$ Australian Dollar Surges, Euro Finds Bids Following ECB Press Conference

Fundamental Headlines
- US Productivity Fell 0.9% in First Quarter as Growth Cooled – Bloomberg
- US Stock Futures Pare Gain as ECB Sees Increased Risks – Bloomberg
- Assad Names New PM, Army Pounds Rebels – Reuters
- Euro Gains Amid Expectations for ECB Easing – WSJ
- Fed Considers More Action amid New Recovery Doubts – WSJ
Asian/European Session Summary
Risk-appetite was firmly positive in the overnight sessions, with the majority of gains by higher yielding currencies and risk-correlated assets coming in the early part of the Asian session. On one hand, comments by perma-dove and President of the Federal Reserve Bank of Chicago suggesting that the Fed was considering more easing stoked investors to shed their US Dollars and move into high beta assets, such as the Australian and New Zealand Dollars. Similarly, rumors emerged that China was considering another massive fiscal stimulus package to help spur slowing domestic demand. On the other hand, strong growth data out of Australia – perhaps the globe’s bellwether for commodity demand – suggested that concerns over a global slowdown may be overstated.
However, the European Central Bank rate decision and ensuing press conference today took the air out of the risk-appetite – if only momentarily. With rates on hold at 1.00 percent, the Euro sold off across the board with little new evidence of help coming from the ECB. By the end of President Mario Draghi’s press conference, however, the Euro had surged, suggesting that may the ECB may be altering its stance, if ever so slightly. So what did President Draghi say that prompted the rally?
Overall, it’s difficult to say that President Draghi was optimistic. He noted that “Euro-area growth remains weak” and that the “economic outlook is subject to downside risks.” He also said that “market tensions, unemployment [will] weigh on [the Euro-area] economy.” While these may be the prevailing facts, hope seems to be what’s driving trading activity. President Draghi’s two key comments – that the ECB is watching data closely and is prepared to act, and that a few council members called for a rate cut today – suggest that another round of easing or at least some new stimuli efforts will be set forth as spurred the risk-on rally. Thus, while the EURUSD dipped nearly 0.3 percent during the presser, it’s of little surprise that the pair rebounded from just below 1.2450 to back above 1.2510.
Taking a look at credit, European bonds have responded favorable, especially after the comments that suggested help could be on the way and the policymakers are becoming more open to a rate cut. Most notably, on the shorter-end of the yield curve, the Italian and Spanish 2-year notes have improved, with their respective yields falling to 3.805 percent and 4.472 percent. The German 2-year Schatz yield has risen, suggesting that risk-appetite is firm, climbing back to 0.045 percent.
EURUSD 5-min Chart: June 5, 2012

Charts Created using Marketscope – Prepared by Christopher Vecchio
The Australian Dollar has been the top performer today following the explosive 1Q GDP reading, with the AUDUSD appreciating by 1.43 percent. The New Zealand Dollar is also firmly stronger, up 1.16 percent against the US Dollar. The Euro is slightly higher as well, up 0.39 percent. The Japanese Yen remains weak, with the USDJPY having shed 0.46 percent thus far on Wednesday.
24-Hour Price Action

Key Levels: 14:15 GMT


Thus far, on Wednesday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading lower, at 10198.58 at the time this report was written, after opening at 10245.13. The index has traded mostly lower, with the high at 10249.57 and the low at 10191.48.

% Dollar Surges to 16 Month Highs - Leading Move or False Break?

Dollar Surges to 16 Month Highs – Leading Move or False Break? Euro Drops as Outlook for Growth, Greek Stability, Bailout Solutions Deteriorate Japanese Yen Risk Reaction Inhibited by Downgrade, BoJ Decision Up British Pound Finds Reprieve from Inflation Slide through Risk Bearing Australian Dollar: Risk Trends Sour and Yield Forecast at Six Month Lows Canadian Dollar Still the Only Major Looking at a Rate Hike Gold Loses its Footing, Posts Biggest Drop in Two Week Dollar Surges to 16 Month Highs – Leading Move or False Break?
Congestion is usually the path of least resistance, but it seems that the reversal pattern the Dow Jones FXCM Dollar was carving out yesterday carried more fundamental pressure than originally expected. On the verge of surrendering to a meaningful retracement after its incredible 3.5 percent rally through the opening weeks of May, dollar traders instead proved far more critical of the currency’s fundamental value. There is little doubt where the greenback found its strength through the close of Tuesday’s New York session as equity markets retreated sharply. Yet, even before the risk aversion move of the latter part of the session, the dollar proved more buoyant than its risk counterparts would imply.
From its own fundamental backdrop, the dollar found strength in the Organization for Economic Co-operation and Development’s (OECD) updated economic forecasts. Against the backdrop of other lowered growth forecasts for other big players, the OECD upgraded its US growth estimates. The group expects growth of 2.4 percent in 2012 (previously 2.0 percent) and 2.6 percent in 2013 (previously 2.5 percent). In the meantime, a $35 billion sale in 2-year Treasury notes drew the highest demand (3.95 bid-to-cover) since November at a sparse 0.30 percent – showing consistent demand despite the supposed excess of US paper on the market.
In the end, the real push behind the dollar’s rally Tuesday (its biggest since March 9) was traditional risk aversion. The pullback from equities, the hit high yield currencies suffered and the renewed burden on the Euro’s shoulders would all bolster the safe haven appeal of the greenback. That said, the S&P 500 has not plunged its own lows and EURUSD is still above 1.2625. When it comes to the risk connection, there was a notable shift from the bounce on Friday and Monday, but we have not definitively ushered in the next leg of market-wide deleveraging. This is a critical component to the dollar’s strength. As a last option liquidity provider, the level of risk aversion needed to keep the reserve currency moving onto new highs is quite high. If we don’t find a quick follow through on risk assets, the dollar could correct to its fundamental mean.
Euro Drops as Outlook for Growth, Greek Stability, Bailout Solutions Deteriorate
The Euro took a significant, fundamental hit this past session. Through the end of the day, the currency managed modest gains against the high-yield, investment currencies which speaks to the underlying current to the FX market: risk aversion was in play. Despite the uncertainties surrounding the European economy and financial markets, the Euro nevertheless still outperforms the Australian, New Zealand and Canadian dollars in times of true deleveraging. Against everything else though, the euro is a distinct encumbrance to a portfolio. In the morning, the bearish pressure began with the OECD’s downgraded growth outlook (calling for a 0.1 percent contraction in 2012) and warning that policy officials should be ready with more stimulus. That was followed by a downgrade for Spain by Egan Jones and a surge in rates of auctioned 3-month and 6-month Spanish bonds (though the 10-year yield dropped 20 bps and CDS 44 bps). The full press came in the late US session though when former Greek Prime Minister Papademos said his country was at risk of leaving the Eurozone and it could cost €500 billion to €1 trillion. Over-enthusiastic bulls may expect tomorrow’s EU meeting to yield supportive policy (Eurozone bonds?) but don’t hold your breath.
Japanese Yen Risk Reaction Inhibited by Downgrade, BoJ Decision Up
The Japanese yen was under all sorts of pressure Tuesday. A two step downgrade by Fitch to A+ refocuses the market’s attention on the currency’s growing debt load. If that weren’t enough of a sign, the OECD followed up by saying Japan’s debt was heading into ‘uncharted territory’ alongside its 2.0 percent 2012 GDP forecast. The relief in a weakened currency however was sabotaged when risk aversion kicked in later. The BoJ could have taken a swing at trying to drive its currency lower, but deferred by keeping its asset purchases at 40 trillion yen.
British Pound Finds Reprieve from Inflation Slide through Risk Bearing
If risk trends weren’t on the move the past 24 hours, the sterling would have taken a serious hit across the board. Instead, the currency managed to hold its own against the higher yield currencies and slid against the more fundamental balanced and safe haven counterparts. The fundamental hit for the pound came from its April CPI readings. The stimulus conversation is an important one for the currency’s bearings. With a drop in the headline figure to 3.0 percent year-over-year, it is now at the top of its band. Will the minutes show a dovish Posen vote tomorrow?
Australian Dollar: Risk Trends Sour and Yield Forecast at Six Month Lows
Tuesday morning, the OECD lowered its growth projections for China to 8.2 percent for 2012 (from 8.5 percent projected previously). For interest rate expectations, the market is pricing in its biggest round of rate cuts for the RBA over the coming year in six months (123 bps). If risk appetite was rising and demand for yields still buoyant, the Aussie dollar may have overcome this pressure; but sentiment trends would do no favors for the currency. With all three drivers aligned for the bears, AUDUSD plunge fresh six month lows.
Canadian Dollar Still the Only Major Looking at a Rate Hike
Though we aggregate the Canadian dollar with the other high-yield commodity currencies, its strength is a little more sound. Though it starts with a lower yield, the Canadian rate is more stable. In fact, it is the only major with a notable outlook for hawkish monetary policy – the market is pricing in 28 bps of hikes over the coming 12 months and a 14 percent probability it’s the next meeting. Up next, we have retail sales data.
Gold Loses its Footing, Posts Biggest Drop in Two Week
Well, that was embarrassing for gold. After struggling to regain its footing at the cusp of tripping below 1525 (and possibly changing the larger trend of the precious metal), the commodity was knocked back before securing 1600. In fact, Tuesday’s 1.5 percent drop was the biggest gold bugs have suffered in two weeks. Where was the fundamental pressure for this particular move? Where general risk aversion may have offered the metal a little bit of a boost, the dollar’s outperformance on the day provide a draw for capital away from the fiat alternative. Should expected (implied) volatility continue its climb, the financial stability implications will further divert capital to the dollar and away from gold.
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ECONOMIC DATA
Next 24 Hours
Bank of Japan Interest Rate Decision
Conference Board Leading Index (MAR)
Westpac Leading Index (MoM) (MAR)
DEWR Internet Skilled Vacancies (MoM) (APR)
Euro-Zone Current Account s.a. (euros) (MAR)
Euro-Zone Current Account n.s.a. (euros) (MAR)
Italian Consumer Confidence Index s.a. (MAY)
Retail Sales ex Auto Fuel (MoM) (APR)
Retail Sales ex Auto Fuel (YoY) (APR)
Retail Sales inc Auto Fuel (MoM) (APR)
Retail Sales inc Auto Fuel (YoY) (APR)
CBI Trends Selling Prices (MAY)
MBA Mortgage Applications (MAY 18)
Leading Indicators (MoM) (APR)
Retail Sales ex Autos (MoM) (MAR)
House Price Purchase Index (QoQ) (1Q)
Trade Balance (New Zealand dollars) (APR)
Exports (New Zealand dollars) (APR)
Imports (New Zealand dollars) (APR)
Balance (YTD) (New Zealand dollars) (APR)
EU Meeting to Discuss Greece, Financial Issues
|| US Treasury to Sell $35 Bln 5yr Notes
Fed's Narayana Kocherlakota Speaks on U.S. Economy
SUPPORT AND RESISTANCE LEVELS
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CLASSIC SUPPORT AND RESISTANCE –EMERGING MARKETS 18:00 GMTSCANDIES CURRENCIES 18:00 GMT
INTRA-DAY PROBABILITY BANDS 18:00 GMT

Pound Surges on Strong Retail Sales Data Set

 20 April 2012 09:00 GMT  THE TAKEAWAY: UK retail sales improve on expectations -> Economic outlook improving but still delicate -> Strong data set bolsters Sterling

UK retail sales rose at the fastest pace in over a year as warm March weather boosted clothing and gardening equipment sales, the UK stats bureau reported today. March sales rose 1.5% on the month versus the expected 0.4% increase, and when compared to March 2011, sales increased 2.8% against the expected 1.3%. Panic caused by rising fuel prices also contributed to the strong showing.

The data added to optimism that the UK economy returned to growth in 2012’s first quarter. UK unemployment dropped for the first time in almost a year to 8.3% on the month, the stats bureau said earlier this week. However, with wages continuing to fall in real terms and firms remaining reluctant to hire, the foundations for a sustainable long-term recovery in retail spending remain shaky.

Meanwhile, the Bank of England continues to juggle growth stimulus against the rising threat of inflation. This week’s hawkish BOE minutes highlighted the inflation issue, and BOE member Tucker recently said CPI may not fall as fast as hoped, and described recent news on inflation as “bad.”The Minutes also said that although global economic recovery is proceeding broadly as expected, concerns out of the Eurozone are now greater if anything.

 Today’s retail sales data bolstered the pound against the US Dollar. Cable strengthened to a session high by 1.6116, and Sterling also gained against the Euro and Japanese Yen intraday.

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20 April 2012 09:00 GMT

TradeTheNews.com European Market Update: Spanish unemployment surges in January; China stresses that Europe must first address its structural issues before seeking outside assistance

Thursday, February 02, 2012 5:50:37 AM
 TradeTheNews.com European Market Update: Spanish unemployment surges in January; China stresses that Europe must first address its structural issues before seeking outside assistance
***Economic Data***
- (EU) ECB: €2.0B borrowed in overnight loan facility v €1.6B prior; €486.4B parked in deposit facility vs. €472.5B prior
- (BR) Brazil Jan FIPE CPI: 0.7% v 0.7%e
- (CH) Swiss Dec Trade Balance (CHF): 2.1B v 2.5Be; Real Exports real M/M: +6.1% v -4.8% prior; Real Imports M/M: +7.6% v -8.2% prior
- (ES) Spain Jan Net Unemployment M/M: 177.5K v 127.0Ke
- (HK) Hong Kong Dec Retail Sales Value Y/Y: 23.4% v 20.5%e; Retail Sales Volume Y/Y: 17.1% v 15.1%e
- (ZA) South Africa Jan Naamsa Vehicle Sales Y/Y: 7.0% v 9.8%e
- (NO) Norway Jan Unemployment Rate: 2.8% v 2.8%e
- (UK) Jan PMI Construction: 51.4 v 52.5e
- (RU) Russia Gold & Forex Reserves w/e Jan 27th: $504.0B v $499.7B prior
- EU) Euro Zone Dec PPI M/M: -0.2% v -0.1%e; Y/Y: 4.3% v 4.3%e

Fixed Income: - (ES) Spain Debt Agency (Tesoro) sold €4.55B vs. €3.5-4.5B indicated range in 2015, 2016, 2017 Bonds
- Sold €2.25B in 4.0% July 2015 Bono ; Avg Yield 2.861% v 3.384% prior; Bid-to-cover: 1.63x v 1.80x prior; Maximum Yield 2.989% v 3.576% prior
- Sells €984M in 4.25% Oct 2016 Bono; Avg Yield 3.455% v 4.029% prior; Bid-to-cover: 3.57x v 3.2x; Max Yield 3.557% v 4.050% prior
- Sold €1.05 in 3.80% Jan 2017 Bono; Avg Yield 3.565% v 5.544% prior; Bid-to-cover: 2.70x v 2.69x prior; Max Yield 3.704% v 5.560% prior
- (FR) France Debt Agency (AFT) sold approx €7.96B vs. €6.5-8.0B indicated range in 2018, 2020 and 2022 Bonds (OAT)
- Sold €1.01Bin 4.25% Oct 2018 Oat; Avg Yield 2.44% v 3.27% prior; Bid-to-cover: 4.34x v 2.92x prior
- Sold €1.25B in 2.5% 2020 Bonds; Avg Yield 2.91% v 3.64% prior; Bid-to-cover: 3.99x v 3.34x prior
- Sold €5.7B in new 3.0% April 2022 OAT; Avg Yield 3.13%; Bid-to-cover: 1.71x
- (HU) Hungary Debt Agency (AKK) sold HUF50B in 12-Month Bills; Avg Yield 7.85% v 8.19% prior; Bid-to-cover:1.97x v 1.58x prior
- (UK) DMO sold £1.25B in 0.125% I/L 2029 Gilts; Avg Yield -0.188%; Bid-to-cover:2.27 x
*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Brazil posted its first trade deficit in 2 years in January
- Day 6 of the imminent Greek PSI deal
- Japanese officials continue verbal FX intervention
- Xstrata confirmed talks with Glencore; Rec'd approach regarding a merger of equals
- Spain Jan unemployment surges by 177K
- Spanish borrowing costs decline at 3-tranch bond auction
- China stresses that Europe must help itself first
Equities: FTSE 100 -0.20% at 5781, DAX +0.20% at 6626, CAC-40 flat at 3366, IBEX 35 at 8717, FTSE MIB -0.20% at 16,228, SMI -0.40% at 6045
- European shares erased gains during the session after drop in oil -related names offset the rally following merger talks between Xstrata and Glencore. Xstrata [XTA.UK] rallied over 12% after confirming that Glencore made an approach for a merger of equals. Glencore already owns 34% of Xstrata shares. However, overall earnings for European companies were disappointing.
- Among notable names, Shell [RSDA.NL] declined after missing its net adjusted profit. Company noted that earnings had been affected by a downturn in industry refining margins and natural gas prices. The downside move affected its peer BP. Deutsche Bank [DBK.DE] also declined after reporting a decline in the Q4 profit as trading was adversely affected by the Eurozone debt crisis. Unilever [UNA.NL] also declined after noting that expect the external macro-economic environment to remain difficult in 2012 and input cost headwinds will persist
Speakers: - China Premier Wen commented that China was considering involvement in EFSF and ESM facilities and reiterated its view that it was important to resolve the European debt crisis. Europe must rely on itself and reduce its debt load and introduce structural reforms
- German Chancellor Merkel commented from Beijing that China believed that Europe must do their 'homework' first regarding the crisis, then prepared to work for a stable euro
- Greece govt official commented that the bulk of discussions with EU/IMF/ECB Troika were basically completed but a few sticking points remain
- Germany BDB Banking Assoc President Schmitz stated that it must separate European monetary and fiscal policies to avoid a renewed crisis of confidence in the euro zone
- OECD chief Gurria commented that the ECB should purchase more bonds and contribute to cutting the Greek debt stock and cautioned that long term remedies would be doomed if the short-term issues are not addressed. He did note that Ireland's EU/IMF program was making good progress
- BoJ official Yamaguchi commented that the JPY currency has been appreciating recently although needed more time to assess market trend
- India Central Bank (RBI) Gov Subbarao commented that it needed to be unpredictable about forex interventions; Unreasonable for RBI to target inflation. He did concede that the RBI was biased toward containing inflation rather than managing growth.
- BoE's Posen commented in a radio interview that banks were not doing enough to support the economy
- Norway Fin Fin Johnsen commented that its economy was brighter compared to others but traditional exports did face challenge. He cautioned that banks must prepare for turmoil. Development in housing market were a concern as rising debt made sector 'extremely vulnerable' when interest rates go higher
- Italy minister said to have informed unions the gov't is to go ahead with labor refomrs regardless of agreement
- Moodys analyst Byrne commented that there was not much risk to Asian sovereign ratings in 2012
- S&P report noted that a Euro zone recession could end in late 2012 but the severity of recession was a 'close call'. The euro zone should gradually climb out of its mild recession in the second half of this year and into 2013. The core countries would likely lead the way back to growth, with other member countries delivering diverging performances. The S&P baseline forecast for 2012-2013 projected flat GDP growth for the euro zone as a whole in 2012 and 1% growth in 2013. S&P currently assigned a 60% probability to our baseline forecast, versus 40% for our alternative forecast of a true double dip. This would have a particularly adverse impact in countries like Spain, Portugal, and Italy.
Currencies:
- The FX markets maintained its recent ranges as the risk appetite tried to continue maintaining its recent momentum.
- The EUR/USD still had difficulty to break above the 1.32 handle and tested lower following the Spanish unemployment data. The pair probed below the 1.3130 area but did steady a bit after the Spanish and French bond auction results. Dealers did note that 2-way flows were prevalent with a plethora of option-related orders. Comments by China Premier Wen that it was considering involvement in EFSF and ESM facilities while German Chancellor Merkel visited the country on a three-day State visit. Wen did clarify that Europe must rely on itself and reduce its debt load and introduce structural reforms.
- The USD/JPY continued to hold above the 76.00 level with continued rhetoric from Japanese officials.
- The SNB still has yet to defend its 1.2000 floor in the EUR/CHF cross as speculators were performing the task for them. The cross was in the mid-1.20 area.
Political/ In the Papers:
- In an interview with the BBC, Bank of England's Posen said British banks are not doing enough to support the economy. He suggested that the banking sector needs more competition. In terms of policy, he supported the position that the UK would have been far worse without Quantitative Easing (QE).
- The Telegraph's Evans-Pritchard made note on the differences between the IMF and EU with regards to Greece. There are risks that policy makers in Greece could resist the new demands being made by the Troika officials. Both Germany and the Netherlands are opposed to giving Greece any more money, amid recent reports that Greece's second rescue package might have to be raised by €15B.
On the topic of the Bundesbank's liability related to the EU debt crisis, he added that the central bank has about €250B in liabilities related to the euro zone system. The Bundesbank has already provided €496B to countries including Greece, Ireland, Italy and Spain. A large portion of Bundesbank's liabilities are related to the ECB's 'TARGET2' automatic payments network, which deals with transactions between national central banks. According to Professor Frank Westermann of Osnabruck University, the liabilities of the Bundesbank are approaching the 'danger point'. A break-up of the EU would present large risks to the German central bank.
- In Ireland, NAMA reported only one in five loans were performing, with approximately €18.8B in arrears. Its recent quarterly report indicates 83% of the non-performing loans are four months in arrears; the agency must now either restructure these loans or move against developers through the courts. Prior to being transferred to NAMA, the value of performing loans were valued at €56.1B against the current value of €18.8B. NAMA chairman Frank Daly and chief executive Brendan McDonagh stated the number of non-performing loans was likely to continue rising.
***Looking Ahead***
- (EU) NATO Defense Min meet in Brussels
- (EU) EU Commission Rehn meets Netherland PM Rutte and Fin Min De Jager
- (CN) German Chancellor Merkel continues official China visit
- (US) US Senate banking committee vote on additional Iranian sanctions
- (US) Jan ICSC Chain Store Sales Y/Y: No est v 3.5% prior
- 6:00 (EU) EU Parliament votes on Iran nuclear ban
- 6:00 (EU) EU Parliament votes on Euro Bond resolution
- 6:00 (ZA) South Africa Dec Electricity Consumption Y/Y: No est v 0.2% prior; Electricity Production Y/Y: No est v 0.2% prior
- 7:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to XXX the Repo Rate from the current 0.75% level
- 7:30 (US) Jan Challenger Job Cuts Y/Y: No est v 30.6% prior
- 8:00 (IT) Unicredit presents 2012 Economic Outlook
- 8:00 (US) Feb RBC Consumer Outlook Index: No est v 45.8 prior
- 8:00 (RO) Romania to sell Bonds
- 8:30 (US) Q4 Preliminary Nonfarm Productivity: 0.8e%e v 2.3% prior; Unit Labor Costs: +0.8%e v -2.5% prior - 8:30 (US) Initial Jobless Claims: 371Ke v 377K prior; Continuing Claims: No est v 3.554M prior
- 8:45 (US) ISM NY: No est v 51.1 prior
- 9:00 (US) Fed's Evans speaks to reporters in Chicago
- 9:00 (UK) BOE member Posen
- 9:15 (EU) EU Commissioner Rehn
- 10:00 (US) Fed Chairman Bernanke testifies before House Budget Committee
- 10:00 (DK) Denmark Jan Foreign Currency Reserves (DKK): 3.535Me v 481.7B prior
- 10:30 (US) Weekly Natural Gas Inventories
- 19:15 (US) Fed's Fisher speaks in Austin, Texas
- 20:00 (CN) China Jan Non-manufacturing PMI: no est v 56.0 prior - 21:30 (CN) China Jan HSBC Services PMI: No est v 52.5 prior
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TradeTheNews.com European market update: Spanish unemployment rate surges in January; China stressed that Europe must first address of its structural problems before looking for help

Thursday, February 02, 2012 5:50:37 AM

 TradeTheNews.com European Market Update: Spanish unemployment surges in January; China stresses that Europe must first address its structural issues before seeking outside assistance

***Economic Data***
- (EU) ECB: €2.0B borrowed in overnight loan facility v €1.6B prior; €486.4B parked in deposit facility vs. €472.5B prior
- (BR) Brazil Jan FIPE CPI: 0.7% v 0.7%e
- (CH) Swiss Dec Trade Balance (CHF): 2.1B v 2.5Be; Real Exports real M/M: +6.1% v -4.8% prior; Real Imports M/M: +7.6% v -8.2% prior
- (ES) Spain Jan Net Unemployment M/M: 177.5K v 127.0Ke
- (HK) Hong Kong Dec Retail Sales Value Y/Y: 23.4% v 20.5%e; Retail Sales Volume Y/Y: 17.1% v 15.1%e
- (ZA) South Africa Jan Naamsa Vehicle Sales Y/Y: 7.0% v 9.8%e
- (NO) Norway Jan Unemployment Rate: 2.8% v 2.8%e
- (UK) Jan PMI Construction: 51.4 v 52.5e
- (RU) Russia Gold & Forex Reserves w/e Jan 27th: $504.0B v $499.7B prior
- EU) Euro Zone Dec PPI M/M: -0.2% v -0.1%e; Y/Y: 4.3% v 4.3%e

Fixed Income: >- (ES) Spain Debt Agency (Tesoro) sold €4.55B vs. €3.5-4.5B indicated range in 2015, 2016, 2017 Bonds
- Sold €2.25B in 4.0% July 2015 Bono ; Avg Yield 2.861% v 3.384% prior; Bid-to-cover: 1.63x v 1.80x prior; Maximum Yield 2.989% v 3.576% prior
- Sells €984M in 4.25% Oct 2016 Bono; Avg Yield 3.455% v 4.029% prior; Bid-to-cover: 3.57x v 3.2x; Max Yield 3.557% v 4.050% prior
- Sold €1.05 in 3.80% Jan 2017 Bono; Avg Yield 3.565% v 5.544% prior; Bid-to-cover: 2.70x v 2.69x prior; Max Yield 3.704% v 5.560% prior
- (FR) France Debt Agency (AFT) sold approx €7.96B vs. €6.5-8.0B indicated range in 2018, 2020 and 2022 Bonds (OAT)
- Sold €1.01Bin 4.25% Oct 2018 Oat; Avg Yield 2.44% v 3.27% prior; Bid-to-cover: 4.34x v 2.92x prior
- Sold €1.25B in 2.5% 2020 Bonds; Avg Yield 2.91% v 3.64% prior; Bid-to-cover: 3.99x v 3.34x prior
- Sold €5.7B in new 3.0% April 2022 OAT; Avg Yield 3.13%; Bid-to-cover: 1.71x
- (HU) Hungary Debt Agency (AKK) sold HUF50B in 12-Month Bills; Avg Yield 7.85% v 8.19% prior; Bid-to-cover:1.97x v 1.58x prior
- (UK) DMO sold £1.25B in 0.125% I/L 2029 Gilts; Avg Yield -0.188%; Bid-to-cover:2.27 x

*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
***Notes/Observations***
- Brazil posted its first trade deficit in 2 years in January
- Day 6 of the imminent Greek PSI deal
- Japanese officials continue verbal FX intervention
- Xstrata confirmed talks with Glencore; Rec'd approach regarding a merger of equals
- Spain Jan unemployment surges by 177K
- Spanish borrowing costs decline at 3-tranch bond auction
- China stresses that Europe must help itself first

Equities: >FTSE 100 -0.20% at 5781, DAX +0.20% at 6626, CAC-40 flat at 3366, IBEX 35 at 8717, FTSE MIB -0.20% at 16,228, SMI -0.40% at 6045

- European shares erased gains during the session after drop in oil -related names offset the rally following merger talks between Xstrata and Glencore. Xstrata [XTA.UK] rallied over 12% after confirming that Glencore made an approach for a merger of equals. Glencore already owns 34% of Xstrata shares. However, overall earnings for European companies were disappointing.
- Among notable names, Shell [RSDA.NL] declined after missing its net adjusted profit. Company noted that earnings had been affected by a downturn in industry refining margins and natural gas prices. The downside move affected its peer BP. Deutsche Bank [DBK.DE] also declined after reporting a decline in the Q4 profit as trading was adversely affected by the Eurozone debt crisis. Unilever [UNA.NL] also declined after noting that expect the external macro-economic environment to remain difficult in 2012 and input cost headwinds will persist

Speakers: >- China Premier Wen commented that China was considering involvement in EFSF and ESM facilities and reiterated its view that it was important to resolve the European debt crisis. Europe must rely on itself and reduce its debt load and introduce structural reforms
- German Chancellor Merkel commented from Beijing that China believed that Europe must do their 'homework' first regarding the crisis, then prepared to work for a stable euro
- Greece govt official commented that the bulk of discussions with EU/IMF/ECB Troika were basically completed but a few sticking points remain
- Germany BDB Banking Assoc President Schmitz stated that it must separate European monetary and fiscal policies to avoid a renewed crisis of confidence in the euro zone
- OECD chief Gurria commented that the ECB should purchase more bonds and contribute to cutting the Greek debt stock and cautioned that long term remedies would be doomed if the short-term issues are not addressed. He did note that Ireland's EU/IMF program was making good progress
- BoJ official Yamaguchi commented that the JPY currency has been appreciating recently although needed more time to assess market trend
- India Central Bank (RBI) Gov Subbarao commented that it needed to be unpredictable about forex interventions; Unreasonable for RBI to target inflation. He did concede that the RBI was biased toward containing inflation rather than managing growth.
- BoE's Posen commented in a radio interview that banks were not doing enough to support the economy
- Norway Fin Fin Johnsen commented that its economy was brighter compared to others but traditional exports did face challenge. He cautioned that banks must prepare for turmoil. Development in housing market were a concern as rising debt made sector 'extremely vulnerable' when interest rates go higher
- Italy minister said to have informed unions the gov't is to go ahead with labor refomrs regardless of agreement
- Moodys analyst Byrne commented that there was not much risk to Asian sovereign ratings in 2012
- S&P report noted that a Euro zone recession could end in late 2012 but the severity of recession was a 'close call'. The euro zone should gradually climb out of its mild recession in the second half of this year and into 2013. The core countries would likely lead the way back to growth, with other member countries delivering diverging performances. The S&P baseline forecast for 2012-2013 projected flat GDP growth for the euro zone as a whole in 2012 and 1% growth in 2013. S&P currently assigned a 60% probability to our baseline forecast, versus 40% for our alternative forecast of a true double dip. This would have a particularly adverse impact in countries like Spain, Portugal, and Italy.

Currencies:
- The FX markets maintained its recent ranges as the risk appetite tried to continue maintaining its recent momentum.
- The EUR/USD still had difficulty to break above the 1.32 handle and tested lower following the Spanish unemployment data. The pair probed below the 1.3130 area but did steady a bit after the Spanish and French bond auction results. Dealers did note that 2-way flows were prevalent with a plethora of option-related orders. Comments by China Premier Wen that it was considering involvement in EFSF and ESM facilities while German Chancellor Merkel visited the country on a three-day State visit. Wen did clarify that Europe must rely on itself and reduce its debt load and introduce structural reforms.
- The USD/JPY continued to hold above the 76.00 level with continued rhetoric from Japanese officials.
- The SNB still has yet to defend its 1.2000 floor in the EUR/CHF cross as speculators were performing the task for them. The cross was in the mid-1.20 area.

Political/ In the Papers:
- In an interview with the BBC, Bank of England's Posen said British banks are not doing enough to support the economy. He suggested that the banking sector needs more competition. In terms of policy, he supported the position that the UK would have been far worse without Quantitative Easing (QE).
- The Telegraph's Evans-Pritchard made note on the differences between the IMF and EU with regards to Greece. There are risks that policy makers in Greece could resist the new demands being made by the Troika officials. Both Germany and the Netherlands are opposed to giving Greece any more money, amid recent reports that Greece's second rescue package might have to be raised by €15B.
On the topic of the Bundesbank's liability related to the EU debt crisis, he added that the central bank has about €250B in liabilities related to the euro zone system. The Bundesbank has already provided €496B to countries including Greece, Ireland, Italy and Spain. A large portion of Bundesbank's liabilities are related to the ECB's 'TARGET2' automatic payments network, which deals with transactions between national central banks. According to Professor Frank Westermann of Osnabruck University, the liabilities of the Bundesbank are approaching the 'danger point'. A break-up of the EU would present large risks to the German central bank.
- In Ireland, NAMA reported only one in five loans were performing, with approximately €18.8B in arrears. Its recent quarterly report indicates 83% of the non-performing loans are four months in arrears; the agency must now either restructure these loans or move against developers through the courts. Prior to being transferred to NAMA, the value of performing loans were valued at €56.1B against the current value of €18.8B. NAMA chairman Frank Daly and chief executive Brendan McDonagh stated the number of non-performing loans was likely to continue rising.

***Looking Ahead***
- (EU) NATO Defense Min meet in Brussels
- (EU) EU Commission Rehn meets Netherland PM Rutte and Fin Min De Jager
- (CN) German Chancellor Merkel continues official China visit
- (US) US Senate banking committee vote on additional Iranian sanctions
- (US) Jan ICSC Chain Store Sales Y/Y: No est v 3.5% prior
- 6:00 (EU) EU Parliament votes on Iran nuclear ban
- 6:00 (EU) EU Parliament votes on Euro Bond resolution
- 6:00 (ZA) South Africa Dec Electricity Consumption Y/Y: No est v 0.2% prior; Electricity Production Y/Y: No est v 0.2% prior
- 7:00 (CZ) Czech Central Bank Interest Rate Decision: Expected to XXX the Repo Rate from the current 0.75% level
- 7:30 (US) Jan Challenger Job Cuts Y/Y: No est v 30.6% prior
- 8:00 (IT) Unicredit presents 2012 Economic Outlook
- 8:00 (US) Feb RBC Consumer Outlook Index: No est v 45.8 prior
- 8:00 (RO) Romania to sell Bonds
- 8:30 (US) Q4 Preliminary Nonfarm Productivity: 0.8e%e v 2.3% prior; Unit Labor Costs: +0.8%e v -2.5% prior >- 8:30 (US) Initial Jobless Claims: 371Ke v 377K prior; Continuing Claims: No est v 3.554M prior
- 8:45 (US) ISM NY: No est v 51.1 prior
- 9:00 (US) Fed's Evans speaks to reporters in Chicago
- 9:00 (UK) BOE member Posen
- 9:15 (EU) EU Commissioner Rehn
- 10:00 (US) Fed Chairman Bernanke testifies before House Budget Committee
- 10:00 (DK) Denmark Jan Foreign Currency Reserves (DKK): 3.535Me v 481.7B prior
- 10:30 (US) Weekly Natural Gas Inventories
- 19:15 (US) Fed's Fisher speaks in Austin, Texas
- 20:00 (CN) China Jan Non-manufacturing PMI: no est v 56.0 prior >- 21:30 (CN) China Jan HSBC Services PMI: No est v 52.5 prior

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