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Phil
January 16th, 2012 at 7:40 am

OK, let's see what news we've been missing:  

2:09 AM Asian stocks fall the most in a month after S&P's nine eurozone downgrades. Japan -1.4%. Hong Kong -1.0%. China -1.7%. India -0.3%.

3:33 AM EU shares are mostly flat-to-higher in early trading despite S&P's mass downgrade on Friday, as the action on France was well baked in. Euro STOXX 50 flat. London +0.2%. Paris -0.1%. Frankfurt+0.1%. Madrid -0.4%. Euro -0.15% at $1.2673

Japanese core machinery orders +14.8% M/M in November,well above forecasts of +5.6%. The data shows signs of recovery following a sharp turn for the worse in the previous two months due to the Thai floods and the EU debt crisis.

A shutdown of Nigeria's oil production for today has been averted after union leaders agreed to maintain output while talks continue with President Goodluck Jonathan over the cutting of fuel subsidies. Industry officials doubt unions can prevent crude oil exports totally, as production is mainly automated and Nigeria has crude in reserves.

Analysts predict $4/gallon gasoline in various parts of the U.S. by spring, and some big cities such as NYC, LA and Chicago could see record Memorial Day averages of $4.55-$4.95. "Motorists who drive a SUV may want to consider calling their banking institution and obtain a credit limit increase so they can afford this summer’s fuel expenses," quips GasBuddy.com.

The five-year slide in U.S. home prices will end this year, according to a Reuters poll, followed by the start of a weak recovery in 2013. However, a stagnant 2012 and the meager 1.5% gain expected in 2013 will offer little comfort to the millions of Americans trapped in negative equity — owing more to their mortgage lender, in some cases much more, than their houses are worth.

As with EU shares, yields on 10-year EU government bonds aren't reacting too drastically to S&P's ratings action. France +3 bps, Spain +4 bps, Italy +4 bps, Austria flat, Belgium +4 bps, Germany flat.

S&P's slash-and-burn extravaganza on Friday makes German bunds more attractive than ever. Despite two-year yields that have tumbled as low as 0.134% from last year's 1.95%, strategists expect investors to keep piling in to what is seen as the eurozone's only safe haven.

More from S&P: The agency faults the EU for focusing too much on cutting budgets and not recognizing the issues "are as much a consequence of rising external imbalances and divergences in competitiveness between the (core and the periphery)," i.e. Italian, Spanish, and Greek labor can't compete with Germany.

Euro sovereign debt yields had more than baked in S&P's latest downgrades (I, II), says Mohammed El-Erian, but that doesn't mean they don't matter. The moves could encourage other agencies to follow, and stand to alter investment flows. El-Erian's broader thesis: "the balance of risks is to the downside, for Europe and for the global economy."

Dow Jones reports S&P Managing Director John Chambers as saying the agency will complete its review of the EFSF next week. Given the downgrade from AAA of one of its key backers (France), it's hard to see how a downgrade of the rescue fund can't be in the cards. (previous) 

In addition to the EFSF, the next target in S&P's sights could be beleagured French banks, which have suffered due to their eurozone debt exposure. Still, BNP Paribas (BNPQY.PK) could be spared – for now – as France's downgrade was only one notch, while some analysts played down the affect of further ratings cuts on banks.

The Eurogroup hits the tape saying it will do "whatever it takes" to overcome the crisis, and is exploring options to maintain the EFSF's AAA rating. France and Austria together account for 23% of the rescue fund's backing. Add in the PIIGS, and a majority of the EFSF's capital comes from non-AAA countries – it's unclear how a AAA can be maintained.

The EU states with negative outlooks following today's action– France, Italy, Spain, Ireland, Austria, Belgium, Portugal, the Netherlands, Finland, Slovenia, Cyprus, and Estonia – are deemed by S&P to have a 1 in 3 chance of a lower rating being assigned through 2013.

Following S&P's downgrade fest (I, II, III, IV) on Friday, Angela Merkel yesterday said the eurozone needed to speed up the implementation of its fiscal compact, "and to do it resolutely, not to try to soften it," as has been proposed. Merkel also wants to hasten the deployment of the permanent bailout fund. 

Hearing Angela Merkel's response to the S&P downgrades, one wonders if she took the time to read the agency's statement. It's not just about government finances, argues S&P, but a fundamental competitiveness imbalance between the core and the periphery. "A reform process based on a pillar of fiscal austerity alone risks becoming self-defeating."

Also in Merkel's response to the S&P downgrades comes this chilling idea: She says she will consider legislation to bar institutional investors such as insurance companies from selling bonds when ratings are downgraded, or fell below investment grade. If banning short sales doesn't work, why not step it up a notch and ban selling altogether?

From blogger Alea comes a shot of the clever front page of this morning's edition of the Libération in response to last night'sdowngrade of France. It's another blow for President Sarkozy, headed to the polls in less than 100 days and currently trailing the Socialist Party's Francois Hollande, who has indicated he's less willing to parrot German demands for EU-wide austerity. 

Greece will resume meetings with private creditors on Wednesday following the breakdown of talks on Friday. With the sides agreeing on most things, the main dispute is the coupon on a new 30-year bond. Greece and bondholders had agreed to 4%-5%, but Germany wants it to be 2%-3%, which would increase bondholder losses from 60% to more than 80%. "That would amount to wiping out Greek lenders," says an Athens banker.

The IMF-ECB-EU troika may reportedly withhold Greece's next aid tranche in March as officials come to the conclusion that many others have believed for a long time: it's time to end the pretense that the country can or wants to undertake reform. The aim now is less to help Greece and more to avoid an uncontrolled default. 

As if it will end with Greece:  Spanish unemployment hit the "astronomical" level of 5.4M at 2011's end, says PM Rajoy. With the official figures not yet out, a bit of math suggests the unemployment rate jumped from 21.5% to about 23.2% – an astounding move in just 3 months. One wonders what's ahead as the government is set to unleash a new wave of austerity measures.

In an attempt to promote "insourcing," President Obama yesterday said he'll make tax proposals that will reward companies for bringing jobs home and investing in America, while he also reiterated his pledge to end breaks for companies that move jobs overseas. (video) 

You can't tell what stocks to buy just from analyst calls, notwhen there are 10 "Buys" for every "Sell." But you can learn from studies that show that "Sell" calls – like those recently issued for PLLand GPS – tend to be more prescient than Buy picks. Those calls with recently raised near-term earnings forecasts (as recently with ROST,BRCM and DFS) also move prices more than those without.

The risk-on trade is back, says BlackRock's Bob Doll. "Valuations are very cheap," and investors should capitalize on the situation by adding a mix of defensive and and cyclical plays. Healthcare shares are a favorite defensive pick, due to their high free cash flows and growth exposure, while energy stocks remain favored cyclical plays.

Don't get out the champagne yet – the 2012 economy will still be disappointing despite a run of good data culminating in the last jobs report, Laura D'Andrea Tyson says. Growth should fall short of what's needed to absorb labor even under good assumptions, and an output gap of more than 7% will be hard to bridge. And don't forget still-high household debt is pumping up.

China launched its first physical iron ore trading platform today. As the world's biggest iron ore consumer, China has long believed it's entitled to a bigger say on prices, and is hoping the new platform (along with a new pricing index) will give it greater sway over the Big Three miners: Vale (VALE), BHP (BHP) and Rio Tinto (RIO).