Below is our customary collection updates of the usual suspects: CDS spreads, bond yields, euro basis swaps and several other charts. Both charts and price scales are color coded (readers should keep the different scales in mind when assessing 4-in-1 charts). Prices are as of Tuesday's close. Among the big movers in CDS spreads we have of course Hungary, which has become a new focus of market worries. Otherwise no large moves have occurred (Spain is an exception to that as well, see below), but euro basis swaps have recovered smartly now that end of year related liquidity pressures have eased.
Spain – Deficit Worse Than Thought , Italy's Slightly Better
The recent revelation by Spain's government that its deficit will be greater than anticipated, even while the economy continues to grown under depression-like conditions (unemployment now stands at a new high of 23%) has reversed the recent downtrend in CDS on Spain. No-one should be surprised, but evidently some people were.
According to Reuters:
"Spain's incoming centre-right government on Friday estimated the public deficit for 2011 would come in at 8 percent of gross domestic product, which compares with an official target of 6.0 percent.
In its first decrees since winning a comfortable majority in Nov. 20 elections, Deputy Prime Minister Soraya Saenz said the government would freeze civil servants' pay as a foretaste of austerity measures it has pledged to convince investors it can get its public finances in order.“
Meanwhile, Spain's banks have been given more rope to hang themselves by means of fresh 'extend and pretend' measures following the ECB's LTRO. Alas, this can not alter the fact that they are nursing vast unrecognized losses that will eventually emerge from the space below the rug they have been swept under to everybody's consternation and embarrassment. The government will be under great financial pressure if it really wants to keep all those precious banks afloat.
Italy meanwhile let it be known that its deficit for 2011 came in somewhat lower than expected, at 'only' € 61.5 billion against the expectation of € 64.8 billion. However, this was at least markedly better than the 2010 deficit of € 67 billion. Alas, this won't do much to alter the pressures Italy faces in terms of funding in the course of 2012.
Euro Area Economic News Mixed, Contraction Continues
Euro-area manufacturing PMI data released yesterday showed a mixed performance, with Germany and France beating expectations, but the overall euro area manufacturing growth fell to its weakest level since mid 2009. The complete report including charts can be downloaded here (pdf).
Euro area services PMI data released today were better than expected, leaving the contraction evident in the combined PMI at a better than expected level of 48.3 – up from 47 in November (any number below 50 indicates contraction – PMI is a diffusion index).
Meanwhile, a slight improvement was also reported on the 'inflation' front, with the euro area's consumer price index growth rate slowing to 2.8% in December from a recent high of 3% recorded in November. This is still above the 'official target' of the ECB, but is nonetheless widely held to allow the ECB to cut its already rock bottom administered interest rate of 1% even further. The next ECB meeting takes place on January 12.
5 year CDS on Portugal, Italy, Greece and Spain – there was a notable reversal in the recent downtrend in CDS on Spain
