• US Feb CPI +2.9%, as expected
• US Fed industrial production 0.0% vs +0.4% exp
• U of Mich March consumer sentiment 74.3 vs 76.0 exp
• Canada Jan manufacturing sales -0.9% vs +0.2% exp
• Irish fin min says economy could take off next year
• Rumors of EFSF 5yr and 20-30yr bond next week
• Fed’s Evans: FOMC should take more steps
• Greek banks given leeway to tap ECB
• German borrowing to rise this year
• US threatens North Korean aid
• S&P 500 up 0.1% to 1404, gains 2.4% on week
• GBP leads USD and CAD lags
• On week, GBP leads and JPY trails

EUR/USD blasted above stops at 1.3090, jumping to 1.3135 in a flash after the CPI data. Explanations about renewed QE3 expectations are a stretch but the EUR/USD buying continued after IP and cons sentiment, hitting 1.3187 and busting shorts.

The cable move was similar but more dramatic, jumping to 1.5880 from 1.5740 in the final hours of trading for the week. The move stalled out right at the 200-day moving average and drifted back down to 1.5820/30 at the close.

USD/JPY was caught in the dollar-selling bonanza, falling to 83.52 from a session high of 83.94 moments before the CPI news. Sturdy US bonds helped a rebound to 83.75 but a late bond rally knocked the pair to a two-day low of 83.17. Firm bid down to 83.00 held the pair and it was trapped in a tight 83.30/40 range in the US afternoon.

• EUR short positioning is least since the first week of December
• JPY shorts -42K vs -19K
• GBP shorts -42K vs -37K
• CHF shorts -15K vs -19K
• CAD longs 26.7K vs 26.0K
• AUD longs +67K vs +62K
• NZD longs +13K vs +17K
• Open interest surged across the board
• Gold to +151K from +163K
• The report is here

A staff report from the IMF reads like a kick in the balls to Greek bondholders:

• Greek will remain accident prone
• Program failure could lead to Greek default
• Setback would require more debt restructuring
• Greece will need a decade or more to address competitiveness

Someone in Washington has their eye on a nice piece of real estate in Santorini, it seems.

Leafing through the weekly charts, some thoughts:

• USD/JPY higher for sixth consecutive week (CAD/JPY for 10-straight weeks)
• The weekly revers in GBP/USDl after hitting the lowest since mid-January is bullish but the 200-dma looms above
• USD/CHF looks bearish, a potential reversal
• USD/CAD had a pitiful 70-pip weekly range but it often gets sleepy before a big move
• Too early to write off the long-term bull market in AUD/USD
• EUR/USD was less volatile than it seemed, not much of a takeaway
• EUR/JPY looks ready to take off on a break of 1.10

Fundamentally, I have problems with a lot of these trades (see our Three Little Rules) so it’s hard for me to make a strong case for any trades on this.

By Steven K. Beckner

(MNI) – Chicago Federal Reserve Bank President Charles Evans said
Friday that U.S. monetary policymakers “can and should take additional
steps” to promote faster economic growth.

Evans did not explicitly call for another round of quantitative
easing — something he has favored in the past — but called again for
announcing more explicit economic “triggers” to clarify that the Fed
won’t raise the federal funds rate from near zero so long as
unemployment is above 7% and inflation is 3% or less.

Evans, who dissented in favor of additional monetary easing at the
November and December Federal Open Market Committee meetings, called 3%
inflation” a risk that we should be willing to accept” and a rate that
“isn’t high enough to unhinge long-run inflation expectations,”
according to a speech prepared for delivery to an International Research
Forum on Monetary Policy in Frankfurt, Germany.

At its Jan. 25 meeting, the FOMC extended the expected period of
zero rates “at least through late 2014,” announced a 2% inflation target
and incorporated federal funds rate forecasts into its Summary of
Economic Projections.

Evans, a member of Fed Vice Chair Janet Yellen’s subcommittee on
communication, said those steps, while welcome, did not go far enough.
And there “mere chance” that the FOMC might raise the funds rate
before unemployment has fallen below 7% “may be diminishing” monetary
accommodation.

On a day when the Labor Department announced a 0.4% February rise
in the consumer price index (a near 5% annualized inflation rate), Evans
called inflation “very low … perhaps too low.”

He put much more emphasis on high unemployment, saying the 8.3%
jobless rate is “a 2-1/4 to 3 percentage point deviation from our
current maximum employment objective.”

Evans seemed unimpressed by the economy’ recent performance.

“I believe it’s hard to say that we are not in a liquidity trap,”
he said.

“Recently, the U.S. data have been more encouraging, with the labor
market improving and private demand showing a little more traction,”
Evans said, calling those “welcome developments.”

“But even the more optimistic forecasts see output increasing only
moderately above its potential growth rates; no one has an expectation
for a surge in activity that would quickly close resource gaps,” he
continued. “At the same time, the outlook for inflation is subdued …
Furthermore, private sector long-run inflation expectations are quite
well anchored.”

And so Evans reiterated his desire to see the FOMC “committing to
keep policy rates exceptionally low until certain observable economic
triggers are met that would be consistent with the economy being well
past the liquidity trap.”

As he has done before, Evans said the FOMC “could sharpen its
forward guidance by pledging to keep policy rates near zero until one of
two events occurs:

* “The first event would be if the unemployment rate moved below a
7% threshold …”

* “The second event that would commit us to raise rates would be if
inflation rises above a particular threshold that is clearly
unacceptable. … I would argue that this inflation-safeguard threshold
needs to be well above our current 2% inflation objective …”

“My preferred inflation threshold is a forecast of 3% over the
medium term,” he said. “For a central bank like the Federal Reserve that
has a statutory dual mandate, this seems like a risk that we should be
willing to accept.”

“We would suffer some net policy loss if the gains in employment
did not occur,” Evans conceded. “But we certainly have experienced
inflation rates near 3% in the recent past and have weathered them well
… And 3% isn’t high enough to unhinge long-run inflation expectations”

Evans said “a 7/3 threshold policy would more clearly convey a
commitment to the degree of accommodation I think we need.”

He objected to talk that the FOMC may raise rates before late 2014.

“Suppose as we move through next year that our projections for 2014
have an unemployment rate above 7% and inflation close to 2%,” Evans
said. “Some might argue then that the economic conditionality in the
statement has been met and we should begin to remove accommodation.”

But “to me, in the absence of some new compelling evidence about
the natural rate of unemployment or an unhinging of inflation
expectations, this would represent an unwarranted tightening of policy,”
he went on. “Indeed, the mere chance that this may occur may be
diminishing the degree of accommodation in place today.”

Evans concluded by saying “I have undoubtedly generated some
discomfort in the room tonight by saying that even with the large degree
of accommodation already in place, monetary policy can and should take
additional steps to facilitate a more robust economic expansion.”

“But I believe a greater risk today is that we buy too quickly into
thinking that the equilibrium rate of unemployment has jumped 2 or 3
percentage points or that long-run inflation expectations have become so
fragile that they are on the verge of spiking well above 2%,” he said.

“I just don’t see the evidence out there supporting this view,” he
continued. “But if we do buy into it, then we’ll end up following overly
restrictive policies that could unnecessarily risk condemning the U.S.
economy to a lost decade — or even more. And the costs of taking this
route would be unacceptable.”

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]

Translation: I want to buy every bond ever printed.

The uber-dovish Chicago Fed president says he wants to avoid a Japanese-style lost decade by tightening policy to quickly.

No one wants you to tighten, Charlie, just give the economy a little bit of room to recover on its own.

Not very surprising comments, considering the source…

Hoping to be the next Elaine Garzarelli or Meredith Whitney, no doubt.

Story here.

WTI jumps up to $107.24 from $106.24 in a flash. Up $2.13 on the day.

Talk about pipeline explosions or warmongering are the usual culprits but nothing is popping up so far. Blame the regular pre-weekend gouging.

Best caption wins a coveted ForexLive tee-shirt.

Keep it clean, kids…

I’m not sure I believe this but it’s out there.

Chicago Fed President Charles Evans speaks at 1900 GMT (3 p.m. ET) and there is said to be trepidation about dovish comments. I don’t see it, Evans is the dovemaster and he’s not even a voter on the FOMC this year. Six weeks ago, he came out in favor of “very aggressive” QE3 in MBS and it’s doubtful that he will change his tone, but that shouldn’t surprise anyone.

The other half of the chatter is fears about dovish comments from NY Fed President Dudley who speaks Monday morning. Dudley is Bernanke’s right-hand man and usually only speaks when he has something to say. The chatter is that he could hint at more QE (sterilized or not) but the risks are two-way because he could also take it off the table. Certainly there are some risks with Dudley but I doubt it’s enough to spook markets so far in advance.

In any case, bonds remain bid, with 10-year yields now at 2.29% compared to 2.36% at today’s  high. The falling yields are blocking attempts to push up USD/JPY, from the current 83.30/40 range.

A global flight from safety has been the theme in the bond markets this week. US banks have reputedly been selling Treasuries to raise cash for payouts to shareholders via either cash dividends or stock buybacks. Investment managers have been moving out of the safety of Treasuries and bunds and into the higher yields offered by the likes of Italy, Spain and especially Portugal. Funds have flowed out of bonds in general and back into equities, which are historically under owned.

Here’s a table showing how yields of higher-quality sovereigns are moving up while yields of riskier sovereign debt are stable to lower, a sign of demand for relative “junk” and a move out of the safety trade.

Tighter sovereign spreads tend to be euro supportive, all else being equal.

I’d forgotten that Estonia was even a member of the euro, to be honest…

The FT Deutscheland earlier today reported that Merkel is pushing for her finance minster, Herr Schaeuble, the be given the job.

Might as well make it official, as German calls the shots anyway…

By Steven K. Beckner

(MNI) – New Kansas City Federal Reserve Bank President Esther
George has a new chief economist.

The Kansas City Fed announced Friday that Troy Davig has been named
senior vice president and director of research.

Davig is returning to the Kansas City Fed after a stint on Wall
Street.

Davig has been a senior U.S. economist for Barclays Capital since
2010. Before that, he worked for five years in the Economic Research
Department of the Kansas City Fed, becoming a senior economist in 2006.

Davig will succeed Alan Barkema, who retired earlier this year, and
his interim replacement Craig Hakkio.

As director of research, Davig will act as George’s chief economic
policy advisor, accompanying her to meetings of the Fed’s policymaking
Federal Open Market Committee.

The Kansas City Fed said Davig will also “provide executive
oversight for the Bank’s Economic Research Division and serve as a
member of the Bank’s Management Committee, which has responsibility for
the Bank’s strategic planning and policy direction.”

Davig has been a visiting scholar at the Reserve Bank of New
Zealand and at Indiana University’s Center for Applied Economics and
Policy Research.

Prior to joining the Kansas City Fed in 2005, Davig was an
assistant professor at the College of William & Mary. He holds a
bachelor of arts in economics from the University of Colorado, Boulder,
and a Ph.D. in economics from Indiana University.

At Barclays, Davig has regularly written that firm’s economic
commentaries. On Jan. 20, for instance, after the National Association
of Realtors reported a 5% rise in existing home sales, he said the data
showed “meaningful signs of healing” in the housing market.

** MNI **

[TOPICS: M$U$$$,MMUFE$,MK$$$$]

• Former dovish punching bag is hitting back saying that although Bernanke was effective in the crisis, he might not be afterward
• He says austerity has not succeeded in Europe and that more austerity isn’t a ‘starter’

… after North Korea announced they would launch a satellite. The launch would apparently breach the nuclear deal struck last month.

In the bad old days, risk aversion would result from North Korean sabre-rattling. These days, with the JPY falling, North Korea jitters might weaken the JPY, now that the current account has moved into a deficit.

BERLIN (MNI) – The German Finance Ministry in its draft for a
supplementary budget for this year plans to raise federal net new
borrowing in 2012 to E34.8 billion from the previously earmarked E26.1
billion, a senior government official said Friday.

The supplementary budget became necessary because Europe’s
permanent European bailout fund, the European Stability Mechanism, will
be created this year and requires Germany to shoulder E8.687 billion of
the financing of the fund in 2012.

In the 2012 supplementary budget draft, expenditures will be raised
to E312.7 billion from E306.2 billion in the initial budget bill, the
source said. Federal tax revenue is now seen at E249.7 billion (up from
E249.2 billion). Mainly due to the lower Bundesbank profit, other
revenue is seen down to E28.2 billion from the previously earmarked
E30.9 billion.

The German government cabinet is to adopt the supplementary budget
draft next Wednesday. It is also to approve the first draft of the 2013
budget bill and the medium-term fiscal plan until 2016.

The ministry foresees federal net new borrowing of E19.6 billion
for 2013, E14.6 billion for 2014, E10.3 billion for 2015 and E1.1
billion for 2016, the official said.

Federal expenditures are tabled at E300.7 billion in 2013, E303.5
billion in 2014, E307.9 billion in 2015 and E309.3 billion in 2016, the
source explained.

Federal tax revenue is projected at E256.5 billion in 2013, E268.0
billion in 2014, E276.6 billion in 2015 and E287.3 billion in 2016, the
official said.

Other revenue is seen at E24.7 billion in 2013, E20.9 billion in
2014, E21.0 billion in 2015 and E20.8 billion in 2016, the official
said.

The federal structural deficit is tabled at 1.00% of GDP this year,
at 0.54% in 2013, at 0.26% in 2014, at 0.14% of 2015 and 0.01% in 2016,
the source said.

The country’s debt limitation bill requires the federal government
to bring its structural deficit down to 0.35% of GDP by 2016. If the
finance ministry calculations prove correct, the government will
have achieved this goal two years ahead of schedule.

–Berlin bureau: +49-30-22 62 05 80; twidder@marketnews.com

[TOPICS: MT$$$$,M$X$$$,M$G$$$,MFGBU$,MGX$$$,MFX$$$]

• Early ESM payment responisble for the rise from previously planned EUR 24.8 bln
• Projected to to drop to EUR 1.1 bln by 2016.

I’m projected to run a four-minute mile by 2016, but projections can be missed….

London closes for the week in about an hour. EUR/USD has declined after the European close in each of the past three days. The squeeze may have one more leg left in the next hour but it would be a surprise to see any dollar selling beyond that.

–House Budget Chairman To Release FY’13 Budget Resolution Tuesday
–Ryan’s Plan Expected To Overhaul Entitlements, Renew Bush Tax Cuts
–Dems Eager To See How Ryan Handles Sequestration, FY’13 Spend Level
–CBO Says Obama’s Budget Would Lead To Ten Year Deficits of $6.4T

By John Shaw

WASHINGTON (MNI) – After weeks of hammering away at President
Obama’s fiscal year 2013 budget submission, House Budget Committee
Chairman Paul Ryan will present his alternative next week.

The Congressional Budget Office reported Friday that President
Obama’s fiscal year 2013 budget would result in cumulative deficits of
$6.4 trillion from FY’13 to FY’22.

Ryan will unveil his budget Tuesday and the House Budget Committee
will mark-up his budget resolution Wednesday. Budget resolutions set
broad spending and revenue goals and make deficit estimates. They do not
have the force of law.

Budget resolutions can call for subsequent legislation, called
reconciliation, to implement the spending and revenue goals set by the
budget resolution.

Ryan is likely to revive the main elements of the budget resolution
that he pushed through the House last April.

That plan calls for extending the Bush era tax cuts and making deep
cuts in the projected growth of federal spending. It calls for the
fundamental overhaul of Medicare. He also proposed overhauling Medicaid
so that it becomes a block grant system in which states would receive a
set amount of funds from the federal government for the program.

Ryan’s budget outline also called for major tax reform in which the
top individual and corporate rates would be reduced from 35% to 25%.

Lawmakers and budget analysts are eager to see how Ryan deals with
two contentious issues: the discretionary spending limit for FY’13 and
the across-the-board spending cuts that are supposed to be phased in
starting in January of 2013.

On the first issue, a number of House Republicans are urging Ryan
to offer a budget that redefines last year’s debt ceiling agreement
which limits discretionary spending to $1.047 trillion in FY’13 and set
a new cap for FY’13 discretionary spending at about $1 trillion.

In a statement this week, House Speaker John Boehner said the debt
ceiling agreement set a maximum in discretionary spending for FY’13, but
did not guarantee that the level had to be reached.

“A cap is a cap. And a spending limit is a limit — not a level,”
Boehner said.

“Spending less not only satisfies the agreement struck last summer
but means we’re borrowing less from places like China,” he said.

Boehner’s interpretation of last year’s debt ceiling deal is
sharply disputed by Democrats.

At a briefing this week, Senate Majority Leader Harry Reid warned
House Republicans not to alter the discretionary spending cap for the
2013 fiscal year which was part of last summer’s debt ceiling law. He
said such a move could lead to a government shutdown this fall.

Reid accused Republicans of “trying to change the agreement we made
as a matter of law.”

“It was a law we passed,” Reid said.

Reid said there is “not a chance in the world” that FY’13
discretionary spending will be cut from the level set in the debt
ceiling agreement.

On the issue of across-the-board spending cuts, it is unclear if
Ryan will offer an alternative $1.2 trillion spending cut package to
replace the across-the-board cuts that are set to being in January or
whether he will offer enough savings to prevent the $110 billion in
FY’13 cuts from going forward.

Both Democrats and Republicans appear determined to overhaul the
so-called sequestration process.

This process required across-the-board-spending cuts of $1.2
trillion over nine years beginning in January of 2013 if Congress’s
so-called Super Committee failed to agree to a package of $1.2 trillion
in savings by Dec. 23, 2011.

That panel failed to secure an agreement on any savings, so the
across-the-board spending cuts are set to begin in January.

Senate Budget Committee Chairman Kent Conrad has said the overall
deficit cutting goals of last summer’s debt ceiling agreement must be
retained.

The first part of last summer’s debt ceiling law calls for nearly
$1 trillion in savings from discretionary programs over a decade by
lowering spending caps. Of this sum, $487 billion would come from
defense.

The subsequent failure of Congress’s Super Committee last fall
mandated another $1.2 trillion in spending cuts beginning in 2013, with
about $500 billion coming from defense.

Conrad emphasized the overall savings package of about $2.1
trillion that was mandated by both last summer’s debt ceiling deal and
the failure of the Super Committee “must be preserved.”

“We got to ensure that level of savings,” Conrad said, referring to
the overall savings goal of $2.1 trillion.

Conrad’s views reflect those of many other congressional leaders
who say that the sequestration process is a blunt instrument to secure
spending savings.

A number of Republican lawmakers are trying to replace some of the
mandated defense savings with reductions in the civilian federal work
force and salary freezes–an idea that many Democrats dismiss as
unacceptable scapegoating of federal workers.

Some Democrats have said they would be willing to replace some of
the defense savings with new revenues–a formula that most Republicans
dismiss as a diversion from the challenge of clamping down on federal
spending.

** MNI Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

EUR/USD, after an illiquid morning, found a pocket of liquidity in the 1.3190 area and seems to have lost its nerve. Small bids are seen on pullbacks to the 1.3135/40 area on dips this afternoon.

On the wires, the EU’s Barroso says that Europe has increased integration during the crisis and moving from monetary union to economic union.