Greece, Portugal concerns push the EUR lower overnight

The EUR sagged overnight as Greek debt swap negotiations continued while Portugal became the next focus of attention with bond yields rising and CDS prices widening which dragged those of Ital and Spain along with them. It is evident will not be out of the woods just by resolving the Greek situation. The Italian bond auction saw a lower participation and fell just short of the €8 bln target adding more pressure on the EUR. There were few astounding developments from the EU summit though the fiscal compact deal saw further progress with 25 out of 27 EU states signing up (Britain and Czech Republic not taking part). AUD tracked the EUR lower as Fitch placed 4 Australian banks on review for a possible downgrade.

On the data front, US personal income came in stronger than expected with a +0.5% print versus 0.4% expected and 0.1% last time but spending slid back to flat from +0.1% (unchanged expected) suggesting the US consumer is still not that confident about the economy and more willing to save for a rainy day. The Fed’s favourite measure of inflation edged marginally higher in December with the PCE deflator up 2.4% y/y (2.3% expected while core readings were up 0.2% m/m and 1.8% y/y. The Dallas Fed manufacturing activity index showed an astounding surge to 15.3 from a revised -0.3 the previous month with new orders up at a 6 month high – merely inventory rebuild?

Earlier we saw Japan’s jobless rate for December which rose to 4.6% from 4.5% with the job/applicant ratio rising to 0.71 from 0.69. Industrial production was better than expected at +4.0% m/m, -4.1% y/y with overall household spending also firmer at +0.5% y/y from -3.2% in November. Still to come we have UK consumer confidence, Australia’s NAB business conditions/confidence and Australia’s private sector credit.

Heading into Europe we can expect German unemployment, Swiss consumption, Norway’s retail sales and UK consumer credit, money supply and mortgage approvals. North America features Canada’s industrial product and raw material prices and GDP. From the US we can see S&P CaseShiller House prices, Chicago PMI, consumer confidence and NAPM-Milwaukee.