New Stories in Play on CHINA this Morning #CHINA $CAF $FXI $SPY

         China - China might increase interest rates as early as this month, but Beijing will probably not resume yuan appreciation as soon as that (said Zhu Baoliang, chief economist at the State Information Centre (SIC), a think-tank that comes under the National Development and Reform Commission, China's powerful planning agency); "I believe a band widening is possible but another one-off revaluation is unlikely" – Reuters 

         China yuan – pretty quiet overnight; the dollar-yuan parity was pretty flat, dampening expectations about an imminent yuan appreciation – DJ

         China may differentiate capital rules for banks - China's banking regulator is considering setting different capital adequacy requirements for different categories of banks to reflect their risk profiles and business models (Reuters) 

Catalysts to Watch Economics calendar – daily view March 30, 2010 $SPY

Catalysts to Watch
• JPMorgan is hosting a REIT conf on Thurs Apr 1.
• Treasuries – we will hear about the size of the next round of coupon sales on Thurs Apr 1. The next coupon sales are: 10yr TIPS Mon Apr 5, 3yrs Tues Apr 6, 10s Wed Apr 7, and 30s on Thurs Apr 8. 
• C, PRI – Primerica expected to price after the close on Wed according to the FT
• Auto sales due Thurs; Industrywide deliveries may have risen to an annualized rate of 12 million light vehicles, the average of eight analysts’ estimates compiled by Bloomberg. Toyota said yesterday its sales climbed as much as 35 percent (Bloomberg)

Economics calendar – daily view
• Wednesday, Mar. 31st: Overnight: China PMI Manufacturing & HSBC Manufacturing PMI, Japan Tankan Survey.
• Thursday, Apr. 1st: US (Challenger Job Cuts, Jobless Claims, ISM Manufacturing/Prices Paid, Construction Spending, Auto Sales); Eurozone (German Retail Sales, UK PMI Manufacturing); Other (Australia Trade Balance, Switzerland SVME PMI).
• Friday, Apr. 2nd: US (Monthly Labor #s, Unemployment Rate); Eurozone (n/a); Other (n/a). The jobs number will hit on Fri morning despite equities markets being closed for Good Friday; note that the TSY market will be open for a half session on Fri. JPMorgan’s B Kasman will be hosting a conf call Fri at 10amET to review the jobs report.
Corporate Events Calendar
• Wed Mar 31: Earnings after the close (XRTX, MU, RIMM, MOS, RECN, GPN, DMAN). GENZ to Host Investor Event on Its Manufacturing Operations; company will host Webcast today at 1:00 p.m.
• Thurs Apr 1: earnings before the open (WOR, KMX, SCHL). sales (the nation’s auto companies will release their sales results for the month of Mar). Analyst meetings (HIG).
• Fri Apr 2: most major markets closed for Good Friday (US, Germany, Greece, UK, Hong Kong, France, etc).

Greece’s 7yr sale on Mon continues to trade poorly in the secondary market…

         Greece's 7yr sale on Mon continues to trade poorly in the secondary market…according to the FT today: Greece still has big problems," said a senior banker. "The Greek bond syndication was very disappointing. Investors still do not have faith in Greece and are only prepared to buy the bonds for higher yields." (FT) 

CEEMEA Credit Strategy Update Reason for Cautiousness in CEE

Sound Core Europe debt conditions are a pre-condition for CEE-Periphery decoupling in credit spreads. The CEE region (EM) has decoupled from GIIPS (Greece, Italy, Ireland, Portugal and Spain) debt-dynamic concerns, as better and improving fundamentals have largely served to shield EM countries. In fact, the average of CDS levels have diverged in the past months, when GIIPS spreads have increased sharply (Chart 2). We notice that the pace of decoupling has slowed lately and, for example, iTraxx CEEMEA SovX has only partially recovered the previous widening (after the financial support to Greece by the financially strongest EU members – i.e., Germany and France). As shown in Chart 3, Core Europe or Core DM (Belgium, France and Germany) CDS lead the trend in EM CDS and also determine the direction. Therefore, the 175bp of spread between EM and Core DM likely will not guarantee a cont

Monitoring indicators of short-term liquidity very closely to detect any tension in (external) funding markets. Charts 4 and 5 show the relationship between the average cross-currency swap (CCS) basis in CEE (cross-currency swap basis of Poland, Hungary and Czech Republic*) and GIIPS and Core Europe CDS, respectively. We conclude that the external currency funding in CEE has not been materially affected by what is happening in peripheral European countries, but investors are likely increasingly wary about possible negative impacts of Core Europe debt deterioration (and exposure to GIIPS) on external funding markets. Wider Core European CDS spreads could cause additional concerns on global debt sustainability, implying a more negative CCS swap basis in CEE and signaling potential tightening of external funding conditions (R2 on levels between average CCS basis and Core DM CDS is 87% over the past two years).

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Collapse of the euro is 'inevitable': Bailing out the Greek economy futile, says FRENCH banking chief

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The European single currency is facing an 'inevitable break-up' a leading French bank claimed yesterday.

Strategists at Paris-based Société Générale said that any bailout of the stricken Greek economy would only provide 'sticking plasters' to cover the deep- seated flaws in the eurozone bloc.

The stark warning came as the euro slipped further on the currency markets and dire growth figures raised the prospect of a 'double-dip' recession in the embattled zone.

In a note to investors, SocGen strategist Albert Edwards said: 'My own view is that there is little "help" that can be offered by the other eurozone nations other than temporary, confidence-giving "sticking plasters" before the ultimate denouement: the break-up of the eurozone.'

'The euro's a success': Peter Mandelson at Downing Street on Thursday

He added: 'Any "help" given to Greece merely delays the inevitable break-up of the eurozone.'

The alarming claim came a day after European Union leaders promised 'determined and co-ordinated' action to shore up Greece's tattered public finances, but disappointed traders by failing to provide specifics.

Further details are expected early next week, but markets were in high anxiety yesterday amid fears political divisions among rich eurozone members could derail any rescue.

The euro slid almost 1 per cent to $1.357 yesterday, meaning it has lost 10 per cent of its value since November. The pound rose to 1.14 euros.

Earlier this week Business Secretary Lord Mandelson's claimed that the single currency had been a 'remarkable success' and that it remained in Britain's interests to join.

David Cameron ridiculed that claim yesterday.

He told the Tories' Scottish conference: 'Are this Government the only people in the country who still think that would be a good idea? Our deficit and debt are bad enough without the straightjacket of the euro.

'If I am elected for as long as I am prime minister the United Kingdom will never join the euro.'

The French bank's warning was echoed by Mats Persson, Director of the Open Europe think-tank, which campaigns for reforms in Brussels.

He said: 'The eurozone is facing a fully-fledged crisis. The Greece episode has made it painfully clear how flawed the euro project was from the very beginning.

'Even if Greece receives a one-off bailout it would not solve the real problem, which is the huge differences in competitiveness between the eurozone's richest and poorest members.

'If these differences are to be evened out, the EU would need a single budget and common taxes so it can redistribute resources.

'One thing is clear, Britain made the right choice in staying out.'

Mr Edwards argued that Portugal, Ireland, Greece and Spain are too economically weak to withstand the rigours of eurozone membership.

Countries that are highly uncompetitive are normally able to slash interest rates and devalue their currencies to prop up their economies.

But this is not possible within the euro, given its one-size-fits-all economic governance.

The implication is that weak, peripheral eurozone members will have to suffer years of painful deflation and tumbling living standards, as well as draconian budget cuts, in order to adjust.

Harvard University Professor Martin Feldstein, a long-standing sceptic on the euro, yesterday said the single currency 'isn't working' because member governments have no incentive to keep their public debts under control.

'There's too much incentive for countries to run up big deficits as there's no feedback until a crisis,' he said.

Germany drags EU back towards recession

The eurozone faces the danger of a 'doubledip' recession after Germany's economy retreated into stagnation.

Figures published yesterday revealed that the countries who have joined the euro collectively grew a mere 0.1 per cent in the fourth quarter of last year - equal to Britain's own faltering performance.

Germany was the biggest drag, recording zero growth in the final three months of 2009 after emerging from recession earlier in the year.

Axel Weber, President of Germany's Bundesbank, warned this week there is a chance his nation's economy will contract in the first quarter of 2010, in part because of the severe winter, in a major blow to recovery hopes.

The figures from the European Commission are a blow to Britain's embattled manufacturers, which count the eurozone as their biggest export market.

France provided a bright spot in the report, expanding by 0.6 per cent in the fourth quarter-But Italy, Spain and Greece all registered contractions in their gross domestic product.

Economist Martin van Vliet of ING Bank said: 'The paltry pace of fourth quarter growth makes crystal clear that the eurozone economy cannot yet stand on its own feet.

'The disappointing eurozone growth data are a sobering reminder that recovery from financial crisis led recessions tends to be slow and protracted, and might not prove very supportive in calming markets' fears about the region.

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