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One Minute Macro Update - Portuguese Contraction, EMU Letdown

Tyler Durden's picture




 

Overview: Futures mostly positive this morning, with European stocks rising despite rising concerns over the EMU’s bailout fund.

U.S.: Yesterday saw existing home sales fell to 4.88MM v 5.12MME, weighed down by distressed properties and winter weather issues. More disappointing housing sector figures are expected today with the release of the house price index at -0.2%E MoM v -0.3% prior. The Richmond Fed manufacturing index will be released today at 24E v 25 prior.

Europe: The BOJ announced today that lender’s deposits with the bank will
increase 146% to a high of ¥43.6T today v ¥17.7T the day before the
earthquake as Japan continues to inject large amounts of cash into the
financial system to help speed the recovery. Although Portugal plans on significant spending cuts, the growing political divide within the country may not allow the measures to pass. SOVXWE widened out to 171bp on the Portuguese news as well as the relative disappointment in the “new and improved” ESM/EFSF/EMU plans.  There remain lots of questions as to how the EFSF will be expanded and it is not clear how the future ESM or the “new” EFSF would maintain ratings requirements without additional paid in capital or taxation power.  Recall it took the current scheme about five months to receive a rating.  Additionally, German opposition to fiscal unity has been bolstered by opposition from smaller countries who would also be part of the “payer’s club” (not as fun as the player’s club).  Amidst this, Spain sold €1.2B in 3M bills at 0.899% v 1.101% prior with b/c at 4.33x v 3.35x prior and €842MM in 6M bills at 1.361% v 1.588% with b/c at 7.65x v 5.51x prior. Fiscal pressures worsened in the UK with a new report showing an increased budget deficit rose as revenue fell. Inflation pressures are worsening as well as UK CPI rose 0.7% MoM and 4.4% YoY v 0.6%E MoM and 4.2%E YoY. UK’s retail price index (RPI) rose 1.0% MoM and 5.5% YoY v 0.7%E MoM and 5.2%E YoY. Austria PPI rose 0.4% MoM and 5.0% YoY v prior figures of 0.5% MoM and 4.9% YoY. The continuing rise in prices may put more pressure on the ECB to take away the punchbowl. Finland’s unemployment reached 8.4% v 8.2% prior, a disappointing figure for the country that will be a major contributor to the EMU’s future rescue mechanism.

Asia: The BOJ announced today that lender’s deposits with the bank will increase 146% to a high of ¥43.6T today v ¥17.7T the day before the earthquake as Japan continues to inject large amounts of cash into the financial system to help speed the recovery. Japan all industry activity index rose 2.9% v 2.8%E in January. Taiwan unemployment rate fell to 4.59% v 4.71% prior. Hong Kong’s composite CPI rose 3.7% v 3.6%E. An Australian official forecasted higher rainfall amounts in 2Q11, reminding investors of the country’s recent flooding disaster.

From Brian Yelvington of Knight Capital

 

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Tue, 03/22/2011 - 07:46 | 1085254 Crisismode
Crisismode's picture

What happens when the radioactive plume from Fukushima creates a million Japanese Zombies who want nothing more than to devour Eurobonds?

Tue, 03/22/2011 - 07:47 | 1085259 westboundnup
westboundnup's picture

Better yet, what happens if Japan simply needs capital for reconstruction and elects to sell, oh say, 15% of the U.S. Treasury debt it holds? 

Tue, 03/22/2011 - 08:00 | 1085284 Harlequin001
Harlequin001's picture

They won't sell, they'll just print more yen...

Tue, 03/22/2011 - 08:32 | 1085354 dussasr
dussasr's picture

Agree - selling treasuries gives you Dollars.  Exchanging them to Yen drives up the Yen at a time when they are trying to weaken it.  It's easier just to print Yen.  If provides cash and weakens the Yen at the same time.  Perfect plan - until it implodes.

Tue, 03/22/2011 - 08:34 | 1085363 Thorlyx
Thorlyx's picture

Instead they should print clean water, sound milk and healthy spinach.... oh, and also foolproof nuclear power plants.

Tue, 03/22/2011 - 08:11 | 1085291 Harlequin001
Harlequin001's picture

'as Japan continues to inject large amounts of cash into the financial system to help speed the recovery'... 

so, the recovery is 'speeding' is it?

'Japan all industry activity index rose 2.9% v 2.8%E in January.'... Yes but it came to a grinding halt in March. This is already so outdated.

'Additionally, German opposition to fiscal unity has been bolstered by opposition from smaller countries who would also be part of the “payer’s club” '

After the drubbing Merkel got in the last round I would be stunned, stunned I tell you if this didn't all end in tears very soon.

'till then I buy gold...

 

Tue, 03/22/2011 - 08:15 | 1085315 Tulli
Tulli's picture

The Portuguese government is expected to fall tomorrow after austerity pack 4.0 is rejected in parliament vote by the main opposition party PSD, throwing the Country into an election and a immediate need to be bailed out.

The statement from PSD is available here: http://www.psd.pt/?idc=4&idi=79230

This inevitable next step in the Euro crisis will likely impact the Euro, as all eyes will turn to Spain.

Tue, 03/22/2011 - 08:33 | 1085359 gwar5
gwar5's picture

The international monetary system is on life support and the BOJ, EMU and The Bernank are all circle jerking to resuscitate it. Interesting concept.

Now that Japan and Portugal are on their backs the timing for a little quick action couldn't be better.

"It's 4 o'clock, do you know what your Bernank is up to?" -- Maria Bartiromo

 

 

Tue, 03/22/2011 - 09:57 | 1085642 99er
Tue, 03/22/2011 - 11:09 | 1085663 99er
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