European financials rise shaply yesterday

Chinese January PMI (HSBC) came in at 48.8, similar to last month’s 48.7;

A Chinese Sovereign Wealth Fund has bought a 10% stake in Thames Water. It looks as if the Chinese will be adding to equity stakes, rather than just buying Sovereign bonds. Clearly the energy and material sectors remain prime targets, but utilities are also likely to be favoured. Osborne, the UK Chancellor has been encouraging the Chinese to invest in infrastucture in the UK;

The Spanish are very likely to revise (upwards, off course) their 2012 budget deficit target, currently +4.4%. Furthermore, the 2011 budget deficit will exceed the most recent Spanish Government forecast of 8.0%;

The Troika (EU, ECB and IMF) has approved the next tranche of the bail out funds for Ireland as expected. To date the Irish have met their commitments, though reports I am beginning to receive suggest that it going to be very tough for Ireland to continue to do so in coming months;

Germany’s Mr “Weirdmann” (no typo) continues to oppose QE. However, the more he rants, the more I become certain that the ECB is discussing it as an option. Interestingly, Mr Nowotny, the Austrian ECB member, came out with rather cryptic remarks the other day, which in my humble opinion, suggested he would support QE, if inflation declined below 2.0% and, furthermore, looked as if it would decline even further below;

The latest draft of the Euro Zone’s “fiscal compact” sets tough rules on budget deficits. The draft requires a “corrective mechanism” to be triggered automatically in cases of a major divergence from a structural deficit of 0.5%. The draft will be discussed at the Euro Zone finance Minister’s meeting on the 23rd January. The draft also enables the European Court to fine countries. The draft proposes that the the agreement will come into force if 12 out of the 17 Euro Zone countries ratify it. The tougher than expected language in the draft is in response to ECB comments and Germany’s wishes. The issue is whether it is practical !!!! – may I suggest that the EU think about Greece and Portugal and……..;

The ECB’s 3 year LTRO has helped the EFSF. Yesterday’s E1.5bn 82 bill day bill auction was subscribed with a bid to cover ratio of 3.1 times and a yield of 0.2664%;

US December housing starts came in at 657k on an annualised basis, slightly lower than the 685k in November and slightly lower than expected;

US CPI remained unchanged in December MoM (+3.0% YoY), with core up +0.1% (2.1% YoY);

Philly FED came in at 7.3 in January, from 6.3 reported in Dec;

Initial jobless claims amounted to 352k, from 402k last week and below forecasts of 384k and the lowest since 2008. However the recent holiday impacted the data. The better 4 week data revealed that claims fell to 379k, from 383k previously. Continuing claims fell by 215k. Recent data suggests that Januarys US NFP data will be positive;

Summary

Asian markets are trading higher this morning, following yesterday’s higher US and European markets.

Futures suggest a flat opening in Europe.

European financial shares surged yesterday – a number were up by 10%+. The boys are (FINALLY) beginning to understand the major positive impact of the ECB’s 3 year LTRO’s – what’s taken them so long !!!!. Personally, I expect (much?) further gains. (For full disclosure purposes, I’m long Barclays, RBS, Lloyds, Aviva, Prudential and ING).

The Euro is approaching US$1.30 – completely crazy, but will wait for news of a (positive?) outcome re Greek debt negotiations, before shorting again.

Brent is creeping back up to US$112 (currently spot is trading at US$111.50). My friends who advised me that Oil will remain at elevated levels are certainly right at present.

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