Merkel, Sarkozy to Detail Fiscal Compact; China Eases

Today French President Sarkozy will meet with Chancellor Merkel in Germany where the two Eurozone heavyweights will seek to hammer out the details of the so-called fiscal compact agreed at the EU summit on December 9, 2011. Meanwhile in Asia, the world's second largest economy, China, is showing signs of monetary easing, which sent Chinese equities higher even as most of Asia struggled to post gains.
'Merkozy' to announce details of fiscal compact? Though the EU leaders (minus the U.K.) agreed to a fiscal compact at the December 9 summit last year designed to impose a tougher discipline on EU countries' fiscal policies, the details of the plan were lacking. Those details are expected to be hammered out at today's meeting between Merkel and Sarkozy with a press conference to be held at 12:30 GMT. With the fiscal compact to be effective by March a detailed plan is much needed to calm the markets with several Eurozone countries, including Spain (on 1/12) and Italy (on 1/13), to auction off bonds this week (we also have the monthly ECB meeting on 1/12).

China eases monetary policy further: Several high profile Chinese leaders have warned recently that the economy is losing speed and we have already witnessed the first (of many, we believe) cuts to banks' reserve requirements to 21 percent from 21.5 for major banks and 19 percent from 19.5 for smaller banks. Yesterday China released a couple of reports showing further easing of monetary policy with New Yuan Loans up 640.5 billion in December vs. 575bln expected and 562.2bln prior while all three money supply (M0, M1, and M2) figures accelerated year-on-year (and beat expectations) with the broadest, the M2, up 13.6 percent from 12.7 a month earlier. Tomorrow we get trade data with consensus looking for a narrowing trade surplus while on Thursday we have both PPI and CPI. Both are expected to decelerate, which means more opportunity for the People's Bank of China to ease at will.

German Industrial Production to retreat: Consensus expects production to have shrunk 0.5 percent in November relative to October in Germany, which is no surprise considering Friday's abysmal Factory Orders report. Orders, which lead production, fell sharply by 4.8 percent month-on-month in November and October's gain was also revised down a bit to 5 percent from 5.2. Besides this report it will be a quiet day in terms of economic data today with only two minor reports from the Eurozone (Sentix) and the US (Consumer Credit).