U.S.: Markets positive this morning as the rise in oil
simmered and emerging markets posted gains. World food prices met a new high in
the latest U.N. report as it seems that the U.S. continues to export inflation.
The Fed’s Beige Book released yesterday was optimistic and similar to
January’s, with nearly all of the reporting regional banks citing growth in
retail and manufacturing despite evidence of rising pressure on prices. Initial
jobless claims data today 395K Expected and given last week’s large drop and fairly
consistent weather, the release should
be on par with last week’s 391K. Fed Chairman Bernanke spoke to House of
Representatives yesterday in day two of his Humphrey Hawkins speech, again
expressing dissatisfaction with the labor market, confidence in the battle
against inflation and concern for America’s fiscal policy. Bernanke’s two days
of speeches to Congress showed a conviction to keep short term interest rates
low until unemployment levels recovered. Although recent releases show a modest
rebound in labor, it may not be enough to push interest rates up as current
estimates for 2012 unemployment reach 7.5 to 8.0%.
Europe: Divergence building between high beta periphery
and core CDS, with Portugal, Ireland and Greece moving wider while the rest of
Europe is tighter off of news of a potential CDS ban (please see our note
yesterday for more information on the growing divergence). ECB keeps rates unchanged, despite recent
hawkish comments from various ECB council members. Euro zone preliminary 4Q10 GDP
was +0.3% QoQ v +0.3% prior and +2.0% YoY v +2.0% prior. PMI Services for the
U.K. fell to 52.6 from 54.5 in January, contrasting the strong data for
construction and manufacturing released this week. Considering the U.K.
economy’s dependence on the service sector, the likelihood of expansion for the
country seems dimmer. PMI Services for Germany came in at 58.6 v 59.5E, Italy
came in at 53.1 v 51.1E, and France came in at 59.7 v 50.8E. Although most
market estimates were missed, it is important to note that a release above 50
indicates growth. Demand picked up in Spain’s most recent bond auction, selling
€1.15bn in 3Y at 3.592% v 2.88% prior with b/c at 3.04x v 2.76x prior and
€2.65bn in 5Y at 4.389% v 4.542% prior with b/c at 2.17x v 2.1x prior.
Asia: Chinese non-manufacturing PMI came in at 44.1, a
significant decrease from January’s 56.4. Australian trade surplus fell in
January to 1.88bn from 1.98bn, but still came in well ahead of market
expectations at 1.55bn despite flood damage. Building approvals in Australia
fell 15.9% MoM v estimates of a 3.3% decrease.