Nikkei

Macro news from Europe has refuted claims made last week that the ESM fund would be doubled to EUR 1tln, with a German spokesman commenting that the country is not of mind that ESM resources should be increased to that level. Discussions concerning the management of the EFSF and the ESM from German members of parliament have spurred talks that the funds could be run in parallel and even together in an emergency scenario. The ECB’s Weidmann has commented on his confidence in the Eurozone and the German economy, stating that current stagnation is temporary and that we should see a recovery in the Eurozone during 2012. Financial stocks have shown volatility this morning following comments from French and German Finance Ministers that banking regulations may be relaxed under the Basel III agreement, however this was later denied by the German Finance Minister.

All you need to read.

All you neewd to read.

All you need to read.

• Greece Running Out of Time as Debt Talks Stumble (Bloomberg)
• China Economic Growth Slows, May Prompt Wen to Ease Policies (Bloomberg)
• Spain Clears Short Term Debt Test, Bigger Hurdle Looms (Reuters)
• U.S. Market Shrinks for First Time Since 2009 (Bloomberg)
• IMF, EU May Need to Give E. Europe More Help (Bloomberg)
• Securities Regulator to Relax Rules on Listing (China Daily)
• Monti Seeks German Help on Borrowing (FT)
• Draghi Questions Role of Ratings Companies After Downgrades (Bloomberg)

UPDATE: ES leaking lower as Packers fans sell (and China's Shanghai Composite -0.8% at open and Hang Seng -1%)

Following EURUSD's modestly weak opening (though managing to hold above Friday's lows and inching higher), EURJPY has pushed to fresh new 11-year lows (and JGB yields at one-year lows). Asian equities are trading notably lower with Japan's Nikkei down 1.6% in early going (coming back a little now) and South Korea's Kospi down 1.1% so far. ES (the e-mini S&P 500 futures contract) opened lower, tried to get back up to Friday's close, failed and is now down around 6pts (at 1285) - still shy of where broad risk assets (CONTEXT) would expect - around 1280 for now - though AUD weakness (housing data bad not totally dire though carry being lifted), JPY strength (government comments on the flatness expected in Japan's recovery and safety flow) and Treasuries not open is undermining support for stock futures so far. The economically-sensitive commodities are leaking lower with Silver having given back its earlier gains and Copper down 0.75%, Oil is holding near $99 and Gold is down a smidge (and more stable than the rest) at -0.23% ($1635). The market's message is risk-off for now and we would expect Bunds to benefit (as JGBs are for now while corporate credit leaks wider) as without Treasuries open, where is risk capital going to flow.

The last time intermodal traffic dipped to this level, we were in denial about a Recession and the Dow continued to march from 11,500 in January of 2008 all the way to just above 13,000 in May.

European Indices are trading up at the midpoint of the session following strong performance from financials, however, Italian bond auction results dampened this effect after failing to replicate the success of the Spanish bond auction yesterday with relatively lacklustre demand. There has been market talk that this lull in demand for Italian bonds is due to technical error preventing some participants from bidding in the auction, but this still remains unconfirmed. Heading into the North American open, fixed income futures are still trading higher on the day having seen the Bund touch on a fresh session high and with peripheral 10-year government bond yield spreads widening ahead of the treasury pit open. Markets now anticipate the release of US trade balance figures and The University of Michigan confidence report.

All you need to read.

All you need to read.

All you need to know.

While we’re not bubbling over with optimism, we believe the New Year will be anything but boring. 

Following its just announced flip flop on oil, Goldman's "sellsiders" go ahead and not only cut Chinese growth prospects, but raise the Nikkei. So let's get this straight: Goldman raises its prices forecast for oil, even as it downgrades the primary driver of demand - China, and somehow the Japanese market, which suddenly is overreliant on natural resources for energy creation in the aftermath of Fukushima, is supposed to surge... Was this script written in Bollywood? Anyway, for those with a sense of humor, here is the gist on China: "Recent data have been worse than we expected. The growth slowdown has been even sharper than we forecast, especially evident in April industrial production (which mainly reflected tighter monetary and fiscal policy, although some specific industries have seen supply-side constraints). In addition, inflation is not coming down as rapidly as we hoped. We now cut our 2011 GDP growth forecast to 9.4% from 10.0%. This partly reflects the lower-than-expected 1Q2011 GDP print (9.2% qoq ann.), but we have also cut 2Q2011,3Q2011, and 4Q2011 growth to 8.0%, 9.0%, and 9.3% qoq ann. from 8.8%, 9.5%, and 9.7% respectively. This is only very slightly above the last official consensus, which came before the disappointing April data, and so we are likely to be above the true consensus now. We expect annual average inflation of 4.7% (up from 4.3%), with a peak in yoy terms of 5.6% in June. We also nudge down our 2012 GDP growth forecast to 9.2% from 9.5%, reflecting in part the impact of higher oil prices. Although we maintain our annual average inflation forecast of 3.0% in 2012, we have a slight acceleration within 2012 as higher oil prices eventually get passed on more fully." Yet while this conclusion in and of itself makes some sense, the following from Goldman's Kathy Matsui in the Nikkei, regarding the firm's outlook on the Japanese stock market, confirms that whoever is coordinating the Goldman sellside push may have crossed the Tropic of Thunder: "Contrary to popular opinion, we believe the disaster will accelerate - rather than delay - Japan's exit from deflation. We see reconstruction demand and exports driving gross domestic product growth to an above-trend pace of 2.5 per cent in 2012...Market participants have argued for some time that it will take a cataclysmic event to drive structural change in Japan; now the world is watching." Bottom line: China down, Japan up, and oil far, far away. Sigh.

And we are off. The JPYUSD is up nearly 200 pips as the Bank of Japan buys billions in dollars, using freshly printed Yen, following an agreement with the G7 which will likely see a new plaza accord to keep the Yen low despite ongoing repatriation. This follows earlier news that the BOJ will underwrite a ¥10 trillion in earthquake recovery bonds as Japan is now lurching from one monetization step to another. Keep an eye out for intervention aftershocks as the BOJ now can not allow the USDJPY to drop below 80 or it will be all over. This is what global reflation gone nuts looks like. On the other hand, if the BOJ fails to keep the USDJPY above 80 following this action, and the inflows of yen are far greater than anyone expected, most certainly the G7, then we have big problems. Next up: Armageddon 2: the Sequel, in which the Chairsatan, Trichet, Shirikawa, King, and Hildebrand dig a deep hole in Haley's commet, in order to save the earth, only something goes horribly wrong and everyone blows up in a nuclear fireball. The end.

It appears the earlier speculation by PTI that the BOJ would inject ¥13.8 Trillion in the market to preserve asset prices was a little premature. The BOJ just released the official number and it is a measly ¥5 trillion. And by measly we mean $63 billion. Add this to the ¥28 trillion already deployed by the BOJ and get an even more modest ¥33 billion, or roughly $420 billion, which is the cost to preserve the Nikkei from plunging for a 4th consecutive day. Yet even with this latest injection, the Nikkei is down almost 4% as of this writing. Should headline newsflow from Fukushima deteriorate, we anticipate that the full PTI number will be not only reach by surpassed very promptly as no amount of taxpayer capital will be deemed too great to preserve the wealth of those invested in Japanese stocks.