While the news of the European fiscal compact is certainly encouraging (ignoring the fact it only took them 16 meetings in 2 years), there are still a number of scenarios that could rattle energy markets in the short term, including further sovereign downgrades as well as defaults. The markets are focusing on the fiscal compact, but eventually will have to refocus its attention on the Greek debt negotiations, which aren’t going so well.

Greece is the country most likely to default—in fact, it is almost a certainty. It isn’t a question of if, but when, and how. Greece has proven to be a veritable Trojan Horse for the European Union, and particularly its currency and collective creditworthiness.

While nominally a ‘developed’ country (albeit a very minor one), the economy in Greece was structured very much like a non-industrialized developing nation: inefficient tax collection, high levels of government or government-affiliated employment, wealth concentration, and inefficient labour and production systems. Adding to the similarities with developing nations, particularly before the commodity boom of the 2000s which brought them large fiscal surpluses, Greece has a crushing debt load which it has no hope of repaying without massive and disruptive economic reforms. In essence, Greece is a Trojan Horse because they were allowed within the EU’s walls under certain assumptions and pretenses, but they turned out to be something completely different – and potentially catastrophic.

The country and its leaders have yet to formulate a real, long term economic growth strategy, and even if they had, they may not be able to implement it as they have been forced into an austerity regime that has proven far more damaging than helpful thus far – increasing unemployment and decreasing consumption.

Because Greece, unlike for example Italy or Japan, has a high level of indebtedness to international private sector creditors such as banks and investment funds, the restructuring process is all the more complicated because those bondholders are far less willing to be flexible, particularly on taking haircuts on the value of the debt. It is not inconceivable that we end up with a scenario where the negotiations are inconclusive, or worse, an outright failure.

We could see a Greek default as soon as March 20^th, five days after the ominous Ides of March when Julius Caesar was assassinated (yes, he was Roman, not Greek but still). The real question is, will it be an orderly default or a chaotic one—the difference being intervention of some sort by the ECB or IMF, as well as advance notice, in the former. In case of an ‘orderly’ default, the impact on the market could be quite severe, but short-lived, with a $6 to $10 drop in crude prices in less than 4 days, before it starts a slower creep back up to somewhere around $100. Eventually, once the market is sure that the Troika is willing to step in somehow to minimize volatility, the markets will normalize.

However, if there is no reassurance of an ‘orderly’ default, we could easily see prices fall between $12 and $20, and remain at those levels for several months. A disorderly default would also mean higher risk of contagion (particularly for Portugal, as well as Spain and Italy, in that order) and subsequently, further sovereign downgrades for both core and periphery. Lastly, Greece may be forced to leave the European Union and or the European Monetary Union, which may work to its advantage because it could then devalue its currency aggressively and take other measures to stimulate growth.

Nevertheless, even if the Greek debt negotiations go well, their debt is simply unsustainable at 339 billion Euros. Core countries such as Germany will end up having to fork over more funds. Regardless of how much noise is made by the likes of Germany, it is too late to turn its back on the Union—ultimately, it is in Germany’s self-interest to preserve the EU, and more costly to abandon it than to bail it out. Therefore, the likelihood of a catastrophic split or mass exodus from the EU is quite low.

Economists across all major investment banks as well as multilateral organizations such as the IMF and World Bank also acknowledge that regardless of the debt picture, there is likely to be a recession this year in Europe. This will add some resistance to oil prices, meaning that there may be some sort of ceiling level that prices will not be able to stay above for any extended period (barring conflict in the Gulf). We may well have reached that resistance level already, with oil floating around the $100 range lately. However, oil could continue to go up to levels between $105 and $110, particularly if U.S. economic statistics continue to improve.

The real headwinds in Europe are far scarier and less fixable: dwindling populations, aging and unfavourable demographics, and regulatory regimes that often discourage entrepreneurship and innovation—or at the very least, do not encourage it or make it blossom the way it does in China, the U.S. or even Latin America. In the end, these will be the real undoing of Europe, unless it takes drastic action, something which they have shown scant ability to do.

Firstline’s call to action is a defensive one. Investors should always have a diversified portfolio to protect against the impact of events that could disproportionately affect certain companies, industries, or regions. Luckily, as Trinbagonian investors, we have access to Unit Trust’s TT$ investment funds, which can provide an excellent shelter should Europe suffer major credit events this year. UTC’s TT$ returns are based primarily on local debt and equity securities, which have minimal direct exposure to the E.U., thereby presenting an excellent diversification option.

UTC aside, we are happy to assist and advise you on how to avoid exposure to the turmoil in Europe. Send me an email at michael.cooper@firstlinesecurities.com to find out more.

Michael J. Cooper
Trading & Strategy Consultant

Caribbean Airlines Limited (CAL) will resume services to the United Kingdom on June 15. According to a senior airline official, the planned daily service to London, Gatwick will be operated by a B-767 aircraft, two of which are being leased from Chilean airline Lan Chile. The aircraft are expected in Trinidad sometime in March.

The spokesman said the airline regarded the restart of the London service as particularly important since this year marks the 50th anniversary of a Trinidad and Tobago carrier operating flights to London from Trinidad and Tobago.

The decision to resume flights to London out of Port-of-Spain would put CAL in direct competition with British Airways and Virgin Atlantic, two major United Kingdom carriers, which operate services out of several Caribbean islands to London, including Trinidad and Tobago. At one point some years ago, the London service by the now defunct BWIA was regarded as that airline’s most lucrative route.

A delegation of CAL officials, led by acting chief executive officer Robert Corbie and including marketing manager Alicia Cabrera, spent all of this week in London meeting with travel agents, tour operators and wholesalers as well as airport officials. The group is expected in Trinidad on Monday.

Simultaneously, other negotiations are continuing between CAL officials and UK authorities regarding resumption of another London service, this time out of Kingston, Jamaica by Air Jamaica. This service is expected to begin either late this year or early in 2013. Air Jamaica used to operate a Kingston/London service, but this was discontinued some time ago when, like CAL, it sold its Heathrow slots to Virgin Atlantic for US$10.2 million.

Meanwhile Caribbean Airlines is preparing to take delivery of its third ATR-72-600 on February 16. Although this would be Carnival weekend, it is not certain whether this latest aircraft, expected to be registered TTC, would be approved for service by the regulatory authorities in time

The spokesman also said CAL was looking at additional intra Caribbean routes possibly into Antigua and even as far north as Puerto Rico. He added however that these services would not go into operation in the near future. He added, should LIAT reduce its routes as is being bandied about, “CAL is prepared to pick up the slack and would serve as back up to the countries of the Organisation of Eastern Caribbean States (OECS).”

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The government’s payrolls report, due at 8:30 a.m. EST is expected to show 150,000 jobs were added in January, down from 200,000 in December, which benefited from holiday hiring.

Economists expect the data to show that a trend of growth remains intact, while the unemployment rate is seen holding steady at a near three-year low of 8.5 percent.

Recent economic data suggesting a slow but steady economic recovery has helped fuel a rally in stocks, with the S&P 500 up 5.4 percent so far this year and over 23 percent since lows in October. Many analysts said equities were nearing a top, and that a weak report could spark a pullback.

“It seems like the economy is on the mend and is improving, but we need to see follow-through with employment data,” said Robert Pavlik, chief market strategist at Banyan Partners LLC in Palm Beach Gardens, Florida.

“We’ve advanced pretty far, pretty quickly, and while there’s optimism it will continue, there are also a lot of pessimists who are ready to sell.”

S&P 500 futures rose 0.3 point and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 6 points, and Nasdaq 100 futures rose 9.5 points.

Tyson Foods Inc (TSN.N) rose 3.1 percent to $19.19 in premarket trading after its first-quarterearnings beat expectations. Aon Corp (AON.N) also reported a higher-than-expected profit.

Earnings have been mixed, with fewer companies beating expectations than in recent quarters. However many technology names, including Qualcomm Inc (QCOM.O) and Apple Inc (AAPL.O), have posted blowout quarters.

In other economic news, December factory orders are seen rising 1.5 percent, while the Institute for Supply Management’s January non-manufacturing index is expected to come in at 53.0, a repeat of the revised December number. Both numbers are due at 10 a.m. EST.

Sentiment early Friday was underpinned by data that hinted the euro zone may yet avoid recession, boosting European shares.

Investors largely took a wait-and-see approach on Thursday as U.S. stocks ended little changed ahead of the payrolls report.

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Spain’s new government gave banks an extra year to recognize losses if they agree to merge, as it tries to overhaul the financial industry crippled by the collapse of the nation’s property boom four years ago.

Economy Minister Luis de Guindos said late yesterday that banks have a year to make 50 billion euros ($66 billion) of provisions against real-estate assets. If they agree by the end of May to merge, they get a further 12 months to take the charges and can tap the state’s bank-bailout facility for funds.

Prime Minister Mariano Rajoy, in power since December, is trying to restore the flow of credit to Spain’s shrinking economy and improve confidence in lenders saddled with 175 billion euros of troubled real-estate assets. The government wants to remove doubts about the way assets are valued to enhance banks’ access to financing while shrinking the oversized industry.

“By improving the transparency and the perception of strength of Spanish banks, they will be able to finance themselves better, and that is going to allow them to make loans,” de Guindos said in Madrid.

Troubled Assets

The government will make banks increase the ratio of provisions set aside for land to 80 percent from 31 percent, de Guindos said. For unfinished developments, the provisioning level will rise to 65 percent from 27 percent and to 35 percent for assets including finished developments and houses.

Banco Santander (SAN) SA, Spain’s biggest bank, may have to provision an additional 2.7 billion euros to meet the new rules, Nomura International Plc said in a report today. Banco Bilbao Vizcaya Argentaria SA (BBVA) may need to set aside another 2.6 billion euros and the figure for Bankia SA (BKIA), formed from the merger of seven savings banks, may amount to 5.3 billion euros, Nomura said. Bankia is about half the size of BBVA by assets and a quarter the size of Santander. Santander and BBVA haven’t said how the measures will affect them, and Bankia said yesterday it would meet the new rules without public help.

“The banks are going to argue that they don’t have enough time but the government is right to force them because there are some zombies out there,” Inigo Lecubarri, who helps manage about $300 million at Abaco Financials Fund in London, said in a phone interview. “There’s no question that this is going to be burdensome for the banks but frankly they’ve had plenty of time already and we need to get some action here.”

Buffers

The 50 billion euros total figure includes 25 billion euros of provisions to be taken against earnings. Banks that merge can take the charges against capital instead of profits.

Another 15 billion-euro capital “buffer” will be built for land and unfinished developments. The remaining 10 billion euros will come from a 7 percent provision against healthy developer loans, charged against earnings.

De Guindos said the plan won’t affect the budget deficit, which the government is trying to narrow with measures including wage freezes and tax hikes. Still, the Treasury will sell debt to increase the equity of the bank-bailout fund, known as the FROB, to 15 billion euros from 9 billion euros.

Banks that agree to merge will be able to sell contingent convertible bonds to the FROB, de Guindos said. The bonds, known as CoCos, convert into equity if capital ratios fall below a certain level. The FROB has the capacity to borrow as much as 90 billion euros and the debt it sells counts as Spanish public borrowing.

Yields Fall

Spain’s 10-year bond yields fell to 4.919 percent today from 4.932 percent yesterday. Spain’s public debt amounts to about 67 percent of gross domestic product, according to the previous government’s forecasts, below the euro-region average.

The 50 billion euros in new charges compares with 66 billion euros of provisions taken by banks between 2008 and June 2011 to cover specific loan risks, according to the ministry. CaixaBank SA (CABK) Chairman Isidro Faine estimates banks in Spain generated pre-provision income of 24 billion euros in 2011.

While the move creates a “significant additional buffer,” more provisions may still be needed if Spain remains in a recession, Daragh Quinn, Nomura’s Spanish banks analyst, said in the report. The International Monetary Fund sees Spain’s economy shrinking 1.7 percent this year and 0.3 percent in 2013.

“Shareholders of the pure domestic banks face, one way or the other and to varying degrees, the risk of material dilution in light of the new regulation,” Santiago Lopez, an analyst at Exane BNP Paribas SA, said in a research note today.

Bank Shares

Shares in Santander, which has most of its business outside Spain, rose 0.6 percent and BBVA climbed 0.5 percent at 10:30 a.m. in Madrid. Bankia slipped 0.03 percent and Banco Popular Espanol SA (POP), which focuses on Iberia, fell 0.5 percent.

The measures by the new government follow a series of attempts by the former Socialist administration to strengthen banks and restore lending. In 2008, the government started buying assets from banks such as mortgage-backed securities.

In 2009, it created the FROB, which spent about 10 billion euros buying preference shares in lenders it encouraged to merge. It then increased capital requirements for banks last year while coaxing unlisted lenders onto the stock market and changed the rules of the FROB so that it would buy ordinary shares with voting rights in the lenders it rescued.

“The years of denial seem to have come at least partially to an end, and gradually, institutions might be forced to align their balance sheets with market reality,” Exane’s Lopez said.

Rajoy, who leads the pro-business People’s Party, had considered creating a so-called bad bank to buy toxic real- estate assets from lenders, two people familiar with the situation said in November, even as he pledged during the campaign not to use taxpayers’ money for banks. He also rejected using the euro region’s bailout funds for the overhaul.

The Cabinet is set to approve the measures today in a decree law, which goes into effect immediately. Deputy Prime Minister Soraya Saenz de Santamaria holds a news conference after the meeting at about 1:45 p.m. today in Madrid.

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A NUMBER of vacancies for public health officers and Customs officers are part of the reason for the country’s high food prices, Prices Council chairperson Wendy Lee Yuen said yesterday.

U.S. stock-index futures were little changed, erasing earlier gains, before a report that may show initial claims for jobless benefits in the world’s largest economy fell.

Qualcomm (QCOM) Inc., the world’s biggest maker of mobile-phone chips, climbed 6.1 percent in early New York trading after raising its sales and profit forecasts for this quarter and the year. Las Vegas Sands Corp. (LVS) lost 1.9 percent even after profit excluding some items matched analyst estimates.

Standard & Poor’s 500 Index futures expiring in March slid 0.1 percent to 1,318.4 as of 12:20 p.m. in London, after earlier rising as much as 0.4 percent. The benchmark gauge yesterday jumped the most in two weeks after data showed manufacturing gauges across the world increased. Futures (INDU) on the Dow Jones Industrial Average slipped 15 points, or 0.1 percent, to 12,638.

“There may be a short-term correction,” Kully Samra, who manages U.K.-based clients for Charles Schwab Corp., which has $1.6 trillion of assets globally, said in a telephone interview today. “The way one client described it to me was that the U.S. is the best house in a bad street. Employment is something that will start to improve. It is happening slowly, but it is happening, that’s the key thing.”

Claims for U.S. jobless benefits fell to 371,000 last week from 377,000 the previous week, according to the median of 46 economist estimates in a Bloomberg News survey. The Labor Department will release the report at 8:30 a.m. New York time.

A report tomorrow may show the unemployment rate in January probably remained at 8.5 percent, according to economists’ projections in a Bloomberg News survey. It dropped to the lowest level in almost three years in December.

Qualcomm Forecast

Qualcomm rose 6.1 percent to $63.17 in pre-market trading. Sales for the second quarter ending in March will increase to $4.6 billion to $5 billion. Revenue for the fiscal year will rise 25 percent to 32 percent to a range of $18.7 billion to $19.7 billion, the company said in a statement yesterday.

Las Vegas Sands lost 1.9 percent to $49.25 in early New York trading. Profit excluding some items was 57 cents, matching the average of 23 analysts’ estimates compiled by Bloomberg. The U.S. casino company also declared its first common stock dividend of $1 a share, according to a statement yesterday.

Green Mountain Coffee Roasters Inc. (GMCR), the maker of Keurig brand single-cup pods and brewers, surged 20 percent to $64.42 in pre-market trading. Net income in the three months ended Dec. 24 rose to $104.4 million, or 66 cents a share, from $2.41 million, or 2 cents, a year earlier, according to a company statement yesterday.

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China supports European efforts to stabilize the euro and is looking into how it can help resolve the region’s debt crisis, Chinese Premier Wen Jiabao said at a briefing with German Chancellor Angela Merkel.

Wen said solving the European debt crisis is “urgent,” and called for greater international cooperation. “China is also considering more participation” in those efforts via the European Financial Stability Facility and the European Stabilization Mechanism, he said.

Merkel’s three-day visit comes as European leaders are trying to raise money to address the region’s sovereign debt crisis. China, owner of the world’s largest foreign currency reserves, has said that while it’s willing to help, it wants more details on Europe’s plans, which could include setting up funding through the International Monetary Fund.

China is “investigating and evaluating ways, through the IMF, to be more deeply involved using the ESM and EFSF channels in solving the European debt issue,” Wen said.

In comments earlier today, Merkel said Europe risks undermining investor confidence if it keeps rolling over debt and should impose budget-deficit caps across the Euro area.

The common currency system requires countries to show budget discipline and the region currently has no way to enforce such restraint, Merkel said, reiterating her previous calls for such limits.

Roll Over Debt

“The more debt that we took on in the past, the more interest we will have to pay in the future and the less confidence investors will have in us,” she said. “We cannot simply roll over today’s debts.”

She said the European Central Bank can’t “just put in as much money as possible because in the future someone has to pay that.” The Greek government needs to reach a deal to reduce its debt and secure a second European Union-led bailout by March 20, when it faces a 14.5 billion-euro ($19.1 billion) bond payment.

Merkel had been expected to discuss the yuan exchange rate and global imbalances when she met with Chinese leaders, a German government official said in Berlin on Jan. 31, speaking on customary condition of anonymity. She is scheduled to meet President Hu Jintaotomorrow.

“How the yuan is going to be developed, how the yuan can be freely convertible — in these areas we can work together,” she said today.

Chinese Imports

China’s imports from Germany rose 24.9 percent last year to $92.7 billion, according to Chinese customs statistics. German companies including Volkswagen AG and Siemens AG are among the biggest foreign companies doing business in China.

German Deputy Finance Minister Steffen Kampeter said a more flexible exchange rate policy in China would make a “positive contribution” to the health of the global economy.

“It’s quite clear that many in the western world see a more flexible currency policy in China as a positive contribution to global developments,” Kampeter said Jan. 31 in New York in an interview with Bloomberg Television.

The yuan rose 1.5 percent against the euro last week, following a 1.3 percent increase the week earlier. The yuan traded at 8.2819 yuan to one euro today.

Merkel is scheduled to travel to southern China’s Guangdong Province tomorrow, where she is set to meet with Wang Yang, the top official in the country’s richest and most populous province.

Merkel said there was no other way to handle the dispute over Iran’s nuclear program except by imposing sanctions, and urged China to “make better use of its influence” to make sure Iran does not acquire nuclear weapons. In today’s briefing, Wen said sanctions would not solve the issue.

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Trinidad and Tobago’s Financial Intelligence Unit (FIU) has submitted 16 cases to law enforcement agencies for investigation. Two of the cases were closed by the Financial Investigations Bureau (FIB) of the Trinidad and Tobago Police Service as “no further action could be taken.” This information was disclosed in the FIU’s 2011 annual report. In 2011, the number of suspicious activity reports (SAR) increased to 303 from 111 in 2010. Seventy-one of those cases were closed in 2011 while 219 are cited as “ongoing analysis.”

The report explained that not all SARs were forwarded to law enforcement agencies because the FIU oftimes acts as a catalyst. “A STR/SAR is only a report of suspicion. If the FIU’s subsequent analytical study tends to substantiate the suspicion of money laundering, or a predicate offence lending to money laundering or organised crime, the analytical report and supporting documentation are forwarded to law enforcement agencies for investigations,” the report said. The monetary value of the SARs in 2011 was $304.1 million—more than three times 2010’s value of $85.7 million. Of the 303 SARs-151 originated from the banking sector, 90 from money/value transfer, 28 from investment companies, nine from the insurance sector, 14 from mortgage companies, five from co-operative societies, two from attorneys, one from motor vehicle sales and three from real estate.

Acting FIU director Susan Francois attributes the increase to growing awareness of the FIU in T&T. The FIU has 1,465 businesses registered. Among them are: 565 attorneys- at- law, 109 accountants, 172 Co-operative societies, 100 motor vehicle sales, 89 Jewellers, 341 real estate agencies, 35 Private Members’ clubs, four money or value transfer services, eight pool betting, four gaming houses, and one national lotteries on-line betting games. However, many registered businesses failed to submit compliance reports by the end of May 2011.

Speaking at a Compliance Conference on Anti Money Laundering at Hyatt yesterday, Francois said while the law has a penalty for non-compliance, the FIU has not imposed any penalty to date. The FIU, she said, favours a “co-operative, no surprises approach to ensuring compliance. “It is believed that most supervised entities are making a sincere effort to comply with their obligations under Trinidad and Tobago’s AML/CFT laws. The FIUTT is committed to working constructively with supervised entities to assist them to understand and comply with their obligations,” the report said.

“If these efforts are unsuccessful or if the supervised entity continues to be in non-compliance, the FIUTT will take the necessary steps to impose legal sanctions,” it said. While the annual report outlined the role and activities undertaken throughout the financial year, there was no accounting for monies spent from its annual budgetary allocation. The report observed that while much work was accomplished, much more needs to be done. “To this end, support must be given to legal, law enforcement, regulatory and intelligence agencies (including the FIUTT) to fulfil their AML responsibilities,” it said.

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Facebook is expected to submit paperwork to regulators on Wednesday morning for a $5 billion initial public offering and has selected Morgan Stanley and four other bookrunners to handle the mega-IPO, sources close to the deal told IFR.

The company founded by Mark Zuckerberg in a Harvard dorm room in 2004 picked Morgan Stanley to take the coveted “lead left” role in what is expected to be the largest IPO ever to emerge from Silicon Valley.

The $5 billion is a preliminary target and could be ramped up in coming months in response to investor demand, IFR added.

The other four bookrunners chosen were Goldman Sachs, Bank of America Merrill Lynch, Barclays Capital and JP Morgan, although the underwriting syndicate could be expanded later, IFR cited the sources as saying.

Facebook declined to comment on the report by IFR, a unit of Thomson Reuters. “Lead left” refers to where the top underwriter’s name will appear on the IPO prospectus.

The preliminary IPO filing sets the stage for a May market of the world’s largest social network, IFR reported, a coming-out party that will dwarf almost any before that, including Google Inc’s $2 billion IPO.

IPO VETERAN CLINCHES DEAL

Morgan Stanley’s experience in arranging major Internet IPOs – including those of Groupon and Zynga – helped it clinch a pivotal role after an unusually secretive selection process, IFR reported.

Final pricing would not be set for several months, during which the size of the IPO could be increased should investor demand warrant it, IFR added.

The prospective IPO – expected to be one of the largest U.S. market debuts in history – has whipped up a frenzy of investor and media speculation this month, buoying shares in social media peers from RenRen to LinkedIn and igniting fierce competition on Wall Street.

The IPO – a prized trophy for any investment bank – likely set a new standard for how low its arrangers are willing to go on advisory fees to win big business, analysts say.

Silicon Valley start-ups from Zynga and LinkedIn to Groupon and Pandora Media Inc have since last year begun testing investor appetite for a new wave of dotcoms, with mixed results.

Investors last year had warned of a second dotcom bubble inflating, after LinkedIn doubled on its debut; but the so-called over-enthusiasm has waned in recent months.

The last dotcom player to debut, Zynga, closed 5 percent below its IPO price during its first trading day in December.

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European stocks rose, U.S. equity index futures advanced and German bunds fell before a report that may show American manufacturing expanding at the fastest pace since June. U.K. 10-year gilts weakened as a British factory gauge rose to an eight-month high.

The Stoxx Europe 600 Index climbed 1.4 percent at 11:44 a.m. in London. Futures on the Dow Jones Industrial Average added 0.7 percent, indicating the U.S. gauge will snap the longest losing streak since August. The yield on German 10-year bunds rose five basis points, ending a five-day decline, while the equivalent maturity Portuguese yield slid 90 basis points to 15.5 percent after the government sold bills. Gilt yields rose five basis points to 2.02 percent.

The Institute for Supply Management’s factory index rose to 54.5 last month from 53.1 in December, according to the median estimate of 81 economists surveyed by Bloomberg, signaling industry will lead a U.S. expansion. The U.K.’s factory measure unexpectedly returned to growth after a quarter of contraction and separate reports today showed manufacturing indexes for Europe, China and India also rose in January.

“U.S. manufacturing data is key,” said Guillaume Duchesne, an equity strategist at BGL BNP Paribas SA in Luxembourg. “Industrial activity is doing well. Jobs data at the end of the week will be important. As long as there are good economic surprises, that will support stocks.”

ICAP Earnings

More than 10 shares gained for each that fell in the Stoxx 600 (SXXP). ICAP Plc jumped 7.3 percent, the largest increase since June, as the world’s biggest broker of transactions between banks said annual pretax profit will be at the “upper end” of analyst estimates. Banca Monte dei Paschi di Siena SpA and Banco Popolare SC led a rally in Italian banks, advancing more than 7 percent.

Futures on the S&P 500 Index erased an earlier decline of 0.3 percent. Amazon.com Inc. (AMZN) tumbled 8.1 percent in pre-market New York trading after the world’s largest Internet retailer reported sales that missed estimates.

The S&P 500’s 50-day moving average rose yesterday above the 200-day moving average for the first time since August. The pattern, known as a golden cross, may signal the rally will continue, according to some technical analysts and investors whose decisions are influenced by price charts.

The Dollar Index, which tracks the U.S. currency against those of six trading partners, fell 0.3 percent, snapping a two- day advance, while the greenback depreciated for a fifth day against the yen, falling 0.3 percent. The Institute for Supply Management’s factory index for January is due to be published at 10 a.m. New York time. A reading above 50 indicates growth.

Treasury Note

The U.S. 10-year Treasury note fell for the first time in six days, sending the yield three basis points higher to 1.83 percent. German bunds stayed lower as the nation sold 4.093 billion euros ($5.37 billion) of 2 percent 10-year securities at an average yield of 1.82 percent. The Portuguese two-year note yield tumbled 79 basis points to 19.76 percent as the nation auctioned 1.5 billion euros of 105- and 168-day bills.

The cost of insuring against default on European sovereign debt fell, with the Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declining 10 basis points to 329 basis points.

The Shanghai Composite Index (SHCOMP) dropped 1.1 percent after the 21st Century Business Herald reported new loans in January may be below 1 trillion yuan ($158.6 billion). New loans exceeded that amount every January over the past three years, according to data compiled by Bloomberg.

China’s purchasing managers’ index rose from 50.3 in December to 50.5 in January, the nation’s statistics bureau and logistics federation said in a statement.

Benchmark Indexes

The MSCI Emerging Markets Index (MXEF) advanced 0.2 percent, heading for its highest level since Sept. 2. The ISE National 100 Index (XUU100) jumped 1.4 percent in Istanbul and theMicex Index (MICEX) advanced 1.3 percent in Russia. Benchmark indexes rose at least 0.8 percent in Poland and Hungary.

Electricity for prompt delivery in Germany, Europe’s biggest market, surged as cold weather swept the region. Day- ahead power was up 15 percent at 61 euros a megawatt-hour. Temperatures in the German capital are forecast to fall to minus 16 degrees Celsius (3 Fahrenheit) tomorrow, compared with a five-year norm of minus 4, according to CustomWeather Inc. data on Bloomberg.

Wheat rose to a four-month high of $6.7775 a bushel as Russia will consider a tax on grain exports. Copper advanced to $8,403.75 a metric ton. The U.S. is the second-biggest buyer of the metal. Silver gained 1.9 percent to $33.8125 an ounce.

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