The honey badger ramp continues, once more driven entirely by the USD carry as both the EURUSD and USDJPY hit new highs (14 month and 3 year, respectively). The EUR took another major leg higher following today's second ECB refinancing operation in two days,a 3 month LTRO, in which just €3.71 billion was allotted to some 46 bidders, far less than the €10 billion expected particularly in the context of the €6 billion the matured, leading to further Euribor curve steepening, more non-expansion of the ECB balance sheet, and a surge in the EURUSD to new post-2011 highs of 1.3560. But if it wasn't this it would be something else. Elsewhere we got the final official Spanish GDP number, which as previously reported once again came worse than expected at -0.7%, compared to expectations of -0.6%, and -1.8% Y/Y vs Exp. -1.7%. But once again we are told to ignore current reality and look with optimism to the future as various European confidence indices posted higher than expected prints. This seems logical: when the ugly fundamentals don't matter, one must at least pretend there is hope they will improve in the future to serve as a buying catalyst. Finally, and what the surging EUR and crushed exports are all about, Italy sold some €6.5 billion in 5 and 10 year BTPs at yields of 2.94% and 4.17%, both respectively lower than the prior auctions of 3.26% and 4.48%.

And while it would be easy to assume that the relentless rise in the EUR and plunge in the JPY are free lunches, there is no such thing. In fact even Goldman is now warning that the relentless march higher in the EURUSD will soon attract the attention of the ECB. In a note overnight by Goldman's Dirk Schumacher, he said that "one risk factor for the economic outlook is the exchange rate. The trade-weighted Euro has appreciated by 2.5% since the beginning of this year and by almost 5% since the announcement of the OMT in September.... a further strengthening at a similar same pace to what we have observed in recent months would eventually weigh more meaningfully on the economy, and this in turn would lead to a change in the “medium-term outlook for price stability”. The ECB, we think, would react in this case by cutting rates, in an attempt to slow the upward momentum of the exchange rate."

This was reinforced moments ago by the French industry minister who said that the EUR exchange rate is too strong. Well, then, just complain the Monte Paschi supervisor extraordinaire Mario Draghi and ask him to stop his backdoor bailout of the PIIGS: watch the EURUSD regain its "export-boosting" fair value then. Oh, wait, redenomination risk...

As for the plunge in the Yen, well the one nation that shut down all of its nukes, and now has to import its energy with a collapsing currency already has felt the 3% inflation in gas prices in 2 months as reported previously. Once this number hits 10% in a few more weeks, we doubt there will be much enthusiasm left for Abe's masterplan.

Today's two key events are the first US Q4 GDP report and the FOMC statement. If Bernanke even so much as hints at pulling the punchbowl, as he kinda, sorta did last time, watch out below.

The full overnight symmary is from DB's Jim Reid

The equity market continues to be in better health than me with the S&P 500 (+0.51%) up for the 9th day in 10 with only Monday’s (-0.18% spoiling the perfect 10). Interestingly over the same 10-day period US CDX IG has only tightened from 89bp to 86bp with Crossover, Main and Senior Financials actually +8bp, +5bp and +9bp wider over the same period. In cash credit while iBoxx $ Corporate BBB spreads are virtually unchanged, iBoxx € Corporates have widened by +15bp. So equities are starting to outperform credit. Credit has been a relative underperformer partly due to the emergence of event risks with the TMT being impacted by LBO chatter on both sides of the Atlantic. There is also some indigestion on new supply but there is also a valuation argument out there that spreads (especially on low beta names) are too tight and offer little cushion against rate rises. So it’s worth keeping an eye on credit as it’s not fully joining the risk-on party at the moment.

Looking ahead, today will be a pretty busy day. We have the first cut of the Q4 US GDP number with the market expecting a sharp drop to 1.1% from 3.1% previously. Much of the impact is likely to be driven by a slowdown in inventory building which is partly due to Hurricane Sandy. We also have the ADP employment report today ahead of Friday’s payrolls report. The FOMC statement is due at 7.15pm London time today. While no significant policy changes are expected Peter Hooper thinks the meeting itself offers an opportunity to have an important discussion about what signals might be given on the likely longevity of the current QE policy. The results of this discussion will likely appear in the minutes in three weeks time and/or in a variety of upcoming Fedspeak. There is no press conference today which lessons the immediate information flow.

In Europe we also have the first reading of Spain’s Q4 GDP and a handful of confidence surveys from the Eurozone. The market is expecting further shrinkage in the Spanish economy (-0.6% QoQ v -0.3% previously) but the confidence surveys are expected to be largely flat to a tad better in January. The ECB’s Weidmann will speak in Berlin today after the European market close while PM Monti will also give a speech in Brussels after Europe goes home.

Back to markets, the risk-positive session yesterday also led to a further rise in Treasury yields with the 10-year closing at 1.99% on the day. The mood was largely lifted by what was again another positive day of earnings which helped offset a mediocre set of US data. Indeed 18 out of the 25 companies that reported yesterday came ahead relative to EPS consensus. Revenue performance was also impressive with just 4 of those falling short of estimates. Notably Amazon’s shares traded nearly 12% higher in extended hours trading as the market welcomed the operating margin expansion in its North American business.

On the data front the Case-Shiller home price index (5.52% yoy v 5.55% yoy expected) was a little softer than expected whilst the Conference Board Consumer Confidence survey (58.6 v 64.0 expected) fell to the lowest level since November 2011.

Moving on to the overnight session Asian equity markets are largely on the front foot with the Nikkei, Hang Seng and the KOSPI +1.8%, +0.7% and +0.4% higher, respectively. The Nikkei is trading at its highest since April 2010 with the strength overnight fuelled by further weakness in the Yen. In Asian credit, new issues remain the focus although the Australian iTraxx is 2bp wider at 117.5bp as we go to print. In commodities, Copper is up for the third consecutive day while Gold is up for the second straight session at $1667/oz. The UST 10-year yield has edged a tad higher again overnight and is currently at 2.01%.

Updating some European news flow before we wrap up, EU’s Olli Rehn told a press conference yesterday that EU officials will make a decision on the best pace for Spain’s budget consolidation when they deliver a scheduled assessment of the program next month. Rehn said that if there has been a serious deterioration in the economy, we can propose an extension of a country’s adjustment path. Staying in Europe, S&P has kept Belgium’s AA rating on negative outlook reflecting downside risks to the rating if the country’s economic or budgetary performance disappoints sharply relative to the agency’s forecasts.

China averts 482 billion in local bank defaults - chinese banks are insolvent similar to western banking systems.... nothing to see here folks !

http://globaleconomicanalysis.blogspot.com/2013/01/china-averts-482-billion-in-local-bank.html

Tuesday, January 29, 2013 10:09 AM

China Averts $482 Billion in Local Bank Defaults via Massive Rollover Scheme; Extend-and-Pretend Chinese Style

The Chinese banking system is insolvent. Of course, the entire global banking system is insolvent, but today's spotlight is on China. Please consider China averts local government defaults.

Chinese banks have rolled over at least three-quarters of all loans to local governments that were due to mature by the end of 2012, an indication of the immense challenge facing China in working down its debt load.

Local governments borrowed heavily from banks to fuel China’s stimulus programme during the global financial crisis and are now struggling to generate the revenue to pay them back, a shortfall that could cast a shadow over Chinese economic growth.

Banks extended at least Rmb 3tn ($482bn) – and perhaps more – of the roughly Rmb 4tn in loans plus interest that local governments were to have paid them by the end of last year, according to Financial Times calculations based on official data.

Extend-and-Pretend Chinese Style

Since details on refinancing and interest rates are lacking, the reported $482 billion is undoubtedly on the low side.

The key point is that massive rollovers were needed to stave off defaults.

“That’s a correct observation and explanation,” said Stanley Li, a banking analyst with Mirae Asset Securities. “Based on the payback period for the infrastructure projects [started by local governments], it will take more than 10 years to pay these loans back.”

Ten years? How about never? Many of these projects were never economically viable, especially the housing and land schemes.

Mike "Mish" Shedlock

and news items from Greece......

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_29/01/2013_481126

Qatar agrees to invest in Greek businesses as PM talks up opportunities in Doha

Greek Prime Minister Antonis Samaras (l) and Qatari Premier and Foreign Minister Sheikh Hamad bin Jassem bin Jabr al-Thani, attend a joint press conference in Doha, Qatar,Tuesday.

Prime Minister Antonis Samaras on Tuesday obtained a commitment from his Qatari counterpart, Sheikh Hamad bin Jassim al-Thani, to invest in a fund to support small and medium-sized businesses in Greece.
Samaras led a Greek delegation of politicians and businessmen on a two-day trip to Doha in the hope of rekindling relations with the Qataris, who have shown interest in Greece as an investment opportunity in the past, and as part of a drive to show that the country has put the worst of the crisis behind it.
Sheikh Hamad said that Qatar would invest 1 billion euros into a joint fund for Greek SMEs as long as Greece did the same. Qatar reached a similar agreement with Italy in November.
Samaras said that Greece could become a significant bridge between the Middle East and Europe in areas such as banking and construction. He also stressed that fears about Greece leaving the eurozone had subsided.
“Our country offers important investment opportunities,” said Samaras. “We experienced a dramatic crisis but it has made us wiser, more decisive and stronger.”
The Qatari prime minister outlined the reasons why the Gulf state has been reluctant to express an interest in the assets the Greek government intends to privatize via tender processes.
“We prefer direct government-to-government relations. We think it’s quicker and more practical,” said Sheikh Hamad. “A serious investor is hard to find today. We are a serious investor and friend to Greece. The most effective way is to make a fair, direct deal.”
Samaras said that the two sides were in discussions about direct investments from Qatar, some of which would be on the level of specific companies, rather than the state.
The state-owned Qatar Investment Authority has been active in Greece since 2008, when it bought a 4 percent stake in Alpha Bank for about 300 million euros. However, after that potential Qatari backing for projects to build a liquefied natural gas (LNG) plant in Astakos, to cooperate in a gold mining project in Halkidiki and to build on the site of the old airport in Elliniko have all fallen through.

Government sources said Samaras’s trip to Qatar would be followed up by other efforts to convince the world that Greece is overcoming its problems and is capable of becoming a turnaround story. Athens will also have its eye on a decision due in Brussels on February 8, which will determine what amount of EU structural funds Greece will qualify for in the new support framework. Samaras’s government is hoping that Greece will get as much as 14 billion euros.

Earlier, Samaras held a 45-minute meeting with his Turkish counterpart, Recep Tayyip Erdogan, who was also in Doha for talks with Qatari officials. The two men agreed that Samaras would visit Ankara on March 4-5 and that his visit would be accompanied by a meeting of a top-level cooperation council involving ministers from both countries. The council last met in May 2010.

Religion was one of the main topics during the meeting, with Erdogan reiterating Turkey’s opposition to an amendment passed earlier this month by the Greek government, which gives the Greek state the right to appoint imams to state schools and mosques in Thrace. Samaras insisted that there was no intention to curb religious freedom and pointed out that making Muslim religious teachers civil servants offered them greater protection.

A report by Anadolu news agency suggested that Erdogan raised the issue of the construction of a mosque in Athens. “I told him that Turkey could cover the costs of a mosque in Athens if necessary permission is granted and Mr Samaras showed a positive attitude,” the Turkish prime minister is quoted as saying. Kathimerini understands that Samaras rejected the offer.

When questioned whether there was an option for Greece to fund the Halki Seminary in Istanbul, Erdogan reportedly replied: “Why not? That’s possible.”

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_29/01/2013_481125

Farmers scale up protests in bid for concessions

Farmers stand next to parked tractors near Nikaia, some 380 kms north of Athens and one km before the highway linking Thessaloniki to Athens, during a protest Tuesday.

Protesting farmers parked hundreds of tractors at a key junction of the Athens-Thessaloniki national highway on Tuesday, causing several hours of traffic chaos, in a bid to wrench concessions from the government.

Some 2,000 farmers joined the protest at the Nikaia junction and unionists indicated that more action would come unless authorities meet with unionists to discuss their demands, which include the introduction of a tax-free threshold, minimum guaranteed prices for their products, continued state subsidies, tax-free fuel and cheap electricity.

Dozens of farmers joined a smaller protest in Fthiotida, with tensions breaking out when police tried to push back protesters driving their tractors toward the highway junction near Lamia.

Unionists met with the head of PASOK, Evangelos Venizelos, on Tuesday and insisted on further talks with Prime Minister Antonis Samaras when the latter returns from Qatar. Venizelos called for “dialogue and solutions” and said, “No protest can be allowed to create problems for society as a whole.” The three coalition leaders are expected to discuss the farmers and their problems when they meet on Friday.

Meanwhile, the head of the leftist opposition SYRIZA, Alexis Tsipras, has thrown his weight behind the farmers after meeting unionists in Athens. “Farmers are not beggars but are simply demanding the right to produce wealth,” Tsipras said.

Sources within SYRIZA have indicated that if the leftists were to come to power they would seek alliances with other parties and non-political figures.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_30/01/2013_481232

Strike action to halt transport, health services on Thursday

Buses, Hellenic Railways Organization (OSE) trains, the Proastiakos suburban railway and the Athens metro between Doukissis Plakentias station and Athens International Airport are suspending services on Thursday as part of a 24-hour strike called by their unions. Railway workers called the strike to protest wage cuts.

The union representing employees of the Public Power Corporation (PPC), GENOP-DEI, has also called a 24-hour strike on Thursday in solidarity with transport workers.

Seamen also begin a 48-hour strike on the same day, protesting the coalition government’s new plan for coastal shipping.

Also on Thursday the civil servants’ union, ADEDY, has announced a work stoppage from noon until 4 p.m. in protest to reforms in the health sector.

Doctors working with the National Orginization for Healthcare Provision (EOPYY) are also holding a 48-hour strike starting on the same day, protesting the government’s restructuring of the health sector, which has led to dozens of departments closing down.

Doctors at state hospitals have also called for a 24-hour strike on Thursday, while municipal employees will stage a walkout from noon to 4 p.m.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_29/01/2013_481108

One in three families mulling Greek exit, poll shows

One in three Greek families are considering moving abroad due to the repercussions of the debt crisis, according to the results of a survey carried out on primary and secondary school pupils by the Children’s Ombudsman.
Out of 1,211 pupils from 22 schools around the country who were questioned in the survey, 82 percent said that their parents’ employment situation had worsened in recent months, with one in five reporting that one or both of their parents were jobless and 29 percent saying that the family was considering relocating to another country in the hope of better prospects.
Most of the children questioned said the economic crisis had had a negative impact on their lives, with 70 percent of respondents referring to “negative changes,” 59 percent saying they no longer received pocket money and 33 percent reporting that tighter household budgets meant they had been forced to stop lessons at private tuition centers.

Catharsis Ours

Wednesday, January 30, 2013

The Honey Badger Market Grinds Higher

Tuesday, January 29, 2013 10:09 AM

China Averts $482 Billion in Local Bank Defaults via Massive Rollover Scheme; Extend-and-Pretend Chinese Style

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