So lets start with China.
Shanghai eased real estate restrictions making it easier for a "Broader pool" of buyers to buy a second property in Shanghai. The definition of ""Broader Pool" seems to be a matter of locals vs non locals, with locals being either born in the city, having worked there an extended amount of time and officially recognized as locals. The new guidelines say residence permit holders who have lived there at least 3 years are able to buy a second home. It's a small step, but expected to boost sales by 20-30% and another indication of the property bubble that is spiraling out of control. I wouldn't be surprised to see inflation pick up substantially as the PBoC tries to deal with the housing crisis and crisis it is if you saw last night's video.
After 4 months of housing declines, China's January Home Price Index fell to a new 1 year low, not 1 city in 70 monitored posted even a slight gain.
China's Flash Manufacturing PMI came in at levels of contraction at 49.7.
Now on to the EU...
The hope that the recession in Greece would be short lived was dashed today with Euro-Area PMI composite coming in below consensus of 50.5 which would be a slight move out of contraction, instead it printed at 49.7 and still in contraction. The Manufacturing PMI was 49 on consensus of 49.4, Services came in at a disappointing 49.4 on consensus of 50.6. The total Euro-Group PMI may influence the votes that still need to be taken by individual counties to approve the Greek bailout and they may not be as at ease with supporting the bailout as they see the probability of recession when Q1 2012 numbers are released.
There is talk among ECB insiders that they are hoping the next ECB LTRO (Long Term Repo Operation in which they take collateral rated at A and it seems this time they will take collateral below A and give the bans a 3 year 1 % loan) take up will be far below expectations. There's a feeling that the banks are leaning on the ECB too much, of course this could also be an internal debate about ECB balance sheet expansion. In any case, with sentiment running the way it is inside the ECB, the market may get a surprise in hearing that the next LTRO may be the final LTRO which will not be welcome news.
As for the Greek Debt Swap, the terms started looking a lot worse for creditors when the secret Greek Debt Sustainability report came out finding that Greece really needs $245 bn rather then $130 bn to get even close to the 120% of GDP target by 2020. This increases the chance that Greece will not only pass the retroactive CAC clauses, but use them with a threshold of 66% to force creditors to accept losses, which is another can of worms as lawsuits will be flying among for numerous reasons and a default as described by all 3 rating agencies, will occur, likely triggering CDS and putting intense pressure on the Euro banking system as a whole as they have been writing the insurance contracts, not expecting them to ever have been triggered.
In a sign of sentiment, the Greek GGB's have hit a new high yield, last week was a new high at 638%, as of this morning, it is 763%! Remember yields move opposite to bond prices.
Another signal that investors are starting to understand the implications of the Greek Debt Bailout announced yesterday, the Greek Banking Sector index rose from Monday on the news Greece had been saved and promptly dropped, any buyers on the news Monday are now at a 24% loss.
In one of the most bizarre bits of news out of Greece and right in time for today's planned demonstrations (riots):
"Salary cutbacks (called "unified payroll") for contract workers at the public sector set to be finalized today. Cuts to be valid retroactively since november 2011. Expected result: Up to 64.000 people will work without salary this month, or even be asked to return money. Amongst them 21.000 teachers, 13.000 municipal employees and 30.000 civil servants."
Yes, you read that correctly, Greece is really taking this retroactive thing to heart, Public Sector workers will work for free this month or even be asked to return money in addition to working for free. Cue the fires.
Today is rather light on US data because of the holiday, we have a slew on tap for tomorrow.
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