Onto Another EU Summit, US Inflation in Focus

Greece rejects German plan for Greek budget oversight; EU summit starts in Brussels; Italian auction results in decent take up; EZ economic confidence rose but consumer confidence was revised lower. Market turns to core US PCE, personal income and spending.

USD is slightly stronger since London open. Major European equities are lower by about 1%.

Even though the WSJ suggested that Greek swap negotiations were close to an agreement, the common currency came under pressure as soon as the Asian session started. USD buying continued through the beginning of the London session primarily on news that Greece rejected German plan of EU oversight over Greek budget indicating an existing level of distrust.

Noteworthy comment was made yesterday by Greek PM Papademos who said that unless a new bailout is agreed on, Greece would not be able to pay off its debt and it would be forced out of the Eurozone.

The first 2012 EU summit starts today in Brussels with two key aims. Progress on creation of the fiscal union and approval of changes necessary for the ESM introduction.

Italy sold EUR 7.475 bln worth of various BTPs maturing between 2016 and 2022 (target EUR 5.5 to 8 bln). The average yields were lower but continue to be elevated and bid to cover ranged between 1.29 and 1.87. Italian spreads widened ahead of the auction but paired back on unconfirmed reports that the ECB was checking Italian 5 year and 7 year rates. Other news from Italy include business confidence that fell to 92.1 in January from 92.5. This is the weakest result since end of 2009.

On the data front, Eurozone economic confidence rose in January to 93.4 from 92.8 and Eurozone consumer confidence was revised lower to -20.7 from -20.6. German CPI is still being collected with results due later today. January CPI is seen higher at 2.4% from 2.3% y/y.

The NY session starts at 8:30 am ET with core PCE price index which is expected to hold steady in December at 0.1% m/m and 1.7% y/y. Given the FED's decision to target inflation using the PCE index, the market impact of the release may become greater.

Personal income which is due at the same time is seen higher at 0.4% from November's 0.1% and personal spending is anticipated to rise 0.2% after previous 0.1% growth.

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