Recap 2-6-12

Main Items:

• Canadian Ivey PMI improved to 64.1 in Jan vs 59.7 exp and 63.5 prev.
• FT reports that the EBA regards as not credible the proposed measures for more half the 30 banks that need to raise capital (in total €115bn) to meet a 9% tier one capital ratio.
• According to press reports, Eurozone finance ministers told the Greek Government that it could not go ahead with the agreed PSI deal until it signed up to the implementation of the reforms needed to secure a second bailout.

Overseas:

• EU Sentix Investor Confidence improved to -11.1 in Feb vs -15 exp and -21.1 prev
• Australia Real Retail Sales rose 0.4% QoQ in 4Q vs 0.6% exp and prev

Commentary:

The RBA is expected to cut 25bps to 4% today, but model outputs suggest that 3y rates are about 100bps too rich. Here is a chart of 12m changes in the Australian 3y government yield vs an average of AU, CH, and US PMI’s. Note how the divergence is at the widest level since late 2001.