Bond yields fell on both sides of the Atlantic after somewhat choppy trading. The 10-yr US yield dropped to 2.72% and the Bund ended the day at 1.66% and curves flattened marginally. Existing home sales from the US were on the weak side but were mostly shrugged of as the weather effect still holds sway.
S&P 500 were just three points shy of hitting the all-time record high from January but sunk late in the session and ended the day down 0.2%. In Asia this morning, equities are trading on a soft footing after Chinese house prices disappointed somewhat (more below).
House prices in China rise less quickly
New house prices in China’s biggest 70 cities rose by 9.6% annually in January—brisk but down from 9.9% in December. Prices in Shanghai and Beijing rose close to 20%.
Draghi ups the ante in Sydney
ECB president Draghi is upping the ante for the March meeting stressing that the ECB believes to“… have the full set of information needed for us to decide whether to act or not”. Moreover, ECB’s Peter Praet was quoted in a Portuguese newspaper of saying the current low inflation is extending into the medium term. In Sydney, Draghi also pointed to the downside risks to the recovery. While we still believe the most likely outcome is for the ECB to maintain the current monetary policy unchanged, markets will no doubt continue to speculate in further easing.
Who will give Ukraine more money?
EU Commissioner Olli Rehn put Ukraine on the agenda at the G-20 meeting saying the country needs aid in the size of billions. At the G-20 meeting in Sydney western leaders including the IMF signalled a willingness to help the Ukraine economically but there will be terms of course and for now it still seems difficult to find out who’s in charge. Russia is withholding cash for now but nobody wants the Ukraine to implode. For now, ripple effects continue to be minor.
The troika is back in Greece.
For once the focus is not so much on immediate stop-gap measures but more to continue the long-term reform drive. The troika needs to give a report for March 10 Euro-zone FinMin meeting on releasing another tranche of aid. By late May Greece has obligations of over €9bn coming due. Last year, Greece had a budget surplus of €1.5bn and has laid off more than 200,000 public sector workers since the crisis began in 2009 and Greece will be pushing hard for an opening of another debt cut deal but European leaders cannot (will not?) commit to that on this side of the European Parliament elections in late May.
Renzi takes over in Italy
A detailed plan of €32bn in spending cuts will soon land on new Minister of Economy Pier Carlo Padoan’s desk according to WSJ—but let’s see how it gets implemented. Many of the reforms proposed by the technocratic government of Mario Monti still haven’t been implemented and hope of course is that Renzi is eager to show that he can deliver. Problem is that there is a large group of Italians believing Italy’s hardship is due to EU and the financial crisis and not many years of mismanagement of the Italian economy by Italian politicians.
This week: Ifo and Euro-zone CPI
The highlights this week will be the German Ifo release today and the Euro-zone inflation figures Friday. We expect a small increase in the main Ifo index to 110.8 driven by higher current conditions and lower future expectations. Market reaction will probably be muted. On the auction side, Italy will sell short and medium-term bonds and Germany 2046 bonds.
Nordea