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***Notes/Observations from around the
world***
European shares opened lower as investors continue to worry over China’s growth
prospects and Eurozone. Earlier chatter circulated that Greece Govt might
extend deadline for PSI but the Greece government denied it and reaffirmed that
the deadline was still March 8th.
Furthermore, macroeconomic data continue to be disappointing in Europe.
Republican primaries
RBA leaves Cash Target Rate unchanged at 4.25% (as expected)
Bank deposits with ECB reach yet another record high
Risk aversion picks up momentum due to China GDP outlook and Greek PSI deadline
–
Institute of International Finance (IIF) document noted that there would be
damaging ramifications from a Greek disorderly with any hard default to lead to
sizable bank recapitalizations costs which could easily hit €160B. Such a
default would hit the ECB and Peripheral countries (Portugal, Ireland, Spain
and Italy) and would likely need support. The report added that it was hard to
see how contingent liabilities would not exceed €1.0 trillion
EU’s Rehn reiterated the view of seeing signs of stabilization in Euro Zone and
was convinced that officials could turn the tide in the coming months. He also
noted that the Euro Zone was in mild recession but a risk of credit crunch has
been prevented
Brazil President Rousseff commented after meeting German Chancellor Merkel that
the Euro region was devaluing its currency which is problematic for Brazilian
trade but was assured the region would create a solid fiscal situation. Brazil
supported higher IMF funds but sought a bigger participation for developing
countries in the IMF
Germany Chancellor Merkel reiterated there was a need to prevent economic
imbalances and discussed state of Euro with Brazil’s President Rousseff .
Germany planned to discuss global imbalances at April G20 meeting but did not
have any discussions with Brazil over higher IMF contribution
–
Greece might receive small tranche of €130B second bailout package to help pay
off partial arrears. Dep Fin Min Sachinidis stated that such money would go to
paying off some of the €6.0B in accumulated arrears that the Greek government
owes private contractors
Czech Central Bank published its banking sector stress test results which
concluded that the sector would withstand extreme recession in Europe. Banking
sector capitalization would stay above 8% even under adverse stress scenario of
deep drop of 7% in GDP due to any marked increase in the European debt crisis.
It did note that some banks would require capital in any extreme recession by
total CZK19.0B (roughly o,5% of GDP)
–
China economic sub-committee of the Chinese People’s Political Consultative
Conference (Think Tank) chief Zheng Xinli commented that he saw China 2012 GDP
growth of about 9% vs. official forecast of 7.5%. He noted that the lowering of
the official economic growth target for 2012 was largely symbolic and left
leeway to adjust economic development pattern. Inflation might be below 4% this
year, helped by increasing food supplies. Lastly he added that China should
consider joining IMF efforts to aid euro zone countries
Former China Vice Commerce Min Ma Xiuhong commented that China needed to
enhance Yuan Foreign Direct Investment (FDI) trial program and open its capital
account. She noted that China’s investment environment remained good and was
not deteriorating. The recent slowdown in foreign direct investment in China
was due to factors such as the euro-zone debt crisis and increased competition
from developed economies
China sovereign wealth fund (CIC) was said to be working on continued funding
mechanism and would consider ‘good investment opportunities’ in Europe. CIC
would not be a part of China’s decision on potential aid to Europe
India Central Bank Board member Rajaraman commented that the country faced
stagflation risk as oil prices climb and economic growth stumbles. Noted that
the power sector and labor reforms were key to increase economic growth. The
RBI remained wary of inflation risks and stressed that the Govt must restore
fiscal rigor
–
India Farm Min Pawar was said to have requested that PM Singh lift the ban on
cotton exports as it would affect next year’s crop
Currencies:
–
Dealers noted of a growing concerns about the knock-on effect of the Greek debt
swap which was dampening risk appetite sentiment throughout the session. The
Asian equity session was Dealer chatter circulated that Greece Govt might
extend deadline for PSI which added to risk aversion flows. The denial by the
Greek govt of any extension of the deadline did not do much to improve
sentiment in the session. The IIF warning of the consequences of a hard Greek default
appeared to be the dominate theme in the session. The JPY currency was firmer
in the session against the major pairs.
–
The EUR/USD slumped to test below 1.3140 in the session while EUR/JPY cross
tested 106.25.
–
The peripheral spreads were wider from the getgo with the Spanish 10-year
moving back above the 5% level.
–
The stronger USD against the European pairs weighed upon commodities. Spot gold
moved below last week’s lows of $1,688/oz while NYMEX front month crude was off
almost a dollar per barrel to test back below $106
Political/ In the
Papers:
–
Analysts and institutions, represented by the IIF, are believed to make up
about half of Greece’s private sector bonds. According to the FT, citing a
source close to the process, participation in the PSI debt swap is unlikely to
exceed 75-80%. However, if collective active clauses (CACs) were used, the
participation level might be 90-95%. (The value of the private sector debt swap
has been estimated at about €206B).
–
In the UK, the spread between the average mortgage rate and the Bank of
England’s base rate hit the highest level since early 1995 (at 3.66%). A report
in the London Telegraph noted mortgage rates are expected to rise even further.
Please note that the development comes as various UK banks have started to
raise mortgage rates amid higher funding costs.
–
With the rising backlash in Spain over EU demanded austerity measures, the
Telegraph Ambrose Evans-Pritchard suggested that Spain’s Prime Minister Rajoy
is more interested in doing what is best for Spain and not the EU, as evidenced
by his decision to raise the country’s 2012 deficit target.
– The IMF anticipates Portugal will return to
the markets in 2013 with no bondholder cuts. It sees Portugal dealing with its
imbalances, and working with structural reforms. The improvements in the
current account deficit are better than expected, although it may take three
more years for it to narrow significantly.
The ratings agency Moody’s warned Ireland will likely require a second bailout.
They also expected the country to encounter challenges regaining access to the
markets in 2013. It will likely require reliance on the ESM, at least
partially, when the current support program ends.
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Today’s Economic News:
8:30 (BR) Brazil Feb Vehicle Production: No est v 211.8K prior; Vehicle Sales:
No est v 268.3K prior; Vehicle Exports: No est v 33.1K prior
– 8:55 (US) Redbook Retail Sales
–
9:00 (EU) ECB weekly Forex Reserves
–
9:45 (UK) BOE to buy £1.5B in 2027-2060 Gilts in reverse auction
–
10:00 (CA) Canada Feb Ivey Purchasing Managers Index: 62.0e v 64.1 prior
–
10:00 (MX) Mexico weekly International
Reserves
–
11:30 (US) Treasury to sell 4-Week and 52-Week Bills
– 12:00 (US) DOE releases March
short-term energy outlook
–
14:40 (FR) France President Sarkozy speaks on France 2 TV
–
16:30 (AU) RBA’s Lowe speaks to Australian Industry Group in Sydney
– 16:30 (US) Weekly API Energy
Inventories
– (US) Super Tuesday
– Republican Alaska Caucus
– Republican Georgia Primary
– Republican Massachusetts Primary
– Republican Idaho Caucus
– Republican North Dakota Caucus
– Republican Ohio Primary
– Republican Oklahoma Primary
– Republican Tennessee Primary
– Republican Vermont Primary
– Republican Virginia Primary
– Republican Wyoming Caucus
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