Overview: Markets positive in the U.S., but mixed globally as this week will show the results of Ireland’s bank stress tests and possibly more events related to Portugal’s growing debt crisis.
U.S.: Speculation abounds this morning as to the future of QE2 as St. Louis Fed president James Bullard called the program into question. Treasuries sold off last week overwhelming the bid for safety amid Europe’s debt crisis and global involvement in Middle Eastern conflict. Secretary of State Clinton told the press yesterday that the U.S. would not intervene in rising civil conflict in Syria. The U.S. is currently active in NATO’s peace keeping efforts in Libya. Today will see the release of Personal Spending for February estimated at +0.5% MoME v +0.2% prior and Personal Income estimated at +0.4%E MoM v +1.0% prior. Also to come is Pending Home Sales in February with market expectations at +0.4%E MoM v -2.8% prior.
Europe: Germany sold €2.66B in 12M bills at 1.2649% v 1.0636% prior with b/c at 2.2x v 2.0x prior while waiting on ECB president Trichet’s statement today that may reaffirm his rate hike plan. German Chancellor Merkel’s CDU party showed further weakness in regional elections yesterday as the Green party and its anti-nuclear platform surged in the polls. The election results prompted the CDU to announce that most of the country’s older nuclear power plants will be shut down. This is the second loss for Merkel’s party in two weeks as the division of potential AAA payers continues to worry the EMU’s potential payees. Reports show that Portugal may need a €2.7B to bridge its €4.3B in April debt commitments (we note that data indicate that Portugal has €5.4B in principal and interest due in April). The country also has €7B due in June and a member of the ECB recommended that Portugal tap into the EFSF. Borrowing from the ECB’s overnight loan facility totaled €3.3B v €1.57B prior, hitting a peak not seen since the stress in the Irish banking sector earlier this year. Although the source of the borrowing is unknown, markets will point to the ECB’s publishing of Ireland’s stress tests this Thursday as well as the unfolding of the sovereign debt problems in Portugal as potential causes for the borrowing spike. Reports see the ECB as being close to creating a new liquidity assistance program in time for the release of the Irish stress tests results later this week. As details continue to trickle out on the new ESM facility, it appears to us to be as anemic as the ill-conceived EFSF. Consumer data was mixed in the region. Finnish Consumer Confidence sank this month to 17.7 v 20 prior, nearly fulfilling expectations of 16.0. Irish retail sales by volume grew 3.2% MoM v -3.8% prior and -0.7% YoY v +4.6% prior.
Asia: Japan’s nuclear crisis persists as high levels of radiation at the power plant delay reactor cooling efforts. S&P noted earlier that China has a long way up to a AAA sovereign rating versus its current AA-. Reports estimate Australia’s investment inflows at AUD120B a year, helping to push the Australian dollar higher. New Zealand’s February trade balance will be announced later today, with consensus estimates at +NZD270MM v NZD11MM prior, due to an estimated 6.4% pick up in exports. Today will also see the release of the Japanese employment data with the Jobless Rate estimated to remain at 4.9% from last month and the Job-To-Applicant Ratio at 0.62E v 0.61.
From Brian Yelvington of Knight Capital