- Chaos in the streets of Athens dominated the
news again this week, as pictures of riot police and burning buildings
suggested that Greek society was at the breaking point in the face of
austerity. The Greek parliament passed another package of spending cuts
demanded by the Troika last weekend, even as the leader of government coalition
member party New Democracy, Antonis Samaras, told his MPs to support the
legislation now so they could change the policies later. Euro zone officials
delayed a decision from Wednesday, Feb 15th to Monday, Feb 20th on whether or
not to authorize the next €130B in bailout funds, and there was plenty more
talk of various European institutions, from governments to corporations
preparing for a possible Greek default. Moody's stepped in on Wednesday,
cutting ratings on over 130 global financial firms and six European countries,
and put France's and the UK's Aaa ratings on watch. As in recent weeks,
somewhat more positive US economic data is helping to distract markets from the
European debt crisis, namely steadily improving weekly jobless claims data,
some positive housing news and an excellent February Philly Fed report. The
minutes of the Fed's January 24-25 meeting suggested that some Fed governors
still believe a third round of quantitative easing could be needed in 2012 to
support the US economy. Chinese Vice Premier Xi (who is set to be named the new
Chinese premier in 2013) was much in the news due to his visit to the US this
week. PBOC advisor Xia Bin said that US Treasuries should remain China's FX
investment of choice, even as the latest TIC data showed that China's total
holdings of USTs in December fell for the third consecutive month. For the week
the S&P 500 advanced 1.4%, the NASDAQ grew 1.7%, and the DJIA gained 1.2%,
ending just 50 points shy of 13,000 at its highest level since May 2008. In
Asia, the Nikkei225 also pushed out to a 6-month high on Friday above 9,400.
- Manufacturing names Deere and General Motors reported results this week. Deere outperformed expectations, although investors sold the name as soft forecasts for FY12 overshadowed its decent Q1 performance. General Motors more or less met expectations in its Q4. The firm offered little commentary on the quarter in its release, noting only that it expects continued pricing improvement and that cost inflation has been contained. On the call, GM executives said they are not expecting the European market to improve any time soon, and press reports asserted that GM's Vauxhall unit was planning to reduce capacity across the continent by approx 400k units per year.
- In the materials sector, Vale was hurt by lower prices and higher costs for its iron ore business in its Q4, and also said results were impacted by the crisis in Europe. Looking forward, Vale said that the crisis would impact iron ore demand, which should remain tight in 2012. Anglo American reported record profits in its iron ore and coal units, offsetting real weakness in the copper unit. Investors were disappointed by the company deciding not to authorize a special dividend.
- Tech earnings were mixed. Graphics chip manufacturer Nvidia topped expectations slightly in its Q4, thanks to very strong margin improvements. Wafer maker MEMC's quarterly losses were a bit steeper than expected. MEMC said it expects strong growth in 2012 as the semi industry recovers, although solar remains a wild card. Semi industry tools maker Applied Materials roundly beat consensus estimates in its Q1 and offered strong guidance for Q2. Investors were not impressed with Zynga's first quarterly report as a publically traded firm, despite the fact it exceeded consensus estimates on the top and bottom lines. Some analysts were concerned that growth in its legacy online platforms was too soft. SunPower crushed Q4 expectations, although the outlook for Q1 was not so rosy.
- In other equity news, volatility in Apple roiled markets on Wednesday and Thursday. On Wednesday morning, shares of Apple shot up 3% and then plummeted right into the red, on no apparent news besides unsubstantiated talk of a Nasdaq 100 rebalancing. Apple share fell a bit further on Thursday, before eventually finishing up the week above the $500 mark. In deal news, Kellogg agreed to buy the Pringles snack unit from Procter & Gamble for $2.7B in cash. The deal would almost triple Kellogg's international snack business and let household goods maker P&G leave the food business after its agreement with Diamond Foods fell apart. Phil Falcone's new wireless network provider, LightSquared, has been dealt a big blow by the FCC, which said Lightsquared cannot launch its high-speed network due to interference with GPS devices.
- The political tensions emanating from the Greek situation hammered the euro through Thursday's session. EUR/USD was around 1.3260 on Monday as European traders returned to the market. Sentiment suggested that euro short positions had been cut further after the single currency recovered from the 17-month lows seen in January. Note that the cheap LTRO liquidity from the ECB greatly eased tight funding conditions. EUR/USD gapped lower, with momentary upswings on Tuesday, thanks to the better German ZEW survey and rhetoric out of China in support for Europe. The February Zew Economic Sentiment survey delivered its first positive reading since May 2011, and PBoC Governor Zhou pledged that the bank would increase its holdings of euro-denominated assets.
- The delay of the Eurogroup finance ministers meeting on Wednesday drove EUR/USD to its lows of the week, just below 1.30. After the US close on Wednesday, Moody's cut the credit ratings of 17 global and 114 European financial institutions, including US majors Morgan Stanley, Goldman Sachs and Bank of America, due to risk from Europe. In addition, Moody's cut the debt ratings of six European countries including Italy, Spain and Portugal, and said it may strip France and the UK of their Aaa ratings. The snap-back arrived Thursday morning, as strong US economic data softened the dollar and sharpened risk appetite, and EUR/USD rapidly retook 1.3140. It's also worth noting that net USD longs fell again in the week ending Feb 7 to the lowest level since mid November, according to CFTC data.
- Concerns about Japanese disinflation were amplified by the Q4 GDP report, which registered the largest sequential contraction since the aftermath of the March tsunami disaster. Japan's most recent earnings season underscored the extent to which export-heavy tech firms were struggling with supply disruptions stemming from the Japan disaster as well as the flooding in Thailand, which was exacerbated by a sharp rise in the value of the yen. To that end, the BoJ took its most resolute policy action to date, setting an explicit 1% inflation target as well as expanding its asset purchase fund by ¥10T in long-term JGBs to ¥65T total. This ultra-aggressive policy move has certainly had its desired effect, moving USD/JPY all the way toward ¥79.50 - the high achieved from the unilateral intervention in late October. AUD/JPY was the most outsized beneficiary, rising to its highest level since last August. AUD was also firmer against other key currencies, helped in part by much stronger than expected employment data, with the Australian jobless rate falling to a 6-month low 5.1%.
- China's heir apparent Xi Jinping visited the United States this week assuring the mainland will not succumb to a hard landing while facing further criticism from President Obama on China's slow pace of FX reform. Separately, PBoC Governor Zhou made a splash on Wednesday, pledging expanded support for Europe through the IMF and the EFSF.
- Manufacturing names Deere and General Motors reported results this week. Deere outperformed expectations, although investors sold the name as soft forecasts for FY12 overshadowed its decent Q1 performance. General Motors more or less met expectations in its Q4. The firm offered little commentary on the quarter in its release, noting only that it expects continued pricing improvement and that cost inflation has been contained. On the call, GM executives said they are not expecting the European market to improve any time soon, and press reports asserted that GM's Vauxhall unit was planning to reduce capacity across the continent by approx 400k units per year.
- In the materials sector, Vale was hurt by lower prices and higher costs for its iron ore business in its Q4, and also said results were impacted by the crisis in Europe. Looking forward, Vale said that the crisis would impact iron ore demand, which should remain tight in 2012. Anglo American reported record profits in its iron ore and coal units, offsetting real weakness in the copper unit. Investors were disappointed by the company deciding not to authorize a special dividend.
- Tech earnings were mixed. Graphics chip manufacturer Nvidia topped expectations slightly in its Q4, thanks to very strong margin improvements. Wafer maker MEMC's quarterly losses were a bit steeper than expected. MEMC said it expects strong growth in 2012 as the semi industry recovers, although solar remains a wild card. Semi industry tools maker Applied Materials roundly beat consensus estimates in its Q1 and offered strong guidance for Q2. Investors were not impressed with Zynga's first quarterly report as a publically traded firm, despite the fact it exceeded consensus estimates on the top and bottom lines. Some analysts were concerned that growth in its legacy online platforms was too soft. SunPower crushed Q4 expectations, although the outlook for Q1 was not so rosy.
- In other equity news, volatility in Apple roiled markets on Wednesday and Thursday. On Wednesday morning, shares of Apple shot up 3% and then plummeted right into the red, on no apparent news besides unsubstantiated talk of a Nasdaq 100 rebalancing. Apple share fell a bit further on Thursday, before eventually finishing up the week above the $500 mark. In deal news, Kellogg agreed to buy the Pringles snack unit from Procter & Gamble for $2.7B in cash. The deal would almost triple Kellogg's international snack business and let household goods maker P&G leave the food business after its agreement with Diamond Foods fell apart. Phil Falcone's new wireless network provider, LightSquared, has been dealt a big blow by the FCC, which said Lightsquared cannot launch its high-speed network due to interference with GPS devices.
- The political tensions emanating from the Greek situation hammered the euro through Thursday's session. EUR/USD was around 1.3260 on Monday as European traders returned to the market. Sentiment suggested that euro short positions had been cut further after the single currency recovered from the 17-month lows seen in January. Note that the cheap LTRO liquidity from the ECB greatly eased tight funding conditions. EUR/USD gapped lower, with momentary upswings on Tuesday, thanks to the better German ZEW survey and rhetoric out of China in support for Europe. The February Zew Economic Sentiment survey delivered its first positive reading since May 2011, and PBoC Governor Zhou pledged that the bank would increase its holdings of euro-denominated assets.
- The delay of the Eurogroup finance ministers meeting on Wednesday drove EUR/USD to its lows of the week, just below 1.30. After the US close on Wednesday, Moody's cut the credit ratings of 17 global and 114 European financial institutions, including US majors Morgan Stanley, Goldman Sachs and Bank of America, due to risk from Europe. In addition, Moody's cut the debt ratings of six European countries including Italy, Spain and Portugal, and said it may strip France and the UK of their Aaa ratings. The snap-back arrived Thursday morning, as strong US economic data softened the dollar and sharpened risk appetite, and EUR/USD rapidly retook 1.3140. It's also worth noting that net USD longs fell again in the week ending Feb 7 to the lowest level since mid November, according to CFTC data.
- Concerns about Japanese disinflation were amplified by the Q4 GDP report, which registered the largest sequential contraction since the aftermath of the March tsunami disaster. Japan's most recent earnings season underscored the extent to which export-heavy tech firms were struggling with supply disruptions stemming from the Japan disaster as well as the flooding in Thailand, which was exacerbated by a sharp rise in the value of the yen. To that end, the BoJ took its most resolute policy action to date, setting an explicit 1% inflation target as well as expanding its asset purchase fund by ¥10T in long-term JGBs to ¥65T total. This ultra-aggressive policy move has certainly had its desired effect, moving USD/JPY all the way toward ¥79.50 - the high achieved from the unilateral intervention in late October. AUD/JPY was the most outsized beneficiary, rising to its highest level since last August. AUD was also firmer against other key currencies, helped in part by much stronger than expected employment data, with the Australian jobless rate falling to a 6-month low 5.1%.
- China's heir apparent Xi Jinping visited the United States this week assuring the mainland will not succumb to a hard landing while facing further criticism from President Obama on China's slow pace of FX reform. Separately, PBoC Governor Zhou made a splash on Wednesday, pledging expanded support for Europe through the IMF and the EFSF.
