Norway

In contrast with better news from macro data, the negotiations about the next Greek package intensified and this will likely remain the key focus in the upcoming week. On one hand, the present value reduction in a PSI has still not been formally agreed. On the other, the Greek Government still has to commit to more reforms in order for the Troika to agree to a new program. A key deadline for this commitment is on Monday at 11am local time in Athens. Eurogroup President Juncker has talked openly about the possibility of a default on Saturday in the German weekly Der Spiegel. Beyond the ongoing focus on Greece, the week sees a relatively heavy concentration in central bank meetings, including the RBA, ECB, BOE, Poland, Indonesia and a few others. On the data side, the focus is likely on the December IP numbers due in a number of countries, including in some key Eurozone countries (Germany, Italy, France).

• Merkel Seeks to Reassure China (FT)
• German-IMF Rift Stalls Greece Deal (WSJ)
• Survey of Banks Shows a Sharp Cut in Lending in Europe (NYT)
• Bernanke to testify on economy and deficit (AP)
• House votes to freeze congressional, federal pay (WaPo)

Anyone who went to bed with the EURUSD about to breach 1.30 to the downside may have been surprised this morning to see it trading nearly 150 pips higher. Checking the headlines for news of a Greek deal however would be futile, as one did not occur. Instead what did, were more promises of a deal being "imminent" even as Greece is doing all it can to appease intransigent creditors, offering GDP upside warrants (something that did not work too well for Argentina), with the IMF stating it demands guarantees that this time Greece will follow through with promises. Oddly enough the German demand for fiscal overrule has gotten lost in the noise but is certainly not forgotten and last we checked Merkel has not withdrawn this polite request. Still futures are up, primarily on a smattering of better than expected PMIs, in China and Europe. Alas, the Chinese PMI beat as discussed last night, was more of a cold water shower as the market had been hoping for much more defined promises of PBoC intervention and instead got a lukewarm Goldilocks economy which could last quite a bit longer without RRR-cuts. As for European PMI numbers being better than expected, we only wonder if these now correlate with the prevailing unemployment rate throughout the Eurozone.

• China’s factories in strong start to 2012 (FT)
• Merkel to court Chinese investors (FT)
• States to decide this week on mortgage deal (Reuters)
• Europe is stuck on life support (FT)
• IMF's Thomsen Says Greece Must Step Up Reform (Reuters)
• Tax cuts expiry to slow US growth (FT)
• Government health spending seen hitting $1.8 trillion (Reuters)
• Romney Win in Florida Primary Shows Strength (Bloomberg)
• EU regulator blocks D.Boerse-NYSE merger (Reuters)
• Greek Bondholders said to get GDP Sweetener in Debt Swap Agreement (Bloomberg)
• S. Korea Plans to Buy China Shares (Bloomberg)

Below are some of the key events to have transpired in the overnight session. According to Bloomberg's TJ Marta, sentiment is broadly higher, with stocks, bond yields, FX higher, EU sovereign spreads tighter as markets focus on German unemployment, ebbing EU concerns, shrug off German retail sales, Greek debt.  Whereas German retail sales unexpectedly fell -1.4%M/m vs est. +0.8%, unemployment fell more than expected -34k vs est. -10k. Italy December unemployment climbed to 8.9%, highest since the data series began in Jan. 2004, from a revised 8.8% in November. Commodities mostly higher, led by WTI +1.5%, 1.0 std. devs. EU leaders agreed to accelerate rescue fund, deficit control treaty . Greek debt negotiations remain in flux with Greece reporting progress, Germany expressing frustration over Greece’s failure to carry out economic. Portugal 10-yr yields fell after earlier touching euro-era record; yields of AAA-rated Finland, Norway, Sweden and Germany higher even as Coelho Says Portugal’s Debt Is 'Perfectly Sustainable.' Treasuries decline for first time in five days; 5-yrs yields yesterday touched record-low 0.7157%. SNB Says Currency Reserves Declined to 257.5 Billion Francs. Foreign Investment in Spain Shows EU38.6 Bln Outflow in Jan-Nov. ECB’s Nowotny Says ‘Can’t Be Sure’ Greece Will Stay in Euro. Belgium Borrowing Costs Rise at 105-Day, 168-Day Bill Auction. Finally, according to KBC, Irish Consumer Confidence Up As ‘Armageddon’ Averted. So every day the world does not end consumer confidence should be higher. Brilliant.

• Victory for Merkel Over Fiscal Treaty (FT)
• Everyone wants a mediterranean colony: China's NDRC Delegation Visit Greece to Boost Economic Ties (Xinhua)
• As Florida votes, Romney seems in driver's seat (Reuters)
• Greece’s Papademos Seek On Debt Deal by End of Week (Reuters)
• Banks Set to Double Crisis Loans From ECB (FT) - as Zero Hedge predicted two weeks ago
• S&P: Doubling Sales Tax Won’t Help Japan Enough (Bloomberg)
• Toshiba cuts outlook after Q3 profit tumbles (Reuters)
• Blackrock’s Doll says Fed’s QE3 is Unlikely, In Contrast to Pimco’s Gross (Bloomberg)

As of Q3 2011, the citizens of less than 20% of the countries involved in Nielsen's Global Consumer Confidence, Concerns, and Spending Intentions Survey were on average confident in their future economic confidence. Not surprisingly, Nic Colas of ConvergEx points out, six were in Asia, the least confident were in Eastern and Peripheral European nations, and furthermore overall global consumer confidence remains 9.3% below 2H 2006 (and 6.4% below Q4 2010) readings as the global economy still has a long way to get its 'mojo' back. Colas points to the fact that 'confidence is an essential lubricant of any capitalist-based system' and one of the key challenges that worst hit Europe (and other regions and nations) face is capital markets that are assessing the long shadow of the Financial Crisis of 2007-2008 and the ongoing European sovereign debt crisis impact on the world's Consumer Confidence.

• Jon Huntsman Will Leave Republican Presidential Race, Endorse Mitt Romney, Officials Say (WaPo)
• Dont laugh - Plosser: Fed Tightening Possible Before Mid-2013 (WSJ)
• Greece’s Creditors Seek End To Deadlock (FT)
• France Can Overcome Crisis With Reforms – Sarkozy (Reuters)
• Nowotny Says S&P Favors Fed’s Bond Buying Over ECB’s ‘Restrictive’ Policy (Bloomberg)
• Bomb material found in Thailand after terror warnings (Reuters)
• Ma Victory Seen Boosting Taiwan Markets as Baer Considers Upgrading Stocks (Bloomberg)
• Japan Key Orders Jump; Policymakers Fret over Euro (Reuters)
• Renminbi Deal Aims to Boost City Trade (FT)

• Italy Is Biggest Risk to Euro, Says Fitch (WSJ)
• Greek Bailout in Peril (WSJ)
• Swiss Currency Test Looms for SNB’s Jordan in Race to Replace Hildebrand (Bloomberg)
• Daley to Depart as Obama Shifts Strategy From Compromise to Confrontation (Bloomberg)
• BOE Stimulus Expansion May Not Be Enough to Revive U.K. Recovery, BCC Says (Bloomberg)
• Geithner in China to Discuss Yuan, Iran (Bloomberg)
• China Won’t See Hard Landing in 2012, Former PBOC Adviser Yu Yongding Says (Bloomberg)
• Measures to boost China financial markets (China Daily)
• Obama Panel to Watch Beijing (WSJ)

Whereas we have already noted that Dan Loeb's Third Point closed 2011 unchanged due to a disappointing December, today we note that according to his latest monthly performance update Loeb appears to have opened a major new position in the bonds of recently troubled Norwegian financial company Eksportfinans ASA. The chart below compares his October and December top holdings in which it is obvious that as of December 31, Third Point's third largest position is in the bonds of the private guarantor, which recently got in trouble following its downgrade to junk status in late November as Oslo withdrew its support. the result was a sharp drop lower in the bonds of the company, which traded down by 20 points on the news. So what is Loeb seeing here that makes him confident the bonds, all $33 billion of them, the bulk of which are Samurai, or yen-denominated, will surge sooner or later: another TBTF scenario, bond call play, or something else? One thing is certain: the 13F chasing lemmingrati will promptly jump in these bonds and take them much higher even if absolutely clueless why.

• Tight race in Iowa kicks off 2012 campaign (Reuters)
• West Is Using Cultural Means to Divide China: Hu (Bloomberg)
• Economists see bleak year ahead (FT)
• Billions needed to upgrade America’s leaky water infrastructure (WaPo)
• Sarkozy, Merkel set bilateral euro talks (WSJ)
• Romney’s hope of Iowa lead in balance (FT)
• Greece: Clinch Bailout or Face Euro Exit (Reuters)

Two days ago we noted that foreigners are selling US paper at a record pace, whether to raise capital in a locked out liquidity environment like French banks, or to make a politicial statement, like China. Today we get the first confirmation to this from Norway's Sovereign Wealth fund, best known for its prediction that it would buy and hold Greek bonds in perpetuity back in September 2010. Just recall: "Norway has taken the view that [Greek bonds] will not [default]. The Greek holdings are particularly interesting because the consensus in the market is that they will at some point restructure or default." Well, about a year later it is now official that the best the Norway SWF can hope for is a 50% recovery. So what does it do? It proceeds to dump US paper. Mortgage Backed Securities first. Because if it announced that a sovereign wealth fund instead of buying into the biggest ponzi ever, we finally defecting from it, then all bets would be of. Bloomberg reports: "Norway’s $570 billion sovereign wealth fund sold all its holdings in U.S. mortgage-backed securities as part of a shift of its fixed-income portfolio.“We’ve reduced our holdings of mortgage-backed securities,” he said. “MBS has been taken out of our internal policy benchmark. This means that we don’t have mortgage-backed securities issued by Freddie Mac and Fannie Mae any longer." The stated reason for the dump: prepayment risk: "The debt was sold primarily because of the refinancing risk, he said. In the U.S., when a borrower refinances a mortgage it can cut short the maturity of the bond backed by the loan and reduce the expected interest over time, so-called prepayment risk." The real reason? Why shoring up capital of course. "The fund held 36 billion kroner ($6.6 billion) in bonds from Fannie Mae at the end of the second quarter and 11.5 billion kroner from Freddie Mac at the start of the year." And with the Fed telling us that almost $100 billion in US bonds and MBS having been sold in the past two months, one can be absolutely certain that i) it is not just MBS and ii) it is not just Norway.

It was only a matter of time. A few weeks after every money losing firm in the US and the kitchen sink disclosed it would sue Bank of America in an accelerating attempt to salvage something through litigation, the worst case scenario for Brian Moynhian just got real. As of minutes ago, Norway's Government Pension Fund, which is another name for its Sovereign Wealth Fund, has just announced it is suing Bank of America for mortgage fraud. Not only that but it is also going after Countrywide, obviously, but far more importantly, is also suing KPGM, the auditor on the Countrywide transaction, and, drumroll, ole' Agent Orange himself. If US bank analysts were busy quantifying the damages from every bank in the US suing BofA, just wait until the calculation is expanded to included every firm that bought mortgages from Bank of America... ever...in the entire world.

Norway's tragic episode from two weeks ago may be starting to spread. Next target: the heart of the Eurozone: Luxembourg. From Wort.lu: "There was great commotion in Luxembourg City between Place Guillaume II and the Grand Ducal Palace just before 3pm on Wednesday with police arriving en-mass. According to information obtained by wort.lu from the police, at 2:40pm bomb threats located at points were announced by an unknown caller on “Place Guillaume II with explosives hidden near the bank, at the post office building, at the main station and in the underground Aldringen Centre”.  The bomb threats sparked a major police operation. Wort.lu reporters and several readers at the scene state that many armed police in protective clothing are performing searches. A canine unit with dogs specialised in bomb detection were also at the scene. The traffic in the City which is particularly dense around the Place Guillaume II, has come almost to a complete standstill and many streets blocked. At the time of writing this update (4:30pm) the station area is still blocked off. If you are travelling through the City expect disruption for the next few hours." We will bring more as we see it.

Perhaps it is time for the Telegraph to issue a retraction to its kneejerk publication in which it automatically cast blame on Islamists and other "eastern" terrorists-by-default. Because according to just released info, they could not have been more wrong, and it is the reaction to precisely this type of prejudice that will never facilitate bridging frayed relations between disparate cultures. Anyway, so much for prejudiced speculation and/or lies about some Islamist organization taking the blame for the events in Norway today. Here is the truth:" VG has
received confirmation from several independent sources that it was
Anders Behring Breivik, who was arrested by armed police after the mass
killings of Utøya Friday.  VG was also present when the emergency squad took action against the flat 32-year-old susceptible west of Oslo. Several foreign media have also named Breivik as the perpetrator." More on his motives: "A childhood friend of Breivik says to VG Nett that he should have been right-wing in the late 20's, and posted a series of controversial opinions on Facebook." And the kicker, for all the bigots out there: he was an ultra nationalist who hated Islam. Today's tragic events were merely the outburst of deranged and very much troubled Loughner, McVey-like psychophath. And nothing more.