MAJOR HEADLINES – PREVIOUS SESSION
* UK Jan RICS House Price Balance at -76 vs -74 prior
* UK Jan BRC Retail Sales +1.1% y/y vs -3.3% prior
* JP Jan Consumer Confidence Index at
* China Jan PPI at -3.3% y/y vs -2.6% f/c
* China Jan CPI at +1.0% y/y vs +0.9% f/c
* AU NAB Jan Business Confidence Index at -32 vs -20 prior
* AU NAB Jan Business Conditions Index at -11 vs -6 prior
THEMES TO WATCH – UPCOMING SESSION
* France Industrial production (0745)
* Swe Riksbank MPC meeting (0800)
* Swiss CPI (0815)
* Denmark CPI (0830)
* Swe Industrial Orders/Production (0830)
* Australia RBA gov Stevens speaks (0845)
* Italy Industrial production (0900)
* Norway CPI (0900)
* UK Trade Balance (0930)
* US Redbook Retail Sales (1355)
* US Wholesale Inventories/Sales (1500)
* US Tres Sec Geithner reveals bank stability plan (1600)
* US Fed's Bernanke testimony before House (1800)
While the market had eyes focused on the US stimulus packages' journey through the US Senate and Treasury Secretary Geithner's announcement on the bank stability plan, Russia surprised with rumours that it was negotiating with foreign banks to reschedule part of its private sector foreign debt. An article featured in the Japanese print version of the Nikkei Shimbun quoted the head of the Russian Association of Regional Banks who said that a plan had been submitted to the government and, if approved, would see Russian banks and businesses start negotiations with foreign banks to postpone repayment on up to USD400 bln worth of private sector debt. The market undoubtedly bad memories of the last time Russia's debt hit the headlines, and the EUR was sold off steadily and aggressively as a precaution in Asia. However, in what appears to be some damage limitation, Asatov, the head of the Association of Regional Banks has been on the wires reported as saying that the plan is only an idea, not even submitted to govt yet. EUR has rebounded but struggling to match this morning's opening levels.
While this news was being digested, CNBC also caused a stir with the dramatic headline that the bad bank proposal would be dropped from Geithner's stability plan. Further pressure on the EUR and US stock futures resulted, but the content of the story still suggested that a plan of some sort to buy toxic assets off banks' balance sheets would still be presented, but with a more private sector involvement than a simple stand-alone government bad bank. Latest reports carried by the press/newswires suggest that the bank stability plan would contain four main components: fresh capital injections (with banks applying for funds needing to undergo stress testing); new programs to help struggling home owners; a significant expansion of a Fed program to kick-start consumer lending; and a private-public partnership to relieve banks of bad assets (bad bank). Comments from sources within Obama's administration have suggested the bailout fund's public-private partnership could buy up to USD500 bln worth of bad assets, with private investors able to buy these assets through low-cost funding from the Fed or by using FDIC guarantees. The component on housing aid, including steps to prevent foreclosure, are still being ironed out apparently and full details may not surface until a couple of weeks' time, according to those same sources.
With volatility in FX markets again on the rise, this weekend's G7 meeting in Rome may have a bit more than usual to say on the subject. The meeting is grabbing a few more headlines as it approaches, with a Japan MOF official commenting earlier today that FX may be mentioned in the general debate on the global economy. Indeed, as GBP was descending to the mid-1.30s 's against the USD recently, some EU members were expressing their concern. There was no discernable concern from the UK authorities however.
More on Euro-zone interest rates came from a central bankers meeting in Malaysia where ECB's Mersch joined the Trichet camp and openly said he is opposed to a zero rate policy for Europe. This leaves council member Orphanides as the only one pressing for such a move. Weber, head of the German Bundesbank, asserted that central banks should look through the boom and bust phases of the economy and adopt a symmetrical policy that would be better to combat the negative effects of the financial cycle. He cautioned that such a balanced policy may even involve raising rates preemptively even if inflation risks were not seen increasing. Not heard of rate hike talk for a while!
Most of the positive sentiment from Monday seemed to evaporate early in the Asian session today so, rather than coasting into the US bailout details and stimulus vote, we look set for a busy, volatile time. Headlines drove market activity and expect some more soothing words to come from authorities, notably Russia who would likely want to distance this event from the 1998 catastrophy. However, the technical damage may have been done and volatility likely remains with us. Then we face the toss-up whether the markets will take the final Geithner event positively or negatively……….sneaking suspicion on the former, despite the Asian gyrations……….