One Minute Macro Update

US:  Markets mostly positive again this AM following yesterday’s bullish performance.  Economic data were supportive of expansion yesterday, though we note that the trend belief seems to be a strong December and a weaker January.  Today’s ISM numbers will reinforce or negate that belief.  Geopolitical risk has overtaken the Euro periphery story as the belief that the EFSF will be expanded has bolstered the Euro versus the USD – not good for global inflation worries.  We believe it is important for investors to remember that USD is not the world’s reserve currency because of the power of the dollar or strength of the US economy. It is the world’s reserve currency because most every commodity in the world is priced in dollars.

Europe:  The periphery continues to trade tighter as S&P affirms Spain at AA, Neg Outlook.  EU summit on Friday is expected to feature discussion around the German proposal for a “Pact of Competitiveness” further bolstering the belief that fiscal unity is on the right track.  We remain unconvinced and believe spreads have tightened too far.  S&P stating that the UK will face an upturn in home repos should the economy slow in the medium term.  The agency notes that 20% of problem mortgage cases are severe in nature.  Eurozone PMI Mfg 57.3 v 56.9E as inflationary pressures continue globally.  Factory Input Price Index 79.2 v 74.1 prior, marking the highest reading since the survey began.  Employment data out of the EC and Germany remain positive.

Asia:  RBA left rates unchanged.  China Jan PMI Mfg. 52.9 v 53.5E, the second consecutive decline.  This contrasts with other data and suggests a murky outlook for region.  PBOC may not adopt the previously reported RRRs that differ between banks as liquidity remains tight.

From Brian Yelvington of Knight Capital


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