Trade Balance

Japan's Trade and Current Account imbalances appear to be hitting some kind of terminal velocity and while neither JGBs nor CDS seem to reflect the ensuing chaotic recognition that perhaps the can that has been so faithfully kicked down the "Nishi-no-michi" or the West Road may have plunged over the lip of Mount Fuji (conjuring images of Mordor), FX markets recent and abrupt weakness brought on by yet more printing (a topic we discussed in great detail recently as the chosen heretical method du decade) may well be coming face to face with reality. We assume Azumi is faithfully watching these market moves but we wonder at what point the quasi-intentional weakening of local currencies flares into a full-blown currency war - and instead of merely encouraging simpleton FX-carry strategies chasing momentum and leverage - quickly becomes the hyperinflationary super nova that many have been waiting for over the last decade. Dismal demographics aside, we wonder how long before Koo prescribes yet more of the same medicine for this constant state of deflation and at what point does inverted-Apple-looking charts for Trade and Current Account balances become simply too hot to handle...

• Investors help Athens over bailout hurdle (FT)
• Greece Moves Closer to Swap (WSJ)
• U.S. Warns Apple, Publishers (WSJ)
• China offers other Brics renminbi loans (FT)
• Court Challenges EU on Bank Downsizings (WSJ)
• QE blamed for surge in pensions shortfall (FT)
• Tang: Open to adjusting dollar trading band (WSJ)
• U.S. Report to Warn on Cyberattack Threat From China (WSJ)

• Brazil declares new ‘currency war’ (FT)
• Postal Cuts Are Dead Letter in Congress (WSJ)
• China state banks to boost selected property loans (Reuters)
• ECB Says Overnight Deposits Surge to Record (Bloomberg)
• Van Rompuy confirmed for 2nd term as EU Council president (Reuters) - you mean dictator
• BOJ Shirakawa: Japan consumer prices to gradually rise (Reuters)
• IMF Says Threat of Sharp Global Slowdown Eased (Reuters)
• Eurozone delays half of Greece’s funds (FT)
• BOJ Openings Can Shape Monetary Policy (Bloomberg)

When it comes to labor-wage parity, nowhere has this topic been more debated than in the context of China and the US. Specifically, with US wages declining consistently for the past 3 years despite commodity price inflation spiking with a 2-3 month lag following every coordinated central bank printing episode (such as the one we are experiencing now), many have proffered their predictions as to when Chinese secular inflation would make wage pay equivalent on both sides of the Pacific, and stop the exporting of jobs from the US to China (a good discussion on the topic can be found in "With China Forecast To Reach Wage Parity With The US In Five Years, Is A New Manufacturing Golden Age Coming To The US?"). And while labor equivalency between China and the US likely still has a ways to go, we have now crossed a critical Rubicon, as Chinese and European wages, at least in one part of European Union, have caught up. Net result, as Spiegel reports, carmaker "Great Wall this week became the first Chinese automobile manufacturer to open an automobile assembly plant inside the European Union in the latest move suggesting the country's carmakers are seeking to establish a beachhead into the European market." Yes, that's right: it is now cheaper for China to make cars in the European Union: "It used to be that European carmakers opened plants to assemble their cars in China. Now the Chinese have turned the tables with the opening of their first factory in Bulgaria, an EU country with low labor costs and taxes. Increasingly, Chinese carmakers are setting their sights on the European and American automobile markets." The ramifications of this landmark development are massive for virtually every aspect of the economy: for domestic labor migration, for inflation, for the trade balance, and certainly for US workers.

As markets replay the same identical reaction to the same identical Greek news that we saw back on July 21, 2011 (and we all know where that went), something else entirely and more troubling is going on behind the scenes. Because as the world was transfixed on regurgitated news out of Greece, which will without a shadow of a doubt end up with a far worse 2020 debt/GDP scenario than the IMF's downside case per the sustainability report (first posted in its entirety here on Zero Hedge last night, and which assumes just a 1% decline in Greek 2013 GDP), China just escalated currency wars into outright trade wars. Because as China Daily reports, "Chinese exports are set to get a tax boost." Translated: even as China pushes the CNY higher in infinitesimal and irrelevant increments to appease US Congress, it has just taken out the trade stimulus bazooka. Why? "Export tax rebates will be increased this year in response to an export decline triggered by the European debt crisis. The move, which Commerce Ministry officials said will be implemented when the time is appropriate, will be the first increase since 2009." Still think Europe is fixed? China's answer: nope.

• Spiegel: Stop the 130-billion bank transfer! (Spiegel)
• Greece Wins Bailout as Europe Chooses Aid Over Default (Bloomberg)
• Greek pro-bailout parties at all-time low, poll shows (Reuters)
• Eurozone agrees €130bn Greek bail-out (FT)
• Top Banks in EU Rush for Safety (WSJ)
• Medvedev Adviser Says Kudrin Would Be Better Prime Minister (Bloomberg)
• US and Mexico in landmark oil deal (FT)
• McCain calls for US to support Syria rebels (FT)
• Coal Shipments to India Overtaking China on Fuel Shortage (Bloomberg)
• Gillard Shrugs Off Ousting Threat (WSJ)

While all eyes are on Europe and its Greek farce, Japan is advancing at an inexorable pace...

• 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)

• Europe ushers in the recession: Euro-Area Economy Contracts for the First Time Since 2009 (Bloomberg)
• Greek conservative takes bailout pledge to the wire (Reuters)
• China Pledges to Invest in Europe Bailouts (Bloomberg) - as noted last night, the half life of this nonsense has come and gone
• Japan's Central Bank Joins Peers in Opening the Taps (WSJ)
• EU Moves on Greek Debt Swap (EU)
• EU Divisions Threaten Aid For Greece (FT)
• Athens Woman facing sacking threatening suicide (Athens News)
  
• King Says Euro Area Poses Biggest Risk to UK’s Slow Recovery (Bloomberg)
• Sarkozy to Seek Second Term, Banking on Debt Crisis to Boost Bid (Bloomberg)

Heading into the North American open, EU equity indices are trading lower following reports that Eurozone Finance Ministers have dismissed as incomplete a budget presented to them by the Greek party leaders. In addition to that, EU lawmakers have warned Greece of more intensive involvement in the Greek economy to improve tax collection and accelerate the sale of state-owned assets. The Greek Finance Minister Venizelos said that Greece must make a “final, strategic” decision Greek membership in the Eurozone over the next six days as it decides on new austerity and reform measures or faces leaving the single currency. However, according to sources, German finance minister told MPs, Greek reform plans would bring debt to 136% of GDP by 2020, instead of targeted 120%. So it remains to be seen as to whether Greece will be able to meet the looming redemptions in March. Of note, analysts at Fitch said that the ongoing Greece talks stating that the country must secure an agreement to cut its debt burden in the next few days to prevent a “disorderly” default.

• New Greek demands threaten debt deal (FT)
• Greek Finance Minister Heads to Brussels; Loan Talks Stall (WSJ)
• Talks Stalled on Greek Bailout as Venizelos Heads to Brussels (Bloomberg)
• US banks near historic deal on foreclosures (FT)
• Obama: Europe needs "absolute commitment" on debt crisis (Reuters)
• Fed's Lacker sees no need for more easing for now (Reuters)
• Europe compromise urged at summit (China Daily)
• China to Punish Illicit Bank Lending, Shanghai Securities Says (Bloomberg)
• Monti Meets Obama Amid ’Spectacular Progress’ (Bloomberg)
• Draghi’s First 100 Days Presage Greek Help (Bloomberg)

• Greek Premier to Seek Bailout Consensus Amid Political Quarrels (Bloomberg)
• Merkel makes case for painful reform (FT)
• Bernanke Cites Risks to Progress of Recovery (WSJ)
• Proposed settlement with banks over foreclosure practices dealt a setback (WaPo)
• Merkel Approval in Germany Climbs to Highest Level Since 2009 Re-Election (Bloomberg)
• Francois Hollande will spark next euro crisis (MarketWatch)
• China’s Central Bank Pledges Support for Housing Market (Bloomberg)
• Italy Pushes for Europe Growth Policy (Bloomberg)
• Santorum bounces back in Republican race (FT)
• China 'Big Four' Banks Issued CNY320 Billion New Yuan Loans In Jan (WSJ)
• Gasoline and diesel prices raised (China Daily)

• 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)

European Indices are sliding following comments from EU’s Juncker that Greek PSI talks remain “ultra-difficult”, despite earlier gains following comments from the Chinese Premier considering further contributions to the EFSF and the ESM. The Basic Materials sector is outperforming others amid news of a possible merger between Glencore and Xstrata, causing shares in both companies to trade in strong positive territory ahead of the North American open Oil & Gas are one of the worst performing sectors in Europe today, with Royal Dutch Shell shares showing the biggest losses following disappointing corporate earnings. Elsewhere, S&P released a report suggesting Eurozone recession could end in late 2012, forecasting 1% GDP growth for the Eurozone in 2013, however these comments were not followed by significant European index movements. In terms of fixed income securities, Spain held a well received bond auction earlier in the session, with all three lines showing falling yields and strong bid/cover ratios.

• 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)