Chillin' out till it needs to be funded
A simple missive in the National People’s Congress in China was enough to shake the tree , as China’s holdings of US debt have fallen to 54% of their portfolio as they make an almost noiseless exit from US treasuries. The tree was of course well without any fruit and even as investors rushed to buy 3 month and 6 month bills, the largest auctions getting a due bid cover of more than 4.5 but yields dropped to perilious lows even in the auctions at 0.08 % and 0.13% for the 3 month and 6 month securities. On the Economic front, thus the production and jobs optimism may fell run into rougher weather unless credit and trade figures show a different lighted path this week. RBA did not cut any rates either with China not buying yet and Aussie crept up, while falling yields in the US without availability of the freedom to stimulate with interest rate cuts variously used in Economic media as the retiring of the Greenspan Put finally stares US economics in the face as there is not much else it can do except for wait for growth before it starts pushing up yields again. In Japan’s case the scenario had lasted 30 years and it is still waiting for growth
Buybacks and Equities
Share buybacks have grown to $42 bln in February, corporates taking a chance with the little pony horse play toy we all have in equities markets as sentiment fueled by jobs continued to outrun data mostly going in the opposite direction except for the optimistic Services PMI yesterday. Meanwhile US and Israel cannot decide how to define the War zone in Iran while bank deposits at the ECB grew to EUR 821 bln and the Euro inched a little downward despite Italian yields having gone below 5% aand IIF representing 50% of the Private bond holders nodded on the bond exchange as expected a day or two before the deadline expires tomorrow.
Fixed income issuance increased to more than $20.7 bln in the month in response to all low yields and corporates able to borrow at rates as low as 3.2% for McDonalds’ and CAT
Cotton and China trade
In commodities, China bumped up the Cotton prices to $2.27 per pound (won’t Adam Smith be happy) even as India shutdown its exports for the expiry of available 8 mln bale (170kg) export surplus. China, seemingly is replacing Gold hegemony in its reserves with Cotton, an unlimited buy order open from the government below $1.42 per pound.
US produces more than twice India’s cotton, but as of now commodities have returned to bears, turning the global markets to a risk off mode till Friday Jobs’ report
Zhang Ping, Director of the Reform commission, NDRC, outlined China’s 2012 thus: The downward revision of GDP growth to 7.5 percent reflects China’s current economic development and societal transformation trends…the new budget allocates 69 billion yuan to affordable housing, 140 billion yuan to the agricultural sector, 48 billion yuan for education and healthcare, 48 billion yuan for energy consumption and environmental protection, 24 billion yuan for infrastructure, 29 billion yuan for independent innovation and technological updating
Meanwhile the LIBOR reform will be approached by pulling all trading members to meet on the future course for the LIBOR which is also not a regulated UK Financial Services while a Kay Review has found HFT guilty in a run up to pecuniary taxation against the growing market practices even as US looks on , warning traders on the spate of cancel orders. CFTC could be the first to ban HFT in the US apart from ETF markets if sense indeed prevails a s is pertienntly obvious in the reform process, despite muddled labyrinth of execution from Consumer Protection to Prop trading leaving things unfinished.
Inter Bank Finance drying up
$550 bln of leveraged debt is being extinguished in Europe over the next 5 years but not much furture investments being committed from the matured cash by “investors” and leverage vehicles running to expiry.
BP Settlement, 1 down 2 to go
The BP settlement on the other hand worth $7.8 bln is one of three, containing costs to $50 bln for BP while BP has expensed only $37 bln worth from its income statement last two years. The Oil spill in 2010 October may not even cause heartburn to Transocean and Halliburton, BP vendors who were no t yet targeted, while the EPA fines based on increasing amounts depending on counts of negligence, may seem fine as not much of the spill has caused biological damage, but if negligence is established, fines for BP can grow up to $65 bln
Portugal manages the deficit
Portugal is going ahead with managing the deficit target which most economists studying the blade say is likely to cross the 5.9% target. However among measures, caught by Citi and FT Alphaville, Portugal is also transferring Government Pension funds assets to the Social Securities dues on the balance sheet bringing the deficit in one stroke to 1.9%
The risks to the current managed austerity program which will surface in the case of all the south national budget programs include SoE needing financial support and divestment and reform stalled, more public burden in Public Private Partnerships to jumpstart development, an increasing contraction in GDP as Eurozone dips into contraction, and a return to sovereign borrowing with a EUR 65 bln market borrowing program for Port. looking impossible