Archive - Jan 24, 2011 - Story

Markets slightly off this AM amid a slew of global economic stories and a data heavy week. Today features nothing in the US economic calendar, but this week will give us Case/Shiller Home Prices Indices (Tuesday), FOMC (Wednesday), Durable Goods (Thursday), Cap Goods (Thursday), GDP (Friday), and PCE (Friday). The initial focus for the week will be the switch in FOMC voters and what that will do to the tone and language we see within the Fed’s statement. Fisher, Evans, Kocherlakota and Plosser all join the fray as Bullard, Hoenig, Pianalto, and Rosengren depart the voting. Hoenig has been the hawkish dissenter as of late, while the incoming Fisher and Plosser are seen as his likely replacements. Given the calls for better communication from the Fed – from the Fed itself – Wednesday will be fun to watch as far as drastic changes. A more splintered approach will result in more vol and more speculation about the curve in general. After that, 4Q10 GDP will be on focus for the market. S&P issues warnings on US muni bond market, expects downgrades to rise in 2011.

As we highlighted yesterday, and predicted a week ago, following the Ivory Coast's halt of cocoa exports, futures in the substance have moved to one-year highs on Monday as "ongoing political tensions in the world's top producer escalated." The WSJ reports that "New York ICE second-month cocoa futures soared more than 4% to a one-year high of $3,340 a metric ton. In London, front-month March futures jumped 7% at the open to a five-month high of GBP2,307/ton ($3,692/ton)." We hope that our prediction that JP Morgan is the mastermind behind this most recent key commodity market implosion, made surely in jest, remains that way and that no cocoa ETF is currently being prepared by JPM without anyone's knowledge, until it is of course, too late.

Last Friday we pointed out that Chinese 7-Day SHIBOR had hit a fresh all time high just days after pundits thought that the year end liquidity shortage was temporary and things would be back to normal. This morning it appears that the PBoC is scrambling to restore some form of liquidity in suddenly frozen interbank market, especially with the traditionally liquidity draining Chinese new year coming up, as the central bank is said to have injected CNY300 billion of liquidity via reverse repos. To those who are concerned that the PBoC is playing an increasingly more volatile game, with liquidity either in big excess or completely absent, and with a very limited arsenal of measures, you are not alone.

The week ahead will have interesting GDP prints out of the UK and the US in store. The market has recently shifted to price in a stronger US recovery and a higher probability for BOE hikes – so both prints will be watched closely and will inform investor decisions. Also worth watching are the German and Eurozone PMIs and if they confirm the signs of ongoing strength by the IFO. Against the strong growth back drop in the Eurozone, political events always the potential to increase uncertainty and the prospect of earlier Irish elections than the previously scheduled March date could be a concern. The US FOMC is expected to acknowledge the improvement in the macro data but not to change its policy stance. President Obama’s state of the Union address will likely focus on budget consolidation and policy to support employment. Hungary’s and Israel’s central banks are both expected to raise base rates on Monday, and so is India’s on Tuesdsay. The minutes from the recent MPC meeting in the UK should continue to indicate that the MPC will likely see through the volatile nature of the commodity price pressures which have led to higher CPI inflation against the drag that fiscal consolidation may pose on domestic demand ahead.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 24/01/11