I thought Greek dramas concluded at some stage – apparently not

Chinese auto sales declined by the most in 7 years, in January . They were down -23.8% YoY (-15.2% MoM) in January, much weaker than the forecast of -18%. Yes, an early Chinese New year, but its more than a little concerning that virtually all data points are turning lower.

Chinese exports declined by -0.5% in January, admittedly much less than the forecast -1.4% decline, though imports fell by -15.3%, as compared with a forecast decline of just -3.6%. These were the 1st declines in 2 years. The trade surplus was US$27.3bn. The 1st 2 months of the year are normally affected by Chinese New Year. However, the Chinese Commerce Minister Chen Deming stated that Chinese exports in January “cannot make us optimistic”.

SAFE, the Chinese authority responsible for its forex reserves, stated that they expected China to maintain a current account surplus for the year, in spite of the global slowdown;

The Spanish finance ministry expects 1st Q 2012 GDP to contract by more than the 4th Q 2011. Spanish bond yields are widening against bunds and also by more than Italian – indeed, Spanish yields are converging towards Italian. As you know, I believe that Spain is in far worse shape than Italy;

The Greeks advised the EU and the ECB (Mr Draghi reported it at his press conference yesterday) that they had agreed to the austerity measures demanded by the Troika, in return for the 2nd bail out package. However,surprise, surprise, the Euro Zone finance ministers have rejected their proposals. Apparently, a further E325mn of cuts must be delivered, without which, there is no 2nd bail out etc. The Euro Zone also warned of the need (and to verify) that taxes would be collected etc – ie no dodgy stuff. Does this mean that Greece is terminated. I B well hope so and I suspect many of you would agree. Unfortunately, that the Greeks will be around, for a while longer;

Greek economic data continues to show clear signs of an economic collapse in the country. Unemployment rose to 20.9% in November, from 18.2% in October. December’s industrial output was down -11.3% YoY, much lower than the -7.8% in November. Inflation in January was +2.3% YoY, slightly less than Decembers +2.4%;

UK manufacturing seems to be picking up – the December Global goods trade deficit declined to Sterling 7.11bn (lowest since Feb 2010) and much lower than the Sterling 8.6bn forecast. The November trade deficit was Sterling 8.91bn. Overall, the trade deficit (including services) declined to Sterling -1.1bn in December, from -2.8bn in November. Some of the improvement was due to lower oil imports as a result of a warmer winter though.

UK manufacturing output was also much better – it was up by +1.0% MoM in December, against expectations of just +0.2% and +0.8% for the year (once again much better than the +0.3% expected). Industrial production rose by +0.5% MoM (even better than the actual number suggests, as the energy component declined sharply, given the warmer winter), though down -3.3% YoY. Manufacturing surveys for January together with CBI data suggests that the better performance has extended into January.

Recent UK services data (much more important for the UK economy) was also much better than expected. The data may result in positive 1st Q 2012 GDP (last Q 2011 was -0.2%) and just avoid the UK being in a technical recession

As expected the BoE raised its QE programme by Sterling 50bn. Interest rates were kept at 0.5%, also as expected. The accompanying statement reported that the UK’s near term growth outlook remained weak, though they did expect output to strengthen through the year. The BoE reiterated that inflation should continue to decline sharply, due to base effects, particularly in respect of the VAT hike in January 2011. Interestingly Sterling improved on the news;

The ECB also kept interest rates on hold at 1.0%.

In the Press Conference, Draghi reported that inflation would be above 2.0% “for several months to come”, though would decline below thereafter – sounds like in the 2nd half of this year. He reiterated that credit had tightened in the last 2 Q’s of 2011 and that that the ECB remained concerned. The LTRO would increase risk (mitigated by over collateralizing apparently) and the ECB would manage the potential risk – yeah right. The ECB would review collateral rules established by national Central banks, in accordance with ECB guidelines. He would not discuss the holdings of Greek bonds owned by the ECB. The 2nd half of last year was particularly difficult, but he expected the Euro Zone economy to stabilise – though uncertainty remained high. Finally, he stated that selling the Greek bonds at a loss (to the EFSF) would be tantamount to monetary financing (clever old Draghi), which the ECB was prohibited from doing – sounds like the ECB will sell its bonds to the EFSF, in exchange for EFSF bonds at its book cost;

The lowering of credit standards, as a result of the ECB new policy of accepting lower quality collateral, was opposed by the Bundesbank. The ECB’s decision was not unanimous – the Germans certainly voted against.

US jobless claims unexpectedly declined in the week ending 4th February to 358k, as opposed to the forecast of 370k. The less volatile 4 week moving average declined to 466k, the lowest since April 2008. Today’s data just confirms the recent improvement in employment in the US;

The recent rally looks as if its a bit long in the tooth. “Risk off” me thinks.

Even I have had enough – I think its time to crash out on the beach over here in Goa.

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