Daily Highlights: 2.10.10

• China's exports jump 21% as imports gain 86% in January, Government says.
• Fed to reveal its strategy for raising interest rates.
• Germany along with EU plans to offer Greece, other members loan guarantees.
• Japanese core machinery orders increased 20.1% in Dec, much better than expected.
• Oil drops to near $73 in Asia after report shows US crude supplies jumped last week.
• Stocks, commodities, Korean Won rise on speculation of Greek aid, China's growth.

EURUSD On Support

EURUSD is testing the channel support here. Various officials commenting that no bilateral agreement has been discussed or signed are putting risk under pressure. It's almost like watching Congress fumble the vote on the stimulus package. The good news is that if you thought US politicians are terrible, you can find comfort in that they are no better in Europe. We still expect a multi-lateral resolution in the end. - Nic Lenoir

The Dumping Begins: Chinese Reserve Managers Notified That Any Non-USG Guaranteed Securities Must Be Divested

It appears that this time China's posturing is for real. Following up on our earlier post that Chinese military officials want to "punish" America by selling Treasuries, Asia Times Online is reporting that an explicit directive by the Chinese government has notified reserve managers to sell all risky US assets, including asset backed and corporates, and just hold on to explicitly guaranteed Treasuries and Agency debt. And from following TIC data we know that China's enthusiasm for MBS/Agencies over the past year has been matched solely by that of one Bill Gross.

Risk Appetite Is Back, Sovereign Bailout Is The New Black

Not that there is too much to get excited about. The only possible positive outcome of a bailout other than immediate rescue for the shareholders of a bankrupt entity is a possible restructuration, change in management, etc.. If the bailee goes right back to his original business model (selling bad cars or making bad loans) then surely nobody gains in the long run. In the case of a sovereign entity like Greece the real question is: what will the bailout change other than temporary relief to capital markets? I am tempted to say nothing but that would not be constructive. Still though everyone knows it will be very difficult for Greece to deliver fiscal austerity, and unless the world economy picks up dramatically (China is peaking and due for a rough landing, demand still not back anywhere close to highs) Greece will have to find sources of growth internally while the government cuts its budget. This is also because as long as Greece is in the Eurozone, they are not competitive to export anything unless the EURUSD gets much weaker. A weak Euro down the road with a possible desintegration of the eurozone will be the end result no matter what further developments take place in the meantime. - Nic Lenoir

2010 YTD Treasury Investor Class Purchasing Update

The Treasury has released the most recent UST Auction Allotment by Investment Class data for recent Treasury auctions. In January and February of a total $207 billion in Coupons auctioned, foreign and international investors acquired $58 billion (28% of total), dealers and brokers took down $104 billion (51%), depository institutions purchased just $3.2 billion, investment funds acquired $35 billion (16.8%) and individuals took down a mere $1 billion. In Bills, there was a total of $286 billion in Bills issued in January, of which foreigners purchased $47 billion (16.4%), dealers and brokers bought $145 billion (50.7%), investment funds bought another $43 billion (15.2%), and individuals were responsible for just $10 billion in Bills. Notable is the nearly double relative interest that foreigners have for Coupons than to Bills, as a result of persistently low interest rates.

Dubya, Hank Paulson's Surrogate Mother, Urged The Bald To Exercise, Sleep

Welcome to 1984, where outright propaganda and lies bombard you from current and prior administration officials each and every day. Here is the latest insanity straight from the horse's mouth (no pun intended).