Euro zone economy may contract 0.2-0.3% in 2013

EU Market Update: G20 will not single out countries in FX in communiqué

Notes/Observations

- G20 members likely to pledge to avoid competitive currency devaluations; will not single out Japan

- RBA's Edwards: AUD currency is very high and hurting exporters

- BOJ Monthly Economic Report raised its assessment for the second straight month as economy appeared to have stopped weakening

- Japan PM mulls 2 candidates for BoJ Gov position (Muto or Iwata) . Muto sad to be leading and seen as more moderate candidate

- German Bundesbank's Weidmann: Euro is not overvalued'; Draghi was not talking down the Euro; ECB will not cut interest rates just to weaken the Euro

- Meteorite crash in Russia urals injures hundreds

Economic Data

- (RU) Russia Narrow Money Supply w/e Feb 11th (RUB): 7.37T v 7.33T prior

- (ES) Spain Jan Consumer Price Index M/M: -1.3% v -1.4%e; Y/Y: 2.7% v 2.6%e

- (ES) Spain Jan CPI EU Harmonized M/M: -1.8% v -1.9%e; Y/Y: 2.8% v 2.8%e

- (ES) Spain Jan Core CPI M/M: -1.6% v -1.8%e; Y/Y: 2.2% v 2.1%e

- (TR) Turkey Nov Unemployment Rate: 9.4% v 9.3%e

- (CZ) Czech Dec Export Price Index Y/Y: -0.7% v +0.3% prior; Import Price Index Y/Y: -0.6% v +1.3% prior

- (DK) Denmark Jan Wholesale Prices M/M: -0.5% v -0.4% prior; Y/Y: 1.6% v 2.9% prior

- (FI) Finland Dec Current Account -€500M v +€200M prior

- (EU) ECB: €122.0M borrowed in overnight loan facility vs. €23.0M prior; €124.3B parked in deposit facility vs. €125.6B prior

- (SE) Sweden Q4 Industry Capacity: 84.5% v 86.5%e

- (IT) Italy Dec Total Trade Balance: €2.2B v €3.1Be; Trade Balance EU: -€1.2B v +€0.5B prior

- (NO) Norway Jan Trade Balance (NOK): 33.5B v 35.2B prior

- (IT) Italy Dec General Government Debt: €1.9880T v €2.021T prior

- (UK) Jan Retail Sales Ex Auto Fuel M/M: -0.5% v +0.5%e; Y/Y:0.2% v 1.6%e

- (UK) Jan Retail Sales w/Auto Fuel M/M: -0.6% v +0.5%e; Y/Y: -0.6% v +0.9%e

- (EU) Euro Zone Dec Trade Balance Seasonally Adj: €12.0B v €11.5Be; Trade Balance unadj: €11.7B v €13.1Be

- (IT) Italy Dec Current Account: €2.4B v €0.7B prior

- (BR) Brazil Feb FGV Inflation IGP-10 M/M: 0.3% v 0.4%e

- (GR) Greece Jan CPI EU Harmonized Y/Y: 0.0 v 0.3% prior

Fixed Income:

- (IN) India sold total INR120B vs. INR120B indicated in 2020, 2025 and 2042 bonds

- (ZA) South Africa sold total ZAR800M in I/L 2025, 2038 and 2050 Bonds

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

***Equities***

Indices: FTSE 100 -0.10% at 6,322, DAX -0.10% at 7,622, CAC-40 +0.10% at 3,681, IBEX-35 -0.10% at 8,240, FTSE MIB +0.10% at 16,558, SMI +0.10% at 7,492

- European equity markets are mixed, amid the declines in EUR/JPY, as markets focus on G20 commentary. In London, the FTSE retail index is lower by over 1% on weaker than expected Jan retail sales. Firms which reported earnings on the session included Commerzbank, Eni and PPR.

- UK movers [Anglo American +2% (raised dividend),Darty -8% (guided lower), LSE -6.5% (LCH unit FY results missed some ests),Johnson Matthey -1.5% (revised agreement with Anglo Platinum)]

- Germany [Deutsche Telekom -1.5% (concerns about MetroPCS transaction)]

- France movers [PPR +5 (FY results above ests)]

- Italy movers [Eni +2% (FY results above ests, raised dividend); Finmeccanica -2.5% (broker commentary)]

- Dutch movers [Aegon +4% (FY results above ests)]

Speakers:

- German Bundesbank's Weidmann commented ahead of the European open that the Euro was not overvalued and ECB chief Draghi was not talking down the Euro. Weidmann added that the ECB would not cut interest rates just to weaken the Eur. The currency was only one factor in gauging inflation and that the ECB would abstain from manipulation of the Euro. He also noted that higher market rates were no cause for concern and had no reason to doubt ECB baseline scenario as data suggested gradual economic recovery in H2 2013. He hoped the ECB will not buy bonds under the OMT program but ECB might be forced to show its hand in the program. On other topics he stated that Cyprus needed a substantial bail-in while the Ireland promissory note swap might yet fall foul of ECB treaty rules; transaction come dangerously close to contravening a ban on monetary financing of govts. Lastly he reiterated that resignation rumors are unsubstantiated

- ECB's Draghi commented at G20 that Euro exchange rate was not a policy target and reiterated that it would never pre commit on interest rates. He added that chatter on exchange rates was self-defeating but would look at FX impact on growth and price stability. He reiterates view that Euro exchange rate was around the long term average (**Note 0.82 to 1.60 is the historical range. He stated that he did not believe that inflating budget deficits to create demand was sustainable **Note: Comments in line with the Feb ECB post rate decision press conference)

- ECB's Asmussen (Germany) reiterated G7 stance that currencies should be market based, without fixed targets and that talk of a currency war was exaggerated. Discussions over exchange rates should not distract from the need to implement reforms, Germany and France have special responsibility to follow stability and growth pact

- ECB's Nowotny: Euro zone economy may contract 0.2-0.3% in 2013

- Russia Dep Fin Min commented that G20 currency statement would difficult to draft but would avoid harsh language, not use phrase currency wars or mention Japan . He noted that Japan trade partners showed a muted response to its intention to see a weaker yen.

- Treasury's Brainard: Important that all G7 nations obey rules of the road in currencies; Must avoid downward spiral of beggar-thy--neighbor FX policy. G20 will not single out countries in FX in communiqu

- Japan Shirakawa reiterates that Japan's monetary policy aimed to beat deflation. Weaker JPY currency was due to receding risk aversion among investors

- Russia Central Bank Head Ignatiev reiterates that rate cuts were possible but remained dependent on inflation outlook, Russia central bank was not part of Cyprus aid talks.

- German Fin Min Schaeuble commented that he did want state intervention in exchange rates and sought market-orientated rates. He did add that there was a consensus at G20

- Brazil Fin Min Mantega: Currency war is evident at this time; G20 needs to do more than just rhetoric on banning currency manipulation. Stimulating economic growth and global trade were solutions and added it was time for Europe to ease fiscal restraints. Brazil would not allow over-appreciation of the BRL currency (real)

- Australia Treasurer Swan: G20 had always advocated market-based Fx rates. G20 had no debate on deployment of monetary policy. China has been moving to market based currency.

- EU Commissioner Rehn stated to the EU Parliament that G20 should focus more on structural reforms rather than short-term fiscal and monetary stimulus. He noted that EU economy to gather momentum later in year and that German domestic demand was mustering strength

- Portugal PM Coelho: Structural reforms take time to deliver results. If foreign demand remained low it would not be able to maintain economic projections for 2013. Might revised GDP forecast die to slower exports

- German Govt Advisor Bofinger (wiseman) commented that German growth in 2012 was mainly due to US President Obama fiscal policy as 20% of German growth came through exports to US. He added that Germany should refrain from harsh criticism of US fiscal policy

- OECD chief Gurria: Monetary policy should be kept loose, but sees diminishing returns for looser monetary policy; EU recovery likely to be delayed by 6-12 months

- Indonesia Dep Central Bank Sarwono commented that there were no big concerns over JPY currency devaluation at this time as Indonesia benefited from stronger Japanese domestic demand

- Italy PM Monti: Italy bond yields were at natural levels and he had to worsen the recession to help bring down bond yields

Currencies:

- The EUR/USD began the session at its highs following comments from German Bundesbank's Weidmann that the Euro was not overvalued and Draghi was not talking down the Euro at the press conference last week. Additionally ECB would not cut interest rates just to weaken the Euro. The pair tested 1.3393 after the comments but drifted lower afterwards. However, Dealers pointed out that ECB could be cutting because Europe was in recession and had an excuse for such action (**yesterday Prelim Q4 readings). The EUR/USD approached the NY morning just off its lows of 1.3308

- The JPY firmed during the Asian session as Toshiro Muto was said to be the leading candidate for the next BOJ Gov. Muto is viewed by markets as 'less dovish' compared to other potential candidates. The JPY did encounter spats of softness as commentary emerge out of the G20 meeting in Moscow. Consensus at this time is that G20 currency statement would avoid harsh language and not single out Japan for its attempt to weaken the yen.

- The softer UK retail sales data push the GBP/USD back below the 1.55 handle and near 6-month lows.

- Spot gold hits 6-month lows below $1,626/oz. Investor Dennis Gartman said to be moving out of the metal and into copper

In the Paper:

- G20 communiqudraft indicates G20 members will pledge to avoid competitive currency devaluations; Group committed to lowering imbalances. Committed to avoiding FX rate 'misalignment'; members will resist protectionism in all forms. The group noted that risks remain and global growth is still weak

- (EU) EU's Rehn: Ongoing economic weakness in Europe is related to the continuing deleveraging process; must continue fiscal consolidation

- (EU) S&P sovereign analysts Kramer: Spain, Italy and France could all be downgraded this year; UK sovereign downgrade not a foregone conclusion

Looking Ahead

***All times listed for economic events are denominated in Eastern Standard Time (Add 5 hours for GMT equivalent)

- G20 Finance Ministers and Central Bank Governors Meeting

- (PE) Peru Jan Unemployment Rate: 5.9%e v 5.6% prior

- (PE) Peru Dec Economic Activity Index Y/Y: 6.0%e v 6.8% prior

- (CO) Colombia Jan International Reserves: No est v $37.5B prior

- 06:00 (FI) Finland Govt to face no confidence vote over economic policy

- 06:00 (PT) Portugal Q4 YTD Labour Costs: No est v 1.1% prior

- 06:00 (EU) Weekly ECB announcement of early repayment of 3-year LTRO funds

- 06:10 (UK) DMO to sell 2.5B in 1-month, 3-month and 6-month Bills

- 06:30 (US) Daily Libor Fixing

- 06:30 (IN) India Weekly Forex Reserves

- 07:00 (IS) Israel Jan Consumer Prices M/M: 0.0%e v 0.2% prior; Y/Y: 1.6%e v 1.6% prior

- 07:00 (IC) Iceland Jan Unemployment Rate: No est v 5.7% prior

- 08:00 (PL) Poland Jan CPI M/M: 0.3%e v 0.1% prior; Y/Y: 2.0%e v 2.4% prior

- 08:30 (CA) Canada Dec Manufacturing Sales M/M: -0.8%e v +1.7% prior

- 08:30 (US) Feb Empire Manufacturing: -2.00e v -7.78 prior

- 09:00 (PL) Poland Jan YTD Budget Level (PLN): No est v B prior; Budget Performance: No est v % prior

- 09:00 (BE) Belgium Dec Trade Balance: No est v -€751.6M prior

- 09:00 (US) Dec Total Net TIC Flows: No est v $27.8B prior; Net Long-term TIC Flows: $42.5Be v $52.3B prior

- 09:00 (CA) Canada Jan Existing Home Sales M/M: No est v -0.5% prior

- 09:15 (US) Jan Industrial Production: 0.2%e v 0.3% prior; Capacity Utilization: 78.9%e v 78.8% prior; Manufacturing Production: 0.0%e v 0.8% prior

- 09:55 (US) Feb Preliminary University of Michigan Confidence: 74.8e v 73.8 prior Jan Final

- 09:55 (US) Fed member Pianalto speaks on economy in Florida

- 10:50 (UK) BOE member Weale

- 13:00 (EU) ECB member Constancio

- 14:00 (AR) Argentina Dec Economic Activity Index M/M: No est v 0.4% prior; Y/Y: No est v 1.8% prior

- 14:00 (AR) Argentina Jan Consumer Price Index M/M: No est v 1.0% prior; Y/Y: No est v 10.8% prior

- 14:00 (AR) Argentina Jan Wholesale Price Index M/M: No est v 0.9% prior; Y/Y: No est v 13.1% prior

Weekend

- Cyprus Presidential election