Archive - Mar 11, 2013

In the upcoming week the key focus on the data side will be the US February retail sales figures on Wednesday, which should provide clearer evidence on how the tax increases that took place on January 1 have affected the consumer. In Europe, industrial production and inflation data will be the releases to watch. On the policy side, the focus will be on the BoJ appointments in an otherwise relatively quiet week for G7 central banks. Italy’s newly elected lawmakers convene for the first time on Friday 15 March and the expectation remains that President Napolitano will formally invite Mr Bersani to try and form a new government. He may also opt for a technocrat government. Although clearly preferred by markets, winning political backing may prove challenging.

• One in four Germans would back anti-euro party (Reuters)
• EU Chiefs Seeking to Stave Off Euro Crisis Turn to Cyprus (BBG)
• Ryan Says His Budget Would Slow Annual Spending Growth to 3.4% (BBG)
• Goldman leads decline as Wall Street commodity revenues plummet (Reuters)
• South Korea and US begin military drills (FT) and North Korea cuts off hotline with South Korea (Reuters)
• Karzai Inflames U.S. Tensions  (WSJ)
• Algorithms Get a Human Hand in Steering Web (NYT)
• Meeting Is Set to Choose Pope (WSJ)
• More U.S. Profits Parked Abroad, Saving on Taxes (WSJ)
• Banks rush to redraft pay deals (FT)
• Fugitive Fund Manager Stuffed Underwear With Cash, Fled (BBG)
• Post-Newtown Gun Limits Agenda Narrows in U.S. Congress (BBG)
• China Hints at Shift in One-Child Policy (WSJ)

Just like a week ago, when the futures experienced an unprecedented event when they actually slid overnight (only to recoup all the losses and then some, in the US trading session), so today sentiment appears to be driven by China which over the weekend once more posted its worst economic numbers to start the year since 2009, with purposeful economic weakness telegraphed by the politburo coupled with higher than expected inflation in what is a harbinger to the end of the global reflation, just as it was in 2011. The Shanghai Composite closed down 0.3%, while the Nikkei was in a world of its own, closing up 0.5%, tracking nothing but the USDJPY nowadays. Additionally, while the US stock market took Friday's downgrade of Italy in stride, and in fact Getco's algos used it to catalyze a late day ramp to close the DJIA just around the "psychological" 14,400 (just like Dow 36,000 is apparently psychological), Europe is less sanguine, and so far Italian bonds have been pressured compared to the rest of PIIGS, rising with yields rising to 4.65%, hitting 4.694% earlier. That's ok though: as we reported over the weekend, there is nothing for widening BTP spreads that a few hundred billion in Fed reserve reallocations to European banks can't fix. And with no macro events or news on today's calendar, perhaps the most notable event so far is the lack of the overnight ramp, which we have all grown to love and expect almost as much as the mysterious 3:30 pm intraday clockwork DJIA ramp.

A few observations about growth and policy backdrop that is shaping the investment climate. It is a large overview that may be helpful to start the week.