One Minute Macro Update: Japan Mulls Rebuild Funding

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Overview: Markets worldwide are negative this morning on the news of a possible increase in European bank capital levels while U.S. futures are still in positive territory.

U.S.: The U.S. Treasury Dept. has announced that it will publically grade mortgage providers on response quality to homeowners that need payment reductions. This is the government’s latest move to ease mortgage foreclosures. Pending Home Sales picked up 2.1% MoM v 0.0%E, making up for the -2.8% in the month prior but keeping the housing sector in its current slump. Atlanta Fed president Dennis Lockhart acknowledged the sector’s troubles in a speech yesterday and reaffirmed the completion of QE2, but seemed more sanguine about any early exit than Bullard’s comments from last week. The S&P/CaseShiller Home Price index for January due out this morning will likely remain depressed near December’s 142.42, a 12-month low. The Conference Board’s Consumer Confidence will also be released later this morning: 65.0E v 70.4 prior. The risk seems to be to the downside on the confidence number as forward expectations comprise the majority of the index. Inflationary pressures and rising consumer input costs could have a big impact on the number.

Europe: Italian bank equities dropped on UBI Banca announcing a €1B capital increase in order to boost its core Tier 1 capital. As a result of the announcement, speculation that other banks would follow suit resulted in a selloff in the equity markets. Despite that issue, SOVXWE continues to trade tighter at 169bp. Ireland and Spain both announced that government involvement may be necessary in several of its banks. ECB overnight lending spiked again for second day, with borrowings totaling €3.13B v €3.39B prior as markets await the result of Ireland’s stress tests later this week and further action in Portugal’s debt dilemma. Greece plans on raising $3B in selling Diaspora bonds, with interest rates below 5% and maturities between 3 and 10 years. ECB president Trichet yesterday reaffirmed his intentions to hike interest rates in April. Preliminary German HICP data out today, estimated at +0.4% MoM v +0.6% prior, will put the president’s inflation plan in perspective. Regional inflation measures suggest a softening in price increases, but national levels will be reported later today. U.K. 4Q10 GDP roughly met estimates, reporting at -0.5% MoM v -0.6%E and +1.5% YoY v +1.5%E. Net consumer credit for the U.K. in February was £0.8B, above expectations of -£0.1B. Mortgage approvals showed improvement over last month coming in at 47.0K v 45.7K prior. French Consumer Spending expanded 0.9%MoM v -0.5% prior. Italian Business Confidence improved slightly to 103.8 v 102.5E and 103 prior.

Asia: Increases in commodity prices sent New Zealand’s February trade balance surging to +NZD194MM v -NZD3MM prior, making it the country’s first trade surplus in eight months. Exports rose 17.3% MoM and imports grew 11.5% MoM. According to industry group’s New Zealand’s exports may be further assisted in the future by growing demand from Japan for vegetables untainted by radiation. Japan’s Vice Finance Minister said yesterday that the government may have to abandon a planned five percentage point cut in corporate taxes to help pay for earthquake damage. PM Kan followed that up today signaling that multiple government spending plans may be needed to pay for disaster rebuilding. The Japanese Jobless Rate fell to 4.6% while it was estimated to remain at 4.9% from last month and the Job-To-Applicant Ratio increased to meet expectations at 0.62 v 0.61 prior.

From Brian Yelvington of Knight Capital