US: Markets down for a second day this morning. Look forward to the release of initial jobless claims this morning which may provide some additional insight into last week’s unemployment numbers. NYSE shares rallied yesterday off of Deutsche Boerse AG’s announcement of its negotiations to buy the exchange, which would make it the country’s largest market for derivatives. While speaking in front of the House Budget Committee yesterday, Fed Chairman Ben Bernanke reminded Congress that the Fed is not solely responsible for the U.S.’s overwhelming deficit. He defended QE2 but hinted that there is a limit to its effectiveness. The chairman acknowledged that fiscal adjustments "occur at some point." On a related note, today will see the release of the U.S.’s monthly budget deficit.
EUR: Periphery spreads wider in Europe led by Portugal. Bloomberg reported that the ECB may have bought 5Y Portuguese sovs. German Bundesbank President Axel Weber declined to comment on his future although reports contend that he will not take the post of ECB chief. UK manufacturing made a surprise decline of 4.4% YoY in December v +5.4%E YoY. Meanwhile, French and Italian industrial production both came in well ahead of estimates with gains of 7.0% YoY v 5.7%E and 5.4% YoY v 4.5%E, respectively. Ireland’s main opposition party and likely next controlling party, announced yesterday that it would not impose haircuts on Irish bank senior bondholders. Portugal’s CPI (EU Harmonized) in January rose +3.6% YoY v December’s +2.4% YoY. Ireland’s CPI (EU Harmonized) in January rose +0.2% YoY v 0.1%E and December’s -0.2%.
Asia: Chinese news sources quoted analysts that expect the PBOC will raise interest rates at least two more times this year. In the midst of rising inflation, MPC member Li Dakoui affirmed that the PBOC will continue to adjust its monetary policy gradually. A senior IMF official warned of the Japanese bank undercapitalization in the context of continued economic sluggishness worldwide and loans close to or in default.
From Brian Yelvington of Knight Capital