Intraday Market Thoughts

G20 Pressures Eurozone To Increase Firewall

by Patrik Urban
Feb 27, 2012 14:38

G20 will be more involved only after the Eurozone increases financial firewall; Italian and German bond auctions; Eurozone M3 grew and Italian business confidence declined; ECB deposits remain elevated. Market turns to pending home sales and Dallas FED manufacturing. Remaining Premium trades are shorts in ES (Emini S&P500), AUDNZD & longs in gold & EURGBP. Longs in US crude and EURUSD were all done.

The USD is mixed in the ongoing session. It trades weaker against JPY, unchanged against GBP, AUD and NZD and stronger against the rest of the majors. European equities are losing 1%. The relative strength winner is JPY.

G20 meeting in Mexico resulted in an increased pressure on the Eurozone to raise the size of its bailout fund if it wants the IMF to become more involved. Germany which is the biggest national contributor has been sending conflicting signals but it seems that its opposition has softened. German Bundestag will vote today on the second Greek financial aid at 2 pm GMT (9 am ET) and the decision whether to back plans to combine EFSF with ESM should be made in March.

The Eurozone will attempt to sell EUR 24.5 bln worth of bonds this week, significantly above last week's EUR 9.85 bln. Italy was the first in the line and it reached a full take up (EUR 8.75 bln of 6 month and EUR 3.5 bln of a bill maturing 12/20/2012). The 6 month bill was sold with 1.202% yield, the lowest since 9/2010. Germany sold EUR 2.545 bln (target EUR 3 bln) of 12 month bond with yield and cover only marginally changed compared to the previous auction.

On the data front, French January PPI fell to 4.2% from 4.6% y/y, Eurozone monetary aggregate M3 grew 2.5% on annual basis, up from previous 1.5% and Italian business confidence declined to 91.5 in February from January's 92.1.

ECB deposits continue to remain elevated at EUR 477.32 bln on Friday, about EUR 2 bln more than on Thursday. It will be interesting to see how the Wednesday's LTRO will impact the deposit facility.

Pending home sales due at 10:00 am ET are expected to grow 1% in January after 3.5% contraction seen in December and Dallas FED manufacturing due 30 minutes later is anticipated to improve to 15.9 from 15.3.

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