Overnight sentiment is turning south, after 4 successive days of breakout attempts have failed to conquer Dow 13K, and with crude sticky at multi month highs. The EURUSD is down over 100 pips and is testing 1.32 support. BBG summarizes the key overnight events that are shaping the mood: EU leaders, bowing to German demands, signed a deficit-control treaty at the 17th summit since the outbreak of the crisis. The treaty puts tighter restrictions on spending. A test of Europe’s commitment to austerity will come when the region debates whether to ease the deficit-reduction target for Spain, which is part of the overnight downbeat mood in stocks after PM Rajoy announced that the deficit target for the coming year is 5.8% of GDP and the 4.4% deficit goal is unattainable. The European Central Bank said overnight deposits soared to a record after its second allocation of three-year loans. Elsewhere, investors are complaining that the European Investment Bank doesn’t deserve the same exemption from losses on its Greek bond holdings as the euro region’s central bank because it didn’t buy the notes to support monetary policy. Well - don't complain, and merely just say no to the PSI. Treasuries steady; Bloomberg’s Soveriegn Debt Movers shows Greek yields plunging, Portugal slightly higher. European stocks mostly higher, U.S. futures steady. Will this downbeat mood remain - all depends on which way the momentum algos move, and whether they have been recalibrated from the prior program of following crude with a positive correlation.
WHAT TO WATCH
- Greek CDS are headed back to ISDA ruling committee as the group will probably be asked to determine whether collective action clauses, or CACS, used by Greece to force investors to participate in a wider exchange of bonds would trigger the swaps
- Regulators probing the alleged manipulation of global interest rates are focusing on what traders involved in setting the benchmark say were routine discussions condoned by their superiors
- German retail sales unexpectedly declined in January as rising oil prices fueled inflation