Kuwait

• Millions still lack power (WSJ); New York Region Transit Tracker (WSJ), Blackouts Remain for 6.1 Million as Power Repairs Begin (Bloomberg)
• U.S. regulator seeks $470 million from Barclays (Reuters)
• J.P. Morgan Sues Whale's Ex-Boss (WSJ)
• London Frets Future as Financial Hub Outside Bank Union (Bloomberg)
• SNB now selling EUR: Swiss Central Bank Pulls Off Euro Sleight of Hand (WSJ)
• United Said to Study Biggest Airbus A350 to Replace Jumbos (Bloomberg)
• Draghi expands role in fight to save euro (FT)
• Panasonic Plunges by Daily Limit on Loss Forecast, CDS Soars (BusinessWeek)
• Italy risks economic ‘vicious circle’ (FT)
• Starbucks's European tax bill disappears down $100 million hole (Reuters)
• Bernanke Depression Guru Seeks Roosevelt Well-Being (Bloomberg)

There is a popular belief in the Middle East that Washington’s foreign policy, particularly as it relates to this precarious region, is largely driven by America’s dependency on, and insatiable appetite for Arab oil.  One can make a good argument for that. Had Syria been a major oil producing country chances are the US would have already dispatched military forces to impose a pax Americana and to put a stop to the horrific fighting that has been slowly, but without any doubt, ripping Syria apart and dismantling the infrastructures that make the Syrian state what it is today. Even if the war was to end today it would take years for Syria to return to its pre-war position from an economic and military perspective.

• China carrier a show of force as Japan tension festers (Reuters)
• Draghi Rally Lets Skeptics Dump Spain for Bunds (Bloomberg)
• China’s Central Bank Injects Record Funds to Ease Cash Crunch (Bloomberg)
• Obama warns Iran on nuclear bid, containment 'no option' (Reuters)
• When Would Bernanke’s Successor Raise Rates? (WSJ) that's easy - never
• Italy's Monti Downplays Sovereignty Risk (WSJ)
• Portugal swaps pay cuts for tax rises (FT)
• Madrid faces regional funding backlash (FT)
• Berlin Seeks to Push Back New Euro-Crisis Aid Requests (WSJ)
• Race Focuses on Foreign Policy (WSJ)
• China Speeds Up Approvals of Foreigners’ Stock Investment (Bloomberg)

It ain't safe no more???

After a volatile morning’s trade, European equities are making gains. Having progressed through the session, markets saw a distinct period of volatility wherein peripheral 10-yr government bond yield spreads tightened markedly with their German counterpart, with the Spanish 10-yr yield making a test, but stopping short of a break below the 7.00% handle. The moves came in the wake of a relatively smooth Spanish T-Bill auction, which saw decent bid/cover ratios albeit with markedly higher yields on their 12- and 18-month lines. A modest relief rally was also observed when markets received confirmation that a recent ruling from the top German court regarding information on the ESM’s configuration does not bar the fund from coming into action and taking effect. In terms of data, markets have shrugged off a particularly poor ZEW survey from Germany, however a substantial weakening was observed in GBP following the release of the first deflationary May reading of CPI since records began. The pullback in cost-push inflation has given markets further reason to believe the BoE may conduct additional QE, as the price-level pressures have eased across the past two months.

The absence of the UK from today’s trade is particularly evident, with volumes remaining particularly light across all asset classes. Nonetheless, European equities are largely seen drifting higher with the exception of the DAX index, which is yet to move over into positive territory. News flow remains light with the highlight of the day so far being comments from the Troika, confirming that Portugal remains on track with its bailout program, and have confirmed that the country will receive the next EUR 4.1bln tranche in July. FX moves remain in a tight range, with EUR/USD looking relatively unchanged, with the USD index slightly weaker as the US comes to market. Looking ahead in the session, participants can look forward to US ISM New York and Factory Orders data as the next risk events of the session.

There's a big, fat "I told you so" coming down the pike. 

• It just get worse and worse: After McClendon's trades, Chesapeake board gave blessing (Reuters)
• Iran Accepts Renminbi for Crude Oil (FT)... which is not news: recall China and Iran Bypass Dollar from July 2011
• As Gas Prices Fall, a Sigh of Relief  (WSJ)... so now people can direct their disability payments to where they belong: extra fries
• Greece Braces for a Repeat of Elections (FT), as first predicted by Zero Hedge, this will be a recurring affair
• China dissident Chen says officials must face justice (Reuters)
• Merkel Urges Athens to Stick With Reform (FT)
• Hollande’s Win is a Chance for Change (FT)
• U.K. Manufacturers Expect Exports to Rise (WSJ)
• U.S. Says Bomb Plot Disrupted Before Public Threatened (Bloomberg)
• Santorum Endorses Romney as Republican Nominee (Bloomberg)
• Beijing May Host OTC Market (China Daily)
• India Delays Tax Avoidance Laws (FT)

Canada's natural resources minister told delegates at the International Energy Forum in Kuwait that his country was on the cusp of becoming an "energy superpower." Canada ranks No. 6 in terms of global oil production, but much of its crude exists in the form of oil sands. European leaders are considering a measure that would classify oil sands as an environmental issue, prompting Canada to threaten to take the issue to the World Trade Organization. With the U.S. political system in a deadlock over Canadian crude, the Ottawa government is now working to convince the international community that the global market is in jeopardy if polices "discriminate against oil sands."

Every time we see oil prices go up we hear that it will cause inflation and/or the economy will go into the tank. The premise is wrong because that has never happened.

A few days ago, before the latest breakout in crude sent Brent to all time highs in GBP and EUR (and Asian Tapis in USD just shy of all time highs), we said that "we hope our readers stocked up on gasoline. Because things are about to get uglier. And by that we mean more expensive. But courtesy of hedonic adjustments, more expensive means cheaper, at least to the US government." This was due to recent news out of Iran "where on one hand we learn that IAEA just pronounced Iran nuclear talks a failure (this is bad), and on the other Press TV reports that the Iran army just started a 4 day air defense exercise in a 190,000 square kilometer area in southern Iran (this is just as bad). The escalation "ball" is now in the Western court." We were not surprised to learn that the "Western court" has responded in precisely the way we had expected. The WSJ reports: "The Pentagon is beefing up U.S. sea- and land-based defenses in the Persian Gulf to counter any attempt by Iran to close the Strait of Hormuz. The U.S. military has notified Congress of plans to preposition new mine-detection and clearing equipment and expand surveillance capabilities in and around the strait... The military also wants to quickly modify weapons systems on ships so they could be used against Iranian fast-attack boats, as well as shore-launched cruise missiles" Which means the escalation slider was just shifted up by one more level, as Iran will next do just what every actor caught in an Always Defect regime as part of an iterated prisoners' dilemma always does - step up the rhetoric even more, as backing off at this point is impossible. Which means that crude will go that much more higher in the coming days, as now even the MSM is starting to grasp the obvious - from the Guardian: "The drumbeat of war with Iran grows steadily more intense. Each day brings more defiant rhetoric from Tehran, another failed UN nuclear inspection, reports of western military preparations, an assassination, a missile test, or a dire warning that, once again, the world is sliding towards catastrophe. If this all feels familiar, that's because it is. For Iran, read Iraq in the countdown to the 2003 invasion." And the most ironic thing is that the biggest loser out of all this, at least in the short-term is.... Greece.

An explicit contagion path chart, since you probably won't get info like this anywhere else... 

The bearish sentiment following Moody’s overnight catch-up move to S&P failed to have a long-lasting effect on sentiment today. Instead, better than expected German ZEW, together with another well bid Italian debt auction saw equities stage an impressive rally which in turn lifted indices into positive territory. As a result, Bund futures are trading back below the 138.00 level, while peripheral bond yield spread are generally tighter on the session. The risk on sentiment also boosted the energy complex which saw WTI crude futures climb back above 101.00 level (note: Brent March future expiry). Looking elsewhere, EUR/USD advanced above 1.3200 level after triggering stops. Of note, intraday option expiries are seen at 1.3220 and then at 1.3300 (large). USD/JPY is up after the BoJ announced that it will undertake additional monetary easing action and expand its asset-purchase fund by JPY 10trl, while touted buying by Russian names also supported the pair this morning.

Stocks advanced today after Greek lawmakers finally approved a new austerity package aimed at averting a default. As a result, it now looks like that the country will get the next bailout tranche and avoid failing to meet debt redemptions in March. The draft legislation published by the Greek government showed that the EFSF may provide EUR 35bln to help Greece buy back bonds held by euro-area central banks as collateral, while Greek finance minister said that EUR 70bln in bonds are to be issued in the swap and Greece needs to make debt swap offer by Friday Feb 17th at the latest. Credit metrics such as Euribor and Euribor/OIS spreads continued to improve, which in turn supported financial sector. Looking elsewhere, comments from Iranian President Ahmadinejad over the weekend who said that Iran will soon reveal "very big new achievements" in its controversial nuclear programme, together with comments from China’s Wen who said the country will begin to fine tune its economic policies in the Q1 of this year supported both Brent and WTI crude prices today. Going forward, there are no major macro-economic releases this afternoon, but both the BoE and the Fed are due to conduct another round of Asset Purchases.

For months now we have been following US naval developments and deployments in the Arabian Sea, which serve one purpose and one purpose only - to demonstrate US military strength in the Straits of Hormuz region and to keep Iranian 'offensive passions' subdued. Yet never has the US had a total of three aircraft carrier groups in the vicinity, always topping out at 2 in the Bahrain-based Fifth Fleet, most recently these being the CVN-70 Vinson and CVN 72 Lincoln, with a third boat present merely until a rotation in or out of the theater of operations was complete. That is about to change, and with it the prevailing price of Brent, which we are confident is about to take a new step wise price higher as the US makes it all too clear what the endgame is, because as Naval Today reports, the "US navy to deploy third carrier group to Persian Gulf", probably the CVN-77 George H.W. Bush which departed Norfolk two weeks ago according to the most recent naval update, or any other Norfolk-stationed aircraft carrier: there is a wide selection to chose from.