G3 Recap 3-22-11

Main Items:

  • Japan:
  • Some efforts to stabilize the nuclear power crisis were stalled after it was realized that crucial machinery at one reactor required repair, a process that could last 2-3 days. However the overall sentiment remains that the situation is increasingly coming under control.
  • Toyota – said all 12 Japanese assembly plants would remain closed until at least March 26 and it was not sure when they would reopen. Production lost between March 14-26 would be about 140,000 units. TM had hoped to resume assembly on Tues – Reuters

MENA: Yemen’s president under further pressure to leave office. The country’s senior military officer, along with four other top generals, threw their support behind protesters calling for the administration’s ouster. Some think the tide within Yemen is turning and that president Saleh could be on his way out of office. NYT.

Richmond Fed declined to 20 in March vs 24 expected and 25 previously.

Washington on Mon approved the first new deep-water exploration plan in the Gulf since the BP Deepwater disaster. WSJ

Overseas Data:

  • UK CPI rose 4.4% YoY in Feb, vs 4.2% expected and 4.0% previously. Core CPI also jumped, to 3.4% vs 3.1% expected and 3.0% previously

Commentary:

  • The Portuguese parliament is voting on the new fiscal plan tomorrow. However, it is expected to reject the plan, which is likely to cause the PM to step down, which will then result in a general election, as well as the activation of the EFSF. This, in conjunction with reports of that a Finnish election is likely to prevent an upsizing of the EFSF caused periphery CDS to widen out again. Portuguese CDS is now near all time wides, although both Spanish and Italian CDS has tightened in quite a bit over the past few months:

    The interesting part of all this is the fact that the average of the 6 correlations between the 4 PIGS CDS has been falling. This has historically been positive for the EUR:

    Let’s see if events in Portugal impacts CDS of other peripheries. If the effects are limited and the recent de-correlation trend can continue, EURUSD should be able to continue to rally, regardless of if the EFSF is activated.

  • 1Q11 Trades Review:
    I noted yesterday that the top trade for 1Q was deep in the money. Let’s see how the others have fared:

    4 for 6. Ehh…
    Both of the losers can probably be classified as crowded trades, highlighting again the importance of positioning.

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