Norway

The good people at Knight put together a comprehensive list of potential ratings for banks in Europe after Moody's came out with their outlooks. We agree that banks getting shifted to non-investment grade is a big deal.  We saw the impact for Portugal once it got taken out of the indices, and we think for banks it will be an even bigger deal to lose that investment grade status.  Sure, they can still go to the LTRO, but it is hard to function as anything other than a zombie bank once you lose that rating...

• Europe Demands More Greek Budget Controls in Bid to Forge Rescue (Bloomberg)
• Moody's Warns May Downgrade 17 Global Banks, Securities Firms (Reuters)
• Officials at Fed Split on More Bond Buys (Hilsenrath)
• Greek deal delays pressure periphery (Reuters)
• Talk, but No Action, to Break US Grip on World Bank Job (Reuters)
• Greek Rhetoric Turns Into Battle of Wills (FT)
• Greece Seeks Monday Bailout Deal, EU Questions Remain (Reuters)
• US Lawmakers Announce Payroll Tax-Cut Deal (Reuters)
• China Leader-In-Waiting Xi Woos and Warns US (Reuters)
• China's FDI falls 0.3% in Jan (Reuters)

Last week, there were relatively few US data releases, but Initial Jobless Claims continued to surprise on the positive side, while U of Michigan Consumer Sentiment saw a small decline. This week, the FOMC minutes on Wednesday with guidance on the Fed's balance sheet will be the key event. Aside from the Fed, there will be many key releases in the US with IP, CPI, and the regional business surveys. The market expects an increase of 0.6%mom in IP, 0.3%mom in CPI, and small gains in the surveys. ?In Greece, negative headlines over the new austerity package on Friday caused some reversal of the rally in the first part of the week, and as a result, we were stopped out of our short $/CAD recommendation (for a small potential gain). However, the Greek cabinet agreed on the new austerity measures late on Friday, and parliament appears to be on track for a positive vote. The Eurogroup meeting scheduled this coming week will be important to watch as well, and Greek GDP will give a sense of the cyclical damage caused by austerity.

• Eurozone dismisses Greek budget deal (FT)
• Germany Says Greece Missing Debt Targets in Aid Rebuff (Bloomberg)
• Germans concerned over Draghi liquidity offer (FT)
• Azumi Says Japan Won’t Be Shy About Unilateral Intervention (Bloomberg)
• Schaeuble Signals Germany Is Flexible on Revising Terms of Portuguese Aid (Bloomberg) - food euphemism for "next on the bailout wagon"
• Venizelos Tells Greek Lawmakers to Back Budget Cuts or Risk Exiting Euro (Bloomberg)
• Putin May Dissolve Ruling Party After Vote (Bloomberg)
• HK Bubble pops? Hong Kong Sells Tuen Mun Site to Kerry for HK$2.7 Billion, Government Says (Bloomberg)
• Gross Buys Treasuries as Buffett Says Bonds Are ‘Dangerous’ (Bloomberg)

• Please - we beg you, help us - IMF Urges Beijing to Prepare Stimulus (WSJ)
• Stalemate in talks on Greek austerity measures (Telegraph)
• U.S. Sets Money-Market Plan (WSJ)
• Forty States Sign On to Foreclosure ‘Robo’ Settlement (Diana Olick)
• Greece bail-out funds could be split (FT)
• Japan Adopts Stealth Intervention as Yen Gains Hurts Growth (Bloomberg)
• Papademos to Meet Greek Party Chiefs as ‘Great Sacrifices’ Loom (Bloomberg)
• Glencore-Xstrata deal meets shareholder opposition (Reuters)
• Romney campaign takes aim at rival Santorum (Reuters)

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.