Equity Markets - Markets were mixed in overnight trading in Asia as Australia was buffetted by bad news about housing permits while South Korea benefitted from Moody's upgrading the country's outlook to positive. European indices are mixed this morning as Spain and Italy were left wanting by the EMU finance ministers decision not to raise the size of the "firewall" provided by the EFSF/ESM facilities. No one believes that the current size is large enough to support either Spain or Italy, much less both and that knowlege has those indices down over 1% in the morning session. US futures are moving in sympathy with Europe for the time being and it looks like a modestly lower opening here.
Macro, News & Events
Economic Releases - Friday's macro data provides another somewhat confusing picture of what's going on in the US economy and begs the question of sustainability. Consider that personal spending in February was up more than forecast at +0.8% BUT personal income was up only 1/2 of what was forecast at +0.2%. The forward looking surveys were modestly disappointing with both the Chicago Purchasing Manager and the Milwaukee Purchasing Managers' surveys coming in below expectations. Having said that, both remain solidly above 50.0 (62.2 and 51.8 respectively) the dividing line between expansion and contraction.
Events
- St. Louis Federal Reserve President Bullard spoke in China last week at a monetary policy symposium sponsored by the St. Louis Fed and Tsinghua University. The syposium was closed to the press but the remarks there will be released this morning at 1000 EST.
- Cleveland Federal Reserve President Pianalto will speak on the Fed and the US Economy today at 1235 at the Lafayette Hotel in Marietta, OH
Earnings - There are no earnings realesed today
News from Asia & Europe
- The Purchasing Managers' Index reported by the Chinese Logistics Federation surprised economists and rose to a one year high o 53.1, outpacing the projected decline. Having said that, concern about growth on the mainland remains as March has historically been one of the strongest months of the year as manufacturing makes up for lost business in January and February due to the Lunar New Year holidays.
- Samsung, the world's largest chip maker is spending $7 billion on a semiconductor factory in China as demand, fueled by growth in the mobile device market grows.
- The Tankan quarterly survey of Japanese manufacturers was unchanged in March from -4 as executives there fear that the yen will rebound agains the US dollar creating a more difficult export environment.
- The head of the Japanese bank lobby said that the country needs to overhaul its tax and social welfare system in order to prevent government borrowing costs from spiraling out of control.
- South Korea's A1 rating outlook was changed to positive by Moody's
- Residential building permits unexpectedly declined in February and manufacturing there ended a three-month expansion as economic activity cooled raising expectations for additional rate cuts by the central bank.
- European finance ministers acted as expected over the weekend in Amsterdam in a vote which ensured that the the ESM (the "permanent" bailout facility) will come on line in July. Meanwhile the ministers didn't act to add the remaining 240 billion euro of commitments in the EFSF to the total. Rather, they agreed that the EFSF would run in parallel with the ESM until all of the commitments to the ESM were in place, thus assuring that the 500 billion euro ceiling on the bailout facility is continuously available. It remains unclear what effect this will have on the non-EMU members of the G-20 with regard to their willingness to add to the IMF's warchest to help the EMU manage its way out of the debt crisis.
- ECB council member Yves Mersch (Luxembourg) said that regardless of the EFSF/ESM status that governments in the EMU must increase fiscal coordination in the face of weak economic growth.
- Residential real estate prices are expected to decline 12 to 14% in Spain this year as the government there forces banks to sell assets to raise their capital levels. That level of decline could increase the number of "under water" homeowners to 25%.
- investors in Greek bonds issued under foreign law before the restructuring (and thus not subject to the collective action clause) have refused to go along with the restructuring plan. Greece faces the initial maturity on these internation law bonds on May 15th with a 430 million euro maturity. There is a 30-day grace period.
- Angela Knight, the head of the British Bankers Association (BBA) which is responsible for LIBOR "settings" will step down after 5 years in the wake of the ongoing LIBOR rate setting scandel in which numerous banks are accused of lying about their borrowing costs to keep from appearing financially weak.
Credit Markets
Soverign CDS spreads - spreads are modestly tighter this morning as the finance ministers in the EMU voted to start the ESM in July and run the EFSF in parallel with the ESM until the permanent bailout facility is fully committed. The action preserves the 500 billion euro ceiling on loans available from the combined bailout funds but doesn't increase the overall size of the fund.
US Corporate Credit - The leveraged loan CDS index led the way on Friday, tightening by 7 basis points to +283 bps. Meanwhile, the high yield index tightened by 3 bps and the investment grade index tightened by 2 bps to +573 and +91 bps respectively.
Energy Markets - crude oil is lower this morning as ongoing concern about global growth and the failure to raise the overall size of the EMU bailout facility is negatively impacting the crude markets. Futures are little changed from Friday with the energy equivalence ratio at 6.22x.
North American crude oil basis continues to come in for Bakken and Syncrude as expectations for additional supply to the Gulf Coast refineries from the reversal of the Seaway Pipeline acts to reduce the basis spread.
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