CPI

Going into the US open, most major European bourses are trading in modest positive territory this follows the publication of a Goldman Sachs research note titled “The Long Good Buy” in which the bank outlines its thoughts that equities will embark on an upward trend over the next few years, recommending dropping fixed-income securities. We have also seen the publication of the Bank of England’s minutes from March’s rate-setting meeting in which board members voted unanimously to keep the base rate unchanged at 0.50%; however there was some indecision concerning the total QE, with members Miles and Posen voting for a further increase to GBP 350bln, however the other seven members voted against the increase. Following the release, GBP/USD spiked lower 35 pips but has regained in recent trade and is now in positive territory.  Looking elsewhere in the session, UK Chancellor Osborne will present his budget for this financial year at 1230GMT. We will also be looking out for US existing home sales and the weekly DOE inventories.

All you need to read.

Heading into the North American open, EU stocks are seen lower across the board as market participants reacted to cautious comments from Moody’s rating agency on Spain, which noted that Spain’s fiscal outlook remains challenging despite easier targets. Still, the ratings agency further commented that easier targets do not affect Spain’s A3 government bond rating with a negative outlook. Separately to this, a BHP Billiton executive said that Chinese demand for iron ore is flattening, while according to China's state-backed auto association, China's vehicles sales this year will probably miss their growth forecasts. As a result, basic materials sector has been the worst performing sector today, while auto related stocks such as Daimler and VW also posted significant losses. The ONS reported that inflation in the UK fell to 3.4% in February, down from 3.6% in January. However, higher alcohol prices stopped the rate declining further. Going forward, the latter half of the session sees the release of the latest US housing data, as well as the weekly API report.

• BHP Billiton sees China iron ore demand flattening (Reuters)
• Australia Passes 30% Tax on Iron-Ore, Coal Mining Profits (Bloomberg)
• State Capitalism in China Will Fade: Zhang (Bloomberg)
• Venizelos quits to start election campaign (FT)
• Fed’s Dudley Says U.S. Isn’t ‘Out of the Woods’ (Bloomberg)
• China Is Leading Foreign Investor in Germany (WSJ)
• Fed undecided on more easing: Dudley (Reuters)
• Martin Wolf: What is the real rate of interest telling us? (FT)

A "little" inflation will destroy capital, rob you of your savings, disrupt all of your long-term financial planning, create market instability, and leave you unprepared for retirement. You can protect yourself and you must. Here's how.

Current oil spike dominates oil move in 1970s-really! 

This week brings policy decisions in Taiwan and Thailand. The CBC decision will be very interesting to watch. The December statement at the time was surprisingly hawkish, only to be followed by a large upside surprise in inflation, and the TWD was subsequently allowed to appreciate. Given that the bank continues to view inflation as a major problem, according to quotes from Reuters, it will be very interesting to see how the bank weighs up concerns about hot money inflows vs the need to contain inflation risks. In particular, in the face of imported inflation pressures via higher commodity prices, many central banks may shift towards accepting the need for more currency strength. The week also brings some important central bank commentary. The RBA governor has an opportunity to opine on the recent slew of weak Australian data, as well as developments in the A$. There is quite a bit of commentary from Fed officials on the docket, including from Bernanke, which we will dissect for information on the further direction of policy. More dovish commentary than that of the FOMC last week, would arguably be a surprise and potentially dampen, if not reverse some of the moves of last week.

There's a lot of it even in Germany, but it finally has a way of measuring it

Just spent a record high amount at the gas pump for this time of year? The BLS says you didn't, and after all when it comes to reality, the BLS has a right of first refusal. The just printed headline CPI came at 0.4%, just in line with expectations of 0.4%, while core CPI of 0.2%, missed expectations of 0.3%. That's right: not only is inflation meaningless, it is less than expected, leading to surge higher in stocks, bonds and the EURUSD. As for those items which are once again soaring in prices such as food and gas? Luckily, those can be hedonically adjusted by everyone to virtually zero. (wait? You still pay your mortgage or rent? Sucker!) Remember: the iPad is deflationary.

Ahead of the US open, markets are exhibiting some modest risk appetite, with all major European bourses trading higher, and financials outperforming all other sectors. There has been little in the way of key data from Europe, however we have seen the Eurozone Trade Balance coming in alongside expectations in the seasonally adjusted reading. Bund futures continue to move lower in recent trade as US participants come into the market, with the 10-year German yield crossing the 2% level to the upside, trading at a level not seen since the 10th February. Bunds may also have experienced some pressure following the release of a research note from a major US bank recommending rotation trade with the selling of bonds and the buying of equities. USD/JPY is seen trading higher ahead of the US open following the overnight release of some relatively dovish BoJ minutes, with commentary suggesting further easing in Japan in the future. Taking a look at the energy complex, The IEA have commented on yesterday’s speculation concerning the use of the US’ Special Petroleum Reserve, stating that they have not received any contact regarding any emergency oil release. As such, WTI and Brent crude futures are seen higher; however they have seen some selling off in recent trade.

I have suggested for weeks, I suggested in my piece yesterday, that you take some money off the table, sell some of your bullets, and re-deploy. Quantitative Easing is coming to an end and there will be ramifications for the bond markets and, eventually, for the equity markets. The days of free money, newly printed money, are coming to a close as America begins to right itself and as our banking system is mostly out of the woods. The longer end of the curve, hit hard yesterday, is heading to higher yields in my opinion. We will also begin to see inflation creep in for a variety of reasons and I point specifically to the price of gas at the pump which, while no one was looking, has hit its all-time highs this week as each penny of increase adds $1 billion to household spending and gasoline has risen thirty cents in the last month.

Going into the US open, European equity markets have carried across some risk appetite from last night’s Wall Street news that 15 out of 19 major US banks had passed the Fed’s stress test scenarios. This risk appetite is evident in Europe today with financials outperforming all other sectors, currently up over 2%. Data released so far today has been relatively uneventful, with Eurozone CPI coming in alongside expectations and Industrial Production just below the expected reading for January. Taking a look at the energy complex, WTI and Brent crude futures are seen on a slight downwards trajectory so far in session following some overnight comments from China, highlighting the imbalance in the Chinese property market, dampening future demand for oil. Looking ahead in the session, the DOE crude oil inventories will shed further light on the current standing of US energy inventories.

• Euro zone formally approves 2nd Greek bailout: statement (Reuters)
• In a First, Europeans Act to Suspend Aid to Hungary Unless It Cuts Deficit (NYT)
• UK Chancellor Looks at 100-Year Gilt (FT) - What? No Consols?
• Hilsenrath: Fed's Outlook a Tad Sunnier - (WSJ)
• Banks Shored Up By Stress Test Success (FT)
• U.S. dangles secret data for Russia missile shield approval (Reuters)
• Wen Warns of Second China Cultural Revolution Without Reform (Bloomberg)
• Wen Says Yuan May Be Near Equilibrium as Gains Stall (Bloomberg)
• Merkel Says Europe Is ‘Good Way’ Up Mountain, Not Over It (Bloomberg)

The actual numbers were blockbusters.

• Tainted Libor Guessing Games Face Replacement by Real Trades (Bloomberg) - so circular, self-reported data is "tainted" - but consumer confidence is great for pumping a stock market?
• Japan Sets up $12 Billion Program for Dollar Loans, Increases Growth Fund (Bloomberg)
• China Hints at Halt to Renminbi Rise (FT)
• Spain Pressed to Cut More From Its Budget (FT)
• Bailout can make Greek debt sustainable, but risks remain: EU/IMF (Reuters)
• Banks to Face Tough Reviews, Details of Mortgage Deal Show (NYT)
• U.S. and Europe Move on China Minerals (WSJ)
• Use of Homeless as Internet Hot Spots Backfires on Marketer (NYT)
• Obama administration seeks to pressure China on exports with new trade case (AP)