One Minute Macro Update
US: 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.
Europe: EFSF issuance set to come this week with an expected €5B on offer. France, Germany, Italy, and Spain (plus Malta and the Netherlands) are all set to issue during the week as well. With spreads in significantly from the wides a few weeks ago, the EFSF issuance looks to do well during the week. Pricing expected tomorrow with early chatter on talks MS+9/10bp. Further details are that the facility will not pre-fund, will not be allowed to buy bonds or assist banks directly. The AAA rating is a priority and OC will likely be increased if the rating is in danger. Issuance will be considered supranational for the purposes of indexing (in the Agg and Global Agg, not the Govvie). The issue will be whether or not investors go up the cap structure to the detriment of traditional sov issuance. French and German manufacturing confidence declined in January. Ireland political risk on the rise after elections are moved up to late February following the withdrawal of the Green Party from PM Cowen’s coalition. This puts the passage of the bailout program in doubt (though not significantly so).
Asia: China suspends bill sales this week, indicating additional RRR hikes are imminent. China 7D repo tightened significantly overnight as news of PBOC reverse repo operations hit the market. PBOC loan quota rumor mill continues to run. The Australian reporting a strong possibility of AUD policy rate raise in March as well as flood impacts starting to hit coking coal prices this week.
From Brian Yelvington from Knight Capital
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