Abu Dhabi

As we head into the US open, European cash equities are seen in positive territory with strong performance observed earlier in the session from the FTSE MIB. This follows reports from the Italian press regarding commentary from the Chinese President Hu Jintao who promised to encourage Chinese industry to look towards Italy with confidence, in a conversation with the Italian PM Monti on the sidelines of the nuclear safety summit in Seoul. Markets have also been reacting to an article from Der Spiegel, citing economists who have warned that the German central bank could be facing hidden liabilities of up to EUR 500bln should there be a break up in the Eurozone. This has prompted some risk-averse flows into the Bund which has seen fluctuating trade so far in the session but remains in positive territory as North America comes to market. In individual equities news, following overnight reports from Abu Dhabi concerning buying a stake in RBS, company shares were seen up 6%. Source comments from earlier in the session regarding the sale speculated that the stake could be up to a third of RBS. Looking ahead in the session, the market awaits US Consumer Confidence data due at 1500BST.

Any and all negative overnight news are now completely ignored as the scramble for risk hits the usual fever pitch following Bernanke's latest attempt to transfer cash from safe point A to ponzi point B, aka stocks. First, China's industrial firms suffered a rare annual drop in profits in the first two months of 2012 mainly in petrochemicals, metals and auto firms, the latest signs of weakness in the world's No. 2 economy and reinforcing the case for policy easing, according to Reuters. This was the first Jan-Feb profits downturn since Jan-Aug 2009. Profits fell 5.2 percent so far in 2012, according to the industrial profitability indicator, published by the National Bureau of Statistics (NBS) every month. The last period that China reported nationwide industrial profit fall was in the first eight months of 2009. Then there was the German GfK Consumer Confidence which unlike yesterday's IFO, missed: nobody cares. Also on the negative side was an earlier auction of Spanish Bills which sold EUR 2.58 billion, just barely off the low end of a target issuance of EUR 2.5-3 billion. As noted however, neither this, nor the series of US disappointments which looks set to end March with 15 of 17 estimate misses is relevant. To wit: French consumer confidence soared to 87 on expectations of 82, as the easiest and lowest common denominator to boost risk assets is now abused everywhere, by UMich, by Germany and now by France. And why would people not be confident - stocks everywhere are higher despite fundamentals. After all if something fails, there is a central planner to fix it. Never forget - the taxpayer credit card has no limits. Net result - green across the board. 

Sit back and watch as Greece defaults on these latest round of bonds considerably faster than they defaulted on the previous batch, It's simple math!

As European bank deleveraging continues, Middle East tensions rise, and oil prices (Brent and Crude alike) oscillate from headline to headline, we thought it intriguing that the entities with net notional outstandings in CDS markets at or near their largest in history are China (and Chinese banks), LatAm Oil companies, Abu Dhabi, and Israel. Quite a crop of potential risk bombs that at least credit traders appear to demand protection on more than others.

• China’s Forex Reserves Drop for First Quarter Since 1998 (Bloomberg) - explains the sell off in USTs in the Custody Account
• Greek Euro Exit Weighed By German Lawmakers, Seen as Manageable (Bloomberg)
• Greek bondholders say time running out (FT)
• Housing policy to continue (China Daily)
• Switzerland’s Central Bank Returns to Profit (Reuters)
• US sanctions Chinese oil trader (FT)
• Obama Starts Clock for Congress to Vote on Raising Federal Debt Ceiling (Bloomberg)
• Turkey defiant on Iran sanctions (FT)
• ECB’s Draghi Says Weapons Working in Debt Crisis (Bloomberg)
• Greece to pass law that could force creditors in bond swap (Reuters)

Just in case you are worried that all those gold coins you have buried in your back yard will never be accepted as (il)legal tender, here comes Abu Dhabi with a gold ATM machine, making gold-based "currency" transactions one step closer. This is a harbinger of things to come, as people increasingly demand to transact in non-daily violatable pieces of paper. This is also the nightmare scenario for all central banks, which have to be seeing developments in the precious metal space, and finally realizing that in the absence of prudent monetary policy, the people, as we noted yesterday, will take (non-dilutable) matters into their own hands. The Fed dilemma: recognition that the fiat "race to the bottom" has to be contained (unlikely) or confiscation of precious metals (see Roosevelt executive order 6102).

Uh, so remember when we were, like, gonna buy $7.5 billion in Citi stock? Yeah so, maybe not so much. In fact, since we have you on the phone, how about you pay us $4 billion just because?

The market rejoices and delights to see the image of Abu Dhabi's merciful hand guided by Sheikh Khalifa bin Zayed Al Nahyan extended to errant cousin Dubai in the form of Sheikh Mohammed bin Rashid Al Maktoum. Once the fingers unclasped a $10 billion cash injection fluttered into outstretched salvation army tins. Bond prices soared. Sighs of relief were heard. Why exactly? $10 billion is a trifle. Also telling is that while the immediate needs of Nakheel PJSC looked something like $4.1 billion, $10 billion was immediately required to keep Dubai from... well who knows what. Dubai isn't struggling. It is totally broke, and $10 billion is a trifle.

The government of Abu Dhabi and the Central Bank of the United Arab Emirates agreed to provide $10 billion to the Dubai Financial Support Fund, allowing Dubai World to repay $4.1 billion of Islamic sukuk bonds that are due today, the government of Dubai said in an e-mailed statement. Statement from Dubai Supreme Fiscal Committee attached.

Interestingly, though implicit and Fanniesque guarantees by Abu Dhabi have always colored the pricing of Dubai's debt (along with the image, apparently exaggerated both in will and ability, of the virtually unlimited backing of Abu Dhabi's "$600 billion" sovereign wealth fund) most stories covering the Reuters disclosure this morning focus on the (so far ethereal) assistance Abu Dhabi will be giving Dubai, and not that which it will not.