- The negative sentiment has continued on concerns about a weakening growth outlook and the outcome of the Italian elections.
- The Spanish bank Bankia will reveal an annual loss of more than EUR19bn according to the FT.
- Chinese house prices rose in 60 out of 70 cities from December to January.
The negative sentiment continued in the US session and the VIX index increased following yesterday’s somewhat disappointing European and US data, and thereflecting increased nervousness on the outcome of the Italian general elections on Sunday and Monday. Investors seem to be pricing in a higher risk that Bersani and Monti might not be able to form a majority government, as both Berlusconi and Grillo may have gained votes since the latest opinion polls were published on 8 February. A period of increased political uncertainty and possibly a call for new elections could follow. The ECB yesterday announced that it bought EUR99bn of Italian government bonds under its Securities Markets Programme (SMP). This is pretty much a reminder to the Italians that they could again need friends with big pockets.And the ECB may not be one of them if Berlusconi - considered by untrustworthy by the ECB - returns to power.
Today's Financial Times wrote that Spanish bank Bankia, wa partly nationalised merger of seven saving banks, will next Thursday reveal an annual loss of over EUR19bn – the largest in Spanish corporate history. This is about 2% of Spanish GDP. We expect Spain to provide disappointing news throughout 2013, but the market impact should be limited as long as investors trust that Mario Draghi’s promise to do “whatever it takes” remains valid.
Chinese new home prices rose m/m in January in 60 out of 70 cities according to the the Chinese statistical bureau. This is seen as increasing the likelihood of stricter contro,l or even some policy tightening.
The US equity markets performed badly for most of the day but picked up temporarily late in the session. S&P 500 closed down 0.6% while Dow Jones fell 0.3% and Nasdaq as much as 1.0%. The negative sentiment continued into the Asian session but sentiment turned more positive after the governor of the Reserve Bank of Australia said that recent interest rate reductions are working and Singapore posted higher-than-expected 3.3% annualised Q4 GDP growth. This morning Hang Seng is down 0.3% while Nikkei turned around early morning and is up 0.3%. US bond yields rose slightly across the curve with 10-year yields up 0.8bp. In the FX markets the euro weakened further on concerns about weakening growth in the euro area and in particular in France as well as concerns about an unfavourable outcome of the Italian general elections. This morning EUR/USD is trading around 1.321 after being briefly below 1.317 yesterday evening.
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