1 July 2014 Early Morning Reid: Macro Strategy rupiah is poised to record its strongest three-day rally in about fourth months - spurred by comments last week from the Bank of Indonesia that the country's trade balance returned to surplus in May. The AUDUSD is also poised for a solid gain (+0.25%) after the RBA maintained its neutral tone in today's policy meeting. The last trading day of 1H14 failed to bring with it any volatility associated with month-end and half-end portfolio rebalancing. Indeed, yesterday's S&P 500 volumes were about half that compared to the last trading day of 1H13. Adding to that, the S&P 500 closed virtually unchanged at -0.04%, and for the record the last time we saw a gain or loss of more than 1% in the index was April 16th. One theme to note though was the continued underperformance of European banks across the equity and credit spectrum. Yesterday's underperformance was sparked by a 17% fall in the stock of Banco Espirito Santo which is Portugal's largest bank. The price action was dictated by reports that regulators were concerned over corporate governance between the bank and other related companies and there were also reports that Luxembourg justice authorities had launched an investigation into one of the bank's holding companies (Reuters). Portuguese securities regulator banned naked short selling on the bank's stock for one day. The news weighed on Portuguese bond yields which added 8bp, and also on European banking stocks in general (-0.75% vs Stoxx 600 -0.09%). Peripheral bank credit traded about 3-5bp wider yesterday - and the European senior financials index (+2bp) underperformed Main (+1.375bp). The two credit indices were trading flat to each other in the middle of June but the recent underperformance of banks has pushed the basis back to nearly 6bp. We still think its likely that Fin Senior will trade through Main in H2 though. Across the Atlantic, there was focus on the Chicago PMI and home sales