Recap 1-17-12

Main Items:

  • US Empire Mfg improved to 13.48 in Jan vs 11 exp and 9.53 prev
  • BoC kept rates unchanged as exp
  • EFSF was downgraded from AAA to A+.
  • Earnings:
  1. Citi Missed on both profits and revenues (17.2bn vs 18.5bn exp)
  2. WFC was inline, but beat on revenues (20.6bn vs exp)

Late in the day, BBG reported that a Greek PSI deal is near completion. The new bonds will probably pay annual interest of 4 percent to 5 percent and have a maturity of 20 years to 30 years


  • German Zew Survey of Economic Sentiment improved sharply to -21.6 in Jan vs -49.4 exp and -53.8 prev.
  • EU CPI declined to 2.7% YoY vs 2.8% exp and 3.0% prev. The Core measure was unchanged at 1.6% YoY as exp.
  • UK CPI declined to 4.2% YoY in Dec as exp vs 4.8% prev. This is likely to fall further to sub 3.5% as base effects continue to impact the YoY data.
  • China:
  1. Retail Sales increased 18.1% YoY vs 17.2% exp and 17.3% prev
  2. Real GDP increased 8.9% YoY vs 8.7% exp and 9.1% prev
  3. IP increased to 12.8% YoY vs 12.4% exp and 12.4% prev
  4. Fixed Assets Inv growth declined to 23.8% YoY vs 24.1% exp and 24.5% prev


We had several key events the past week. First, the S&P downgrade was not as bad as feared, and removes one source of uncertainty. For the first time since last January, 10y sovereign EU spreads over bunds are declining. (40dma of the average of French, Italian, and Spanish 10y spread over bunds in purple)

And the German Zew survey, one of the most important leading indicators for the EU, came in much better than expected. In fact, the EU economic surprise index (green) has now jumped decisively above 0 for the first time since last June.

This suggests that much of the EU worries have now been priced in for now. And finally, the BAML fund manager survey suggests that equity allocations are on the rise from low levels:

While this all doesn’t mean the problems are over, it is possible that the backdrop has been set for several weeks of pro risk price action, especially for EU assets.

Separately, if you are in the US, please read this, and decide if you should do something.