ECB to “contribute” to Greek bail out

Japans current account surplus declined for the 10th consecutive month in December. Exports were lower for the 3rd month on the trot, whilst imports rose yet again – for the 24th straight month. The current account surplus declined by approx 75% YoY, slightly worse than market expectations. The MoF states that Japan should maintain a current account surplus “for the time being” – “for the time being”, a definite Hmmmmm. Japans 2011 current account surplus was down some 44% YoY and the lowest since 1996 as Japan posted a trade deficit last year. With the nuclear problem, Japan’s need to import more energy will impact the trade numbers. The Yen (finally) is declining – above 77 against the US at present;

China’s PBoC is to provide assistance for 1st time home owners, though authorities remain vigilant on a general rise of property prices. Home prices declined in 52 out of 70 cities.

Fitch warn that a hard landing in China is a “key global risk”. Its forecast is for GDP to rise by +8.2% this year. However, China needs to grow by 7% – 8% to maintain employment and avoid social tensions.

It looks as if China will cough up to bail out the Euro Zone. Reports circulate that they may contribute (initially US$10bn, rising to US$100bn. Look, its simple. Europe is China’s largest trading partner – an European implosion will be an unmitigated disaster for China – forget the claptrap about “decoupling” – helping Europe out is in China’s best interests.

Chinese inflation data out tomorrow (they allowed an increase in diesel and petrol prices today, as production had declined in response to price curbs – the 1st increase in 10 months) and export data out on Friday. Both will be watched carefully;

A study by the South African Government states that nationalisation of the country’s mining sector (demanded by the youth wing of the ANC) would be an “unmitigated disaster”. Great. However, the study and the Mines Minister calls for more Union involvement in business decisions and for tax increases !!!!!.  Well that really is a big Hmmmmmm;

As usual Greece failed to meet its deadline to agree to the conditions imposed by the Troika on the additional bail out yesterday. However, the Euro Zone Ministers meet tomorrow – will that be the deadline? The acting Greek PM is to meet the heads of the main political parties yet again. However, a deal is expected.

The WSJ reports that the ECB will “sell”/”swap” its holding of Greek Sovereign bonds in order to reduce the amount of Greek Sovereign debt outstanding. The ECB is thought to own between E45bn – E50bn (not disclosed) and if they sell at their cost price, the overall reduction in Greek debt may amount to E11bn. If the ECB coughs up for Greece, why not for Italy, Spain, Portugal and Ireland. Clearly the ECB will have to extend its largess to these countries – the ECB currently owns E219bn of PIIGS bonds. Good for banks/insurance companies in those countries. Still think Bank of Ireland (Ticker BKIR) is looking good – bought some more.

I’m sure that the ECB will be delighed to get rid of its holding of Greek bonds – they would have taken a loss otherwise.

Just look at this Greek data re tax revenue.
Overall, revenues are down -7.0% YoY, as opposed to a target of +8.9%. VAT revenues are down -18.7%, as Greek business have simply withheld payments. Why may I ask is the Euro Zone providing additional bail out funds. Look, the reality is that Greece is a failed country, run by crooked, insane and incompetent politicians.
Don’t think I’m going to holiday in Greece anytime soon !!!;

German December’s trade surplus came in at a seasonally adjusted E13.9bn, in line with forecasts;

The British Retail Consortium announced that (non food) price inflation slowed to +1.4% in January YoY, from +1.7% in December – should provide additional ammunition for the BoE to announce additional QE by Sterling 50bn (some expect Sterling 75bn) tomorrow;

Mr Benanke’s advised the Senate Committee yesterday that unemployment remained a problem in the US, irrespective of Fridays NFP. He reiterated that the FED would hold rates at basically zero till well into 2014. No real surprise in yesterdays testimony. Still believe that the FED will go for QE3, though it may be a bit delayed;

Mr Santorum won in Minnesota, Missouri and Colarado – Romney won in Minnesota and Colarado in his 2008 campaign. Don’t know much about Mr Santorum, other than he is a “socially conservative” former Senator from Pennsylvania. President Obama’s reelection campaign managers must be delighted. Still believe that Romney will be chosen as the Republican candidate;

Some opposition from shareholders owning some 5.0% of Xstrata to the proposed merger with Glencore – however, they need to get to around 16.5% to block the deal.

Asian markets are up again, following a rise in US markets yesterday. The DOW is at its highest level since May 2008. European futures suggest a higher opening – indeed they are rising further, given the “better” Greek news.

Brent Oil has shot up to USU118.40, with the spread to WTI widening further – definitely a negative for both markets and inflation. Middle Eastern risks basically. Need to follow the Middle East more closely. Gold has risen to US$1753. The VIX remains at a (low) 17.65.

Euro is rising, given the Greek news – currently US$1.3270 (increased short), the A$ at US$108.33 (blast – shorted at just below US$1.08) and the 77.05 Yen against the US$.

Markets continue to be optimistic – too optimistic? beginning to believe that.

Still believe that EM’s, in particular, have risen too far too fast. Also remain extremely cautious on China. Todays results by BHP (down modestly in Aussie trading) did not inspire me with too much confidence – the 1st decline in BHP earnings in 2 years. The CEO talks about “volatility” Hmmmm. RIO results are out tomorrow, if I recall.

Just for fun, Portuguese 10 year bond yields have declined by some 400 bps recently – should have followed my own advice.

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