President Obama

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• Euro zone formally approves 2nd Greek bailout: statement (Reuters)
• In a First, Europeans Act to Suspend Aid to Hungary Unless It Cuts Deficit (NYT)
• UK Chancellor Looks at 100-Year Gilt (FT) - What? No Consols?
• Hilsenrath: Fed's Outlook a Tad Sunnier - (WSJ)
• Banks Shored Up By Stress Test Success (FT)
• U.S. dangles secret data for Russia missile shield approval (Reuters)
• Wen Warns of Second China Cultural Revolution Without Reform (Bloomberg)
• Wen Says Yuan May Be Near Equilibrium as Gains Stall (Bloomberg)
• Merkel Says Europe Is ‘Good Way’ Up Mountain, Not Over It (Bloomberg)

European equity markets are trading higher across the board ahead of the US open, with the financials sector outstripping others and Health Care lagging behind, although still in positive territory. The main news from yesterday’s finance minister’s meeting was instruction to reduce their deficit by a further 0.5% of GDP; this is having an effect on the Spanish spread against the German bund today, underperforming against other European spreads. The main data of the European session so far comes from Germany, with the ZEW survey for Economic sentiment beating expectations for March, as well as the UK trade balance figures showing a record high in the UK’s non-EU exports. As the session progresses, participants will be looking towards the US retail sales data and the latest FOMC rate decision.

The Greek CDS auction has not yet taken place, nor has one quantified how many Greece-guaranteed orphan bonds with UK-law indentures have to be made whole (at a cost to Greece of course, no matter how much Venizelos protests), and somehow the world is already moving on to bigger and better risk strawmen. Because if one sticks their head in the sand deep enough, it will be easy to ignore that European banks have gradually over the past year or quite suddenly (as in the case of Austrian KA Finanz) taken about €100 billion in now definitive losses on their Greek bonds and CDS exposure. Luckily, just like in the US, there is now over $1.3 trillion in fungible cash sloshing in the system, allowing banks to 'fungibly' fund capital shortfalls and otherwise abuse every trace of proper accounting, when it comes to a post-Greek default world. The problem is that none of this actually solves the fundamental insolvency issues plaguing the 'old world', but what it does do, is force the accelerated depletion of an aging and amortizing asset base. That's fine - as Draghi said the ECB can "always loosen collateral requirements even more." So while we await to hear just who will sue Greece and Europe, and how much cash will have to be paid out to UK-law bondholders (before the Greek default is even remotely put to rest), here is a listing of what Bank of America (recall - BofA is the one bank most desperate to remove any lipstick from the pig due to its need for more QE) believes will be the biggest risks to its outlook going forward. In order of importance: 1) Oil prices (remember when a month ago we said this then ignored issue may soon hit the very top of investors worry lists?), 2) Europe; 3) US Economy; and 4) China. That about covers it. Oh and massive debt issuance supply too as well as the even more epic straw man that is this Thursday's stress test. Remember: stress tests will continue until confidence in the ponzi returns!

An economic fiasco, a political football ... and (quietly) a growing export product in a declining market.

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Going into the US open, markets are digesting the news that the Greek PSI deal has been completed, with the announcement being made at 0600GMT. The Greek Finance Ministry have announced that 85.8% of bondholders have agreed to the swap, and with CACs enforced, the participation rate can rise to 95.7%. However it should be noted that the Greek government have not enacted the CACs as yet. This has prompted a muted market reaction as participants await any further news from European officials. In the next few hours, the Eurogroup are holding a conference call concerning the recent activity in Greece, and the ISDA are also meeting to determine whether a Greek credit event has occurred. International market focus will now shift towards the key US Non-Farm Payrolls data, due at 1330GMT: US Change in Non-Farm Payrolls M/M (Feb) Exp. +210K (Prev. +243K, Dec +200K). Chinese demand for US Treasuries could slow for a second year as the country as well as others find themselves holding fewer USD to use on US debt. This could see yields moving higher in 2012, according to analysis by Bank of America.

European stock futures have trended higher today in relatively light volumes as the market awaits key interest rate decisions (BoE & ECB) and with the deadline for the Greek debt swap deal looming. The latest talk this morning has been that the participation in the PSI deal has been well received and coupled with speculation of a Chinese RRR cut overnight and stops tripped in the E-mini S&P and Eurostoxx futures earlier this morning, contributed to a large portion of the move higher. As a consequence, the USD index has weakened (-0.5%) which has lifted the EUR/USD pair back firmly though the 1.3200 level to the upside and Brent/WTI crude futures are seen higher ahead of the NYMEX pit open. Looking ahead we await the ECB press conference as well as the latest jobs data from the US due at 1330GMT.

Markets appear to be tentatively recovering some of yesterday’s heavy losses, recording modest gains so far this morning. Comments made overnight by the German finance minister as well as senior officials from the Greek finance ministry may have mercifully given market participants some hope as they are confident the Greek PSI deal will be completed by the deadline tomorrow evening. The DAX index has underperformed the other European equity indices in recent trade following the release of some disappointing factory orders data for January, with markets expecting an expansion of 0.6%, however the reading came in at -2.7%, moving DAX stock futures into negative territory. WTI crude and Brent have also retraced some of their losses made earlier in the week following a drawdown in US gasoline inventories reported last night as well as a generally weak USD index in the FX markets today. Markets are awaiting US ADP employment change later in the session, as well as the weekly DOE oil inventories casting further light on the US energy stocks.

A dysfunctional system takes its toll.

Markets are exhibiting very risk-averse behaviour ahead of the US open, with European equity markets making heavy losses across the board with flows into the safer assets. This follows Greece dominating the headlines once again, with a report from the IIF warning of dangerous ramifications for Europe should Greece default. These reports got the European session off to a bad start, with losses made throughout the morning. Market talk of a delay in the Greek debt swap deal deadline has also been circulating, however this was swiftly denied by the Greek Debt Agency chief as well as the Greek Finance Ministry, although this failed to reassure markets and they continue on a downward trend into the US open. Eurozone GDP data released earlier in the session showed a contraction in the last quarter of 2011, although expected, this has reignited concerns of a recession in Europe. The ECB have recorded yet another record level of deposits from European banks in its overnight lending facility, with institutions depositing EUR 827.5bln on Monday night.

Central banks are printing money all over the world. New names have been given to what is really an age old phenomenon. Desperate governments have traditionally debased their currencies when they have no other way of financing their deficits. So far the world’s central banks have been “lucky”. Thanks to the prior global bubble ending in 2008 and the realization that the so-called advanced countries are reaching the end of their borrowing capacity, the world is in a massive deleveraging mode which tends to be deflationary. For the moment the central banks can get away with printing all the money they want without massive increases in consumer price indexes. The public doesn’t connect increases in prices of commodities like gold or oil with the current bout of money printing. But if history is any guide, this money printing will matter and the age of deflation and deleveraging will be followed by an age of inflation.The coming battles over solving the problems of the bankrupt American government will not be pretty. It will be a bit more difficult for an American president to preach patriotism to the affluent in these circumstances. Although, if there is a war with Iran, he might try.

European equity indices are exhibiting signs of risk averse behaviour, with financials and basic materials performing particularly poorly. This follows weekend reports from ECB sources that the central bank does not believe voluntary participation in the Greek debt swap deal will be sufficient, and the CACs will have to be invoked. Markets are also reacting to the weekend press from Germany, claiming the Troika believe Greece will require a third bailout of around EUR 50bln by 2020, however these reports were denied by a German spokesman earlier in the session. European Services PMI data released earlier in the session fell below expectations, compounding the already cautious market behaviour. European Banks have parked a fresh record EUR 820bln with the ECB overnight, showing further evidence that the LTRO has loosened liquidity constrictions in the continent. Commodities are making losses ahead of the North American open following overnight news that China have made a downward revision to their GDP target for 2012. Spot gold is trading down around 0.9% and WTI and Brent crude futures have been making a loss for most of the session so far, however oil has made positive movements in recent trade. These negative movements in commodities are also weighing down upon the commodity-linked currencies, with AUD particularly making losses on the session.