Spain’s 2012 budget deficit target raised to 5.3% by the EZ, less than the 5.8% requested, though higher than the original target of 4.4%
Australian January home loan approvals fell -1.2%, a 10 month low, far greater than the decline of -0.6% forecast. Bloomberg reports that business confidence fell from a reading of 4 in January to 1 in February, a 5 month low. The A$ continues to decline – currently US$1.0546 – I’m short and I expect it line further. The RBA will be reducing interest rates in coming months;
The BoJ kept interest rates and its asset purchase programme on hold. The Yen rose on the news – to US$82.09. However, I remain of the view that the Yen will weaken further – I’m short against the US$ and the NOK. The BoJ Governor reiterated that they would do their utmost to beat deflation;
The EU has suspended a payment of E495mn to Hungary, in response to its failure to control its budget deficit in a “sustainable manner” – well, it’s out of the EZ, so easier to do;
The Euro Group has asked the EU Commissioner, Ollie Rehn to come up with plans to increase the size of the EFSF/ESM. I continue to believe that the E500bn fund will be increased and that the IMF, with funds from countries such as China and Brazil, will contribute. The ultimate size – my guess, and I stress it is a guess, is between E750bn – E900, in total. The final decision is expected on the 30th March;
French February harmonised CPI came in at +0.5% MoM, or +2.5% YoY, in line with expectations. However, with oil up 17% YTD, I cant see it declining, which in turn limits the ECB’s ability to reduce rates;
PIMCO’s Bill Gross expects the FED to launch QE3 in April – presumably on the sterilised basis as “speculated” by the WSJ. Whilst the US economy is improving, there are signs that it is not growing fast enough to reach “escape velocity”, as a number of analysts describe it. In addition, a number of analysts have downgraded US1st Q GDP and, presumably fully year GDP. The FED wants to ensure that the recovery in the US is well established and, in my humble view and has repeatedly stated that unemployment remains too high ie an easing bias. I believe that Mr Gross will be proved right – whether it’s April, who knows – presumably the FED will want to introduce this policy as early as possible, so as not get too entangled with the Presidential elections in November – so April seems a pretty good guess. There is increasing opposition by some FED members to further QE, but I believe the majority will go along with QE3, particularly if it is on a sterilised basis. Whilst no change is expected today, the FED’s minutes in 3 weeks time will be particularly interesting to get a better feel as to the FED’s thinking. The FT disagrees – they suggest that speculation of FED sterilised QE3 is premature. Interesting opposing views by the WSJ and the FT. However, I would go with the WSJ on, the US, Canada and S America, the FT the ROW;
The FED’s is to announce the results of its stress tests (will be an annual event) on the largest 19 US banks, on the 15th March – and they really are stress tests – criteria include, an 8.0% decline in GDP, unemployment at 13.0% and residential housing to decline by 21% !!!. Interesting to compare with the criteria used by Europe. The results are going to establish winners and losers. US banks that are likely to be able to increase div payouts and buy backs, include Wells Fargo (the clear winner), (interestingly) Citi and JPM of the large banks reports Bloomberg. Interestingly, Goldman’s payout/buy back options are expected to be flat to slightly lower, if calculated on the basis of the number of shares outstanding, compared with last year. BoA is also expected to receive the “wooden spoon”.(Source Bloomberg);
Just around 1 month following the EZ’s agreement to a “fiscal compact”, the EZ has allowed Spain to increase its 2012 budget deficit to +5.3% (it had asked for 5.8%), from the original 4.4% target. The 2011 budget deficit was -8.5%, as opposed to the target of -6.0%. The 2013 budget deficit target has been retained at 3.0%, which Spain has as much chance of meeting, as I have of becoming the next rock super star. However, it is clear that Spain could never have met the original target this year and the deal (assuming that Spain agrees) is sensible (the current administration has inherited a real mess from the previous Government), though raises an awful precedent. I’m waiting for the other countries to come forward with their own “requests”;
Interesting development from Brazil yesterday, as reported in the WSJ. A senior Brazilian official stated that Brazil acknowledged that progress in Europe raised the prospects of IMF funding and, in addition, that Brazil does not need reforms of the IMF prior to making bi lateral loans to the organisation. Just reconfirms that Brazil (and China) will cough up money to the IMF to support the EFSF/ESM fund, in my humble view. It’s in their interests boys and girls – if Europe implodes, Brazil, China, etc, go down the plug hole.
In addition, Brazil is desperate to halt the rise of its currency. Authorities extended the IOF tax to cover debt maturing in 5 years. Initially, the 6.0% tax was applicable to loans that matured in 2 years only and – subsequently extended to 3 years in early March. The Real weakened by 1.0% on the news;
Outlook
US markets closed flat to slightly higher yesterday – volumes were at a 4 year low. Asian markets closed higher. European futures indicate a higher opening (between +0.6% – +1.0%). Oil (Brent) is trading at US$125.90 – boooo. Gold at US$1703 and copper is up nearly 1.0% – why?. The Euro is trading at US$1.3174 – closed my short in anticipation of the increase in the EFSF/ESM. In addition, I’m spending far too much time watching it and it just wont decline below US$1.30. I believe, quite firmly, that it will, but do date I’ve been disappointed.
The VIX closed below 16 – complacency do you think?
Watched a fascinating programme on China by Niall Ferguson last night – its a series and based on the 1st episode, a must watch.
Off to meetings.
Best
Kiron
