One Minute Macro Update - And Then There’s The Middle East

Tyler Durden's picture

U.S.:  Markets mostly negative this morning but showing some improvement over yesterday’s drop. In its FOMC meeting yesterday, the Fed reported that the economic recovery is on a “firmer footing” while it made no mention of the current turmoil in Japan. The Fed acknowledged an increase in commodity prices, but qualified them as temporary.  In our opinion, the Fed appeared more hawkish than in the last meeting in January, especially given the circumstances.  The usage of the stronger language, however, does not foretell any significant change in our opinion, but rather should serve to shift the market focus even more towards jobs data.  Mortgage applications for last week dropped 0.7% v +15.5% the week prior. Housing start figures later this morning, estimated at 566KE v 596K prior, will provide an additional perspective on the country’s “depressed” housing sector as the Fed referred to it yesterday. PPI is expected to grow 0.7%E MoM v 0.8% MoM prior, following the rise in core goods prices in recent CPI figures.  Consensus estimates for the current account deficit for 4Q10 are at $110.0BE v $127.2B prior.

Europe: Moody’s cut Portugal’s long-term government bond rating two notches to A1 from A3 and maintained a Negative outlook. The move is not a surprise given the country’s rising borrowing costs. Portugal today sold €1.0B in 12M bills at 4.331% v 4.057% prior with b/c at 2.2x v 3.1x prior. Germany’s three month moratorium on nuclear facility expansion and operational suspension of the country’s seven oldest power plants sent prices for EU carbon permits soaring. Euro-zone CPI grew 2.4% YoY and 0.4% MoM in February, putting pressure on the ECB to take action on rates although the economic effects of Japan’s earthquake will complicate the decision. Additionally, Italian headline inflation in February grew in line with consensus estimates at 2.1% YoY and 0.2%E MoM. Spanish labor costs fell -0.3% YoY in 4Q10 v -0.3% YoY prior. UK employment figures for February showed improvement with jobless claims were -10.2K  v +1.3KE and 2.4K prior, with ILO Unemployment reaching 8.0%  v 7.9%E  and 7.9% prior, and unemployment claimant count similarly up to 4.5% v 4.5%E and 4.5%prior.  G8 foreign ministers were unable to create a no-fly zone over Libya yesterday and were torn on the utility of military involvement. The French foreign minister chalked up the failure to Russia, China, and America’s indecisive position. Meanwhile, as anti-government protests continued, Bahrain declared a three month state of emergency yesterday. Along with the declaration came a second unit of military support from neighboring Gulf nations and a Fitch ratings downgrade from A- to BBB on the country’s long-term sovereign debt. Bahrain closed its stock market today and CDS spreads widened significantly.

Asia: The Nikkei 225 finally saw a rebound yesterday, moving up 5.7% after its biggest two day fall in over twenty years. Nevertheless, the threat of nuclear disaster lingers and investors are demanding higher premiums on the country’s debt.  Japan sold ¥1.1T in 20Y JGBs today at 2.13%, steeping the curve.  S&P sees Chinese expansion slowing in 2011, forecasting GDP 9.1-9.6% with CPI in the 4.3-4.8% range.  PBOC household inflation expectations weakening.  February data indicate that money supply and lending activity have slowed, with lending down almost 50% from January’s flows.

From Brian Yelvington at Knight Capital

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hugovanderbubble's picture

Who cares 8% 10 Portuguese Yield and EURUSD at 1.39´s¡¡¡¡




Sell Spain till HairCuts and IMF aid appears to Exterminate the Real Estate Loan Losses -

TexDenim's picture

Bahrain is the place to watch. It is a huge fuck-up which should not have happened. Martial law declared this morning, and this is a region that was as stable as Connecticut. Not good.

JR's picture

EXCERPT from Why U.S. Treasury Bonds Are No Longer the Interest Rate Market Bellwether | The Market Oracle | March 15, 2011

Shah Gilani writes:

Forget about watching the Fed Funds Rate now. That central bank benchmark has ranged between 0.00% and 0.25% for a couple of years now. Going forward, it's not going to be an indicator of interest-rate movement, because it's not going to change much.

Sure the Fed wants it there. But more to the point, the Fed Funds Rate remains in that range because all the too-big-to-fail (TBTF) banks like Citigroup Inc. (NYSE: C) and Bank of America Corp. (NYSE: BAC) are far bigger now, are lending less, and have huge excess reserves on which they'd love to earn an overnight profit. So for now and for the foreseeable future, they'll be plenty to lend between giant "TBTF" club members.

And thanks to its "quantitative-easing" (QE) strategy, the Fed is essentially monetizing the U.S. Treasury's debt by buying in the secondary market from primary dealers like Goldman Sachs Group Inc. (NYSE: GS) and JPMorgan Chase & Co. (NYSE: JPM) the equivalent of every new issue that comes to market.

The net result: There's no real gauge of demand because the Federal Reserve has hijacked the free market.

The New Bellwether
Tens of trillions of dollars are invested in the U.S. bond markets.

And - for as long as anyone can remember - the Fed, U.S. Treasury bonds and the Treasury yield curve were the bellwethers of where interest rates were headed. That's why investors watched those indicators so closely.

But they are bellwethers no more. With the $2.9 trillion market for municipal bonds now buffeted by pension, deficit, tax and potential state bankruptcy woes, it's the direction of muniyields and shape of the muni yield curve that investors should be watching to divine the future direction of interest rates.

To divine the direction of interest rates - and stay ahead of the curve - watch the muni-bond market by watching the iShares S&P National AMT-Free Muni Bond Exchange-Traded Fund (NYSE: MUB).

Read more


LongSoupLine's picture

Nikkei futures are down hard.

Meme Iamfurst's picture

The Idea of American and European governments that if "WE do nothing to help the Libyan rebels the rest of the East will quiet down"  IS NOT WORKING.

As I wrote last Friday, if the US and Europeans do not act by (last) Monday, the cause will likely be lost and the Christian countries will be held accountable.  It is 30 seconds to midnight....

Well, guess what...they didn't act, and the West is going to pay the price for decades of propping up these corrupt governments.  Arabs are not as stupid as this nation likes to believe.  The Arabs see our holy-er-than-thou and democracy rhetoric is just a load of crap to hid our greater interests.

They won't forget this abandment...and the big mouth empty promisses of miss Hillery.

ivana's picture

According to this page

Japanese bonds yields are rising again strong at short end ( SHOWN 2Y-5Y-10Y)

  0.24 +5.8%    0.52 +1.8%    1.23


onarga74's picture

Those numbers just out are telling...Stagflation  Housing starts miserable and food prices up I don't think we need Japan today.  This is pretty ugly.  No doubt about it Bennie screwed up and we're gonna get more...

ivars's picture

Excuse me for repeating these graphs, but they show remarkable accuracy 1,5 months after being drawn:


More reasons to validate the actual results of DJIA and oil prices vs. these February 6th predictions- the drop in stocks will continue as Oil will eat away all QE effect and flight for safety will keep USD high-there is a slight hiccup in June perhaps by QE3. But it won't last long because of rising oil prices.


The DJIA graph actually accurately predicts todays DJIA value, 1,5 months ahead, so the average slope of decay from market top February 18-June 2011 is accurate as well: