues with respect to their compliance with the requirements applied by the FDIC in its decision on the granting of deposit insurance. "Under the proposed policy statement, the FDIC would establish standards for bidder eligibility in connection with the resolution of failed insured depository institutions, which provide for: capital support of the acquired depository institution; agreement to a cross guarantee over substantially commonly owned depository institutions; limits on transactions with affiliates; maintenance of continuity of ownership; clear limits on secrecy law jurisdiction vehicles as the channel for investments; limitations on whether existing investors in an institution could bid on it if it failed; and disclosure commitments. "The FDIC is keenly aware of the need for additional capital in the banking system, and the contribution that private equity capital could make to meeting this need provided this contribution is consistent with basic concepts applicable to the ownership of these institutions that are contained in our banking laws and regulations, and now summarized in the proposed Policy Statement."

Ford sold 27k cars in June, marking a 25% jump in y/y sales and the first increase for '09.

More bearish "call" selling has been reported against the grain of the strong rally in Treasury futures and steep slump in stocks. It would appear that those on the options side are still intent on gearing up for a classic post-payrolls whipsaw, though bond futures are right back at highs. Sources cite a sale of 2k in Aug 119 "calls" on 10s and a 3k offer of Aug 117 "calls" back-to-back, with the Sep 10s last up 15-ticks at 116-24 and cash T-note yield down to lows near 3.48%.

European debt futures are up on the day with Bunds outperforming after today's ECB announcement, which confirmed that rates are on hold for a protracted period. Gilts underperformance was supported by the 30-year Gilt auction (which sent Gilts sharply lower), BoEspeak and credit conditions survey (see below). Today's European calendar had eurozone May producer prices, which dropped to -5.8% y/y (median -5.6% y/y) from -4.6% y/y in the previous month. Meanwhile, the unemployment rate jumped to 9.5% (median 9.3%) In the U.K., the BoE Q2 Credit Conditions Survey showed increased availability of corporate credit, but rising spreads, meanwhile the construction PMI fell back to 44.5 in June, from 45.9. Elsewhere, the Riksbank unexpectedly cut the repo rate by 25bp to 0.25% (median was for a steady 0.50% rate) and the SNB suggested it may broaden its range of collaterals. As of 15:23GMT the September 10-year Bund future is up 72 ticks on the day at 121.64, while the corresponding Gilt future is up 26 ticks at 117.64. In the cash market the 10-year Bund yield is down 8 bp at 3.33% and the 10-year Gilt yield is down 3 bp at 3.74%.

The 70 bcf net injection was on the low end of the range of expectations and under the 85-bcf five-year average level -- a supportive number. The issue here is the extent to which this may have been a one-off event, with the extreme heat in the south-central US last week now past.

ONEX Corporation is up 1.38% and RBC is 0.50% higher.

TSX Down 1.23% led by Energy (down 2.43%). Industrials fell 0.98% and Materials is 0.96% lower. IT and Financials fell 0.90% and 0.88% respectively. Health Care dropped 0.80% and Consumer Discretionary declined 0.41%. Telecommunications is 0.11% higher.

EUR/USD tested the 1.4015 area after the ECB's Trichet said activity was set to remain weak in 2009. Trichet said that the current level of interest rates were appropriate, adding that the central bank will continue to monitor all developments very closely and would unwind measures quickly when the economy improves. The overall euro tone is looking fairly weak, but EUR/USD is still managing to hold on to the 1.4000 level for the third consecutive session, which may encourage some bargain hunting on dips. Good size stops are noted under 1.4000 and through 1.3970, while on the topside offers are expected to come in at 1.4100-20 after the fall out to 1.4015 lows. Option strikes between 1.4000 and 1.4100 may add to the choppy price action.

Nonfarm Payrolls fell more than anticipated in June, dropping 467k following 322k decline in May which was revised up from an initially reported -345k. The extended June decline was led by hastened deterioration in service sector employment was reported a 244k drop over the month which followed an upwardly revised 107k decline prior. June also saw a pickup of government job cuts, which were reported down 52k over the month following downwardly revised 10k decline prior. Education and Health services employment reflected the only major sector posting a net increase over the month. The June Unemployment Rate rose in line with expectations at 9.5%, the highest since June of '83, after an unrevised 9.4% reading in May. Total private hours worked came in at 33, and is the lowest since record began in 1964. The aggregate index for weekly hours in the manufacturing came in at 75.1 which is the lowest reading on record, while the aggregate index for total private was 99.0, the lowest since 2003. Since the beginning of the recession job cuts in each the manufacturing, construction, and professional and business services sectors make up three quarters of total job losses.

Equities finished flat to higher with the Dow up 0.7% to 8556, the S&P rising 0.8% to 918 and Nasdaq flat at 1808. The S&P traded near yesterday’s close (911) in the first half hour of trade but shot higher after the Philly FED number came in better than forecast. The rest of the day was uneventful and the S&P traded in a range between 916 and 922 for the remainder of the session. Seven out of ten sectors in the S&P were higher with Health Care stocks up 2.5% and Financials adding 1.8%. Bank of America rose 4.9% and JP Morgan added 4.4%. There are no US economic releases or FED speakers tomorrow.

Tomorrow morning at 8:30 am Statistics Canada will be releasing Q1 Canadian International Investment Position. In Q4 2008, Canada recorded a net position of $13.5BLN, marking the first net asset position in this time series which dates back to 1926. Canadian Direct investment abroad in Q1 was $658.8BLN and Foreign Direct Investment in Canada was seen at $530.7BLN. The international investment position presents the value and composition of Canada’s foreign assets and liabilities to the rest of the world.

The bond market performed as scripted this week, rallying on lull in Treasury issuance and Fed buybacks only to slump on today's $104bln supply announcement and firmer data round. Including T-bill auctions, the market will have to absorb some $190bln in paper next week. While jobless claims rose slightly, continued claims fell and both the Philly Fed index and LEI came in much better than expected. Yields surged from yesterday's lows to clear the 50% retrace area of the recent rally Thursday and putting the bears back in charge. The curve resumed its widening trend, while Treasury's Geithner defended the Administration's ambitious plan for regulatory reform before the Senate.

USD/CAD is on North American highs, so far peaking at 1.1362, after putting in a base near 1.1230 earlier. Sell-stops at 1.1270 were triggered on the way down, and now it appears possible that buy stops noted at 1.1370 may now be in jeopardy.

Odds are front month Wheat will test the Mid-April low before they try another leg higher. With the loss of the 61.8% retracement of the mid-April to June 1 rally this week, odds jump that a full retracement will take place down near the 511 level. That said, there is now talk in the market of hedge funds set up to accumulate grains on the notion that the U.S. economy will suffer a significant bout of inflation by Christmas. One $6bln fund is said to have already started accumulating both futures and options positions on the inflation notion.

July Corn is down just over 3 cents at this writing, still with the upper end of y/day's range as the contract nears expiration. Yesterday's range took out the 38.2% retracement of the December low to present rally; that level is at 402 5/8ths today. The 50% retrace is down at 387 7/8.