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EUROPEAN OPENING NEWS INCLUDING: IMF has doubts on the sustainability of the public debt of Cyprus

January 21 2013, 8:16am
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Asia

A special adviser to the Japanese PM Abe has said the BoJ should continue to pursue monetary easing until USD/JPY rises to 100.00. The adviser said USD/JPY at 110.00 would be too much weakness for Japan. (Newswires)

Japanese economy minister Amari has said that progress is being made in closing a gap in views between the government and the Bank of Japan over a joint statement on cooperation expected to be released alongside this week’s rate decision. (Newswires) The BoJ are holding their rate setting meeting on Jan 21st and Jan 22nd.

Bank of America have said the People's Bank of China may use reverse repos more often for liquidity and China RRR cut is less likely due to the PBoC's liquidity operations. (Newswires)

A state council official said China 2013 CPI may rise about 4%. (China Business News)

10yr JGBs continued to trend higher, closing the session in positive territory, up 13 ticks at 144.38, amid expectations that the Bank of Japan will expand their asset purchase program by JPY 10trl at their meeting tomorrow. This coincides with the Nikkei 225 underperforming today, closing lower by 1.52%. (RANsquawk)

Europe

ECB's Weidmann said that the ECB's bond-purchase plan, Outright Monetary Transactions, wont accelerate inflation for the time being and there are considerable risks in bond buyback programs. (Helsingin Sanomat)

ECB's Praet warned that Europe's economy is still shrinking, making it necessary for euro zone states to continue their reforms, and he dismissed low interest rates could spur higher inflation in Germany. Praet added that although financial markets were now significantly calmer, it was too early to say the euro zone crisis has ended and that single currency bloc should not rely on the ECB alone. (Frankfurter Allgemaine Sonntagszeitug)

IMF's Lagarde has said could approve another haircut for Greece if the country meets its commitments. Additionally, the TROIKA have approved a six-month moratorium during which they will not demand any new austerity measures. (eKathimerini)

IMF has doubts on the sustainability of the public debt of Cyprus which is currently seeking financial aid from its Eurozone peers. Cyprus debt is seen as 140% of GDP by 2014. IMF believes that only a debt level of 100% would be sustainable and demands a larger haircut for the creditors of Cyprus' banks. (Der Spiegel) Elsewhere, Germany is balking at a prospective bailout, claiming not enough is being done to curb Russian money laundering within the Cypriot banking system. (Newswires)

Former Italian PM Berlusconi extended his surge in opinion polls on Friday, increasing prospects that the centre-left Democratic Party will have to seek a coalition with Mario Monti’s centrist bloc. (Newswires)

In the Lower Saxony election in Germany, the SPD and Greens took 69 seats, compared with 68 seats for Merkel's Christian Democrats and the Free Democrats. A surge in support for the FDP, junior coalition partner to Merkel's party nationally and regionally wasn't enough to allow CDU state Prime Minister David McAllister to remain in power. (Newswires)

UK

UK Rightmove House Prices (Jan) M/M 0.2% (Prev. -3.3%); Y/Y 0.4% (Prev. 1.4%) (Newswires) Britons were slightly more optimistic about their financial prospects in January although household finances in general continued to deteriorate.

In his first interview the newest BoE MPC member McCafferty says he is skeptical on QE and thinks ‘the economy is growing modestly’ at 0.3% a quarter. McCafferty fears this week’s GDP could show a fall, partly explained by unwinding of the Olympics boost, and there is a danger that the way this is reported will ‘further damage confidence’. He also expects productivity to come back as demand recovers. McCafferty is reluctant to label himself a hawk or dove but is fully committed to low inflation. (Sunday Times)

Following the collapse of several high street retailers there were a number of downbeat articles this weekend on the prospects for the UK economy. Allied to this, the recent cold snap is also being noted by some as a potential catalyst that could lead to another quarter of contraction. (RANsquawk) As a guide, UK Q4 advanced GDP is due for release this Friday, expected at -0.1% Q/Q.

The UK ITEM club, which uses the Treasury’s own models, predicts Britain will ‘muddle through’ with growth of 0.9% this year, which is below the 1.2% OBR forecast. However, Treasury sources suggest the economy is showing signs of improvement. (Sunday Times)

FX

Swiss trade union has said the SNB should lift the CHF ceiling to 1.2500. (Newswires) Swiss economy Minister Johann Schneider-Ammann said in an interview that the CHF is moving in the right direction and he hopes the positive development continues in the coming weeks and months. (Blick)

Overnight, JPY was seen stronger across the board with touted profit taking seen in USD/JPY and JPY crosses, which retraced most of their gains generated during the last session. Elsewhere, slight USD weakness has been seen during the Asian session, with EUR/USD trading in flat to minor negative territory heading towards the EU open. (RANsquawk)

Commodities

Overnight, WTI crude futures continued to decline heading into the European open. WTI futures trade USD 95.05, down USD 0.51. Last price taken at 0620GMT. (RANsquawk)

US

Treasuries trended higher for the most part of trade on Friday, with the bid-tone in bunds spilling over into US paper as the prospect of low rates in the Eurozone supported price action in European trade. Curve flattening has been evident, with 2/30s down 3bps as the Fed conducted their latest POMO in the Feb'36 - Nov'42 maturity range. T-notes pulled off session highs heading into this week’s pit close, with CTAs touted sellers. Treasuries have been once again resilient to recent comments that the GOP are pushing for an extension to the debt ceiling deadline to mid-April, with the prospect of ‘kicking the can down the road’ a dominant theme in US politics over the past few months. At the pit close T-notes settled at 132.04+, up 8+ ticks. T-notes fell overnight, heading into the European open down 2+ ticks at 132.02. Last price taken at 0620GMT.

House majority leader Cantor said the House is to authorise bill this week to extend debt limit by three months. (Newswires) The three-month debt limit extension will give senate time to pass the budget. 

Fed's Lacker said that the Federal Reserve should end its purchases of bonds as soon as possible, stating that since the beginning of 2012, the risks from the purchases have been higher than the advantages obtained from them. Lacker also said that the Fed may be surprised by higher inflation rates in 2014 and that the Fed may not be able to act in time once inflation accelerates. (Handelsblatt)

**Note: As a reminder US floor trade is closed and electronic trade in the US closes early today due to Martin Luther King Jr. Day.

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