U.S.: Markets positive this morning, recovering from last week’s leap in oil prices and continued Middle Eastern violence. All eyes will continue to watch the escalating situation in Libya. The Fed releases January consumer credit numbers this afternoon, estimated to increase $3.4BE v $6.1B prior. Look for the release of retail sales this Friday amidst a light release calendar.
Europe: Greece’s credit rating was lowered three notches today by Moody’s due to the rising risk of default and the country’s probable difficulties in reducing its budget. Greece’s new B1 rating matches that of Bolivia and Belarus, prompting the Greek Finance Ministry to call it “completely unjustified.” Greece is scheduled to issue bills tomorrow, while Portugal and Italy are also expected to issue this week. Ireland’s PM Kenny requested a repayment extension on the EU bailout loans on Friday during a meeting of right-wing EU leaders. The request came with an appeal to cut interest rates on the package that once again fell on deaf ears as the Finnish finance minister stated that “there are no free lunches.” Ireland’s incoming ruling party also declared today that a restructuring of senior bank debt may occur. The rising party will take office this Wednesday and plans to create a “war cabinet” to face the country’s spiraling debt levels. Monday figures showed that ECB overnight loan facility had borrowings of €758MM v €515MM prior. Although the borrowing numbers are somewhat more stable than recent spikes, the heightened level reveals continued financial pressures in the Euro zone. SOVXWE widened out to 180bp on the news of the Greek downgrade and increased stress in the periphery. Markets will see increased caution this week in the lead up to the EU summit at the end of the week designated to create a rescue mechanism. Friday’s talks will likely involve many of the same themes we have seen lately in order to create a new/revised/upgraded support mechanism. With the ECB seemingly wanting to take a backseat on the credit front and return to traditional inflation fighting policy measures, the meetings should take on a whole new meaning for the markets as ever-larger band-aid measures become necessary. BOE rate decision coming up on Thursday.
Asia: Japanese rating agency R&I announced that it may cut Japan’s sovereign debt rating one or two notches before local elections in April due to political tension that has halted budget repairs. Oil prices will be an especially important factor to watch in Asian markets given the rising inflation pressures in the region. China released its five-year plan over the weekend with lofty goals attached.
From Brian Yelvington of Knight Capital