Jo san
Not sure about you guys, but it looks and feels like Apple is running out of ideas. Quote of the day "It looks like the Galaxy!".
Southern European bonds saw huge inflows, pushing yields to March lows with 10yr trading at: Spain at 5.55%, Italy at 5.00%, Portugal 7.79% and Greece 20.16%.
With German and French yields trading higher, it would appear we are finally getting unwinding of spread trades as CDS's sell down dramatically after the German court ruling yesterday. Expect this to continue.
The benefits of Germany pulling its finger out, can already be seen. The debt burden is already easing, with noise that, due to falling interest rates, Spain may not need the bailout after all. The main thing is that countries that are struggling to grow, or maintain already low levels of growth, can concentrate on trying to encourage or stimulate it.
Spain is already talking about a transaction levy on its equity markets. Job creation is the main push. With the average unemployment rate of around 15% in Europe, increasing both domestic demand and exports are the main push. In previous notes, I have also mentioned about other drivers that will help the EU get out of this messy, these include lowering barriers to entry to other EU members.
We are not out of the woods, but at least we have the map the right way round now. After recent events, expect macro economists at the major banks to start moving GDP estimates forward by about 3-6 months. The outlook for Europe has certainly improved, however, without a detailed plan on how to increase growth, it is hard to see how they plan to inflate their way out of debt.
Markets overnight continued to show strength, and on good volume. European volumes were between 18 and 120% higher, whilst the US was 12% higher than average.
Looking at the sectors, the theme was moving back to defensives. Tech, telco and healthcare all stronger. We are also seeing good inflows supporting the financial stocks, which given the Spanish and Italian debt held by the banks, and the recent firming yields, will continue to outperform.
In the US, the sector performances send a rather mixed signal. Telco, financials and tech outperform whilst consumer goods, utilities and basic materials weaker. The recent rotation into higher risk has seen a number of sectors like basic materials outperform, now equity markets are seeing this rebalancing pressure ease.
Data.
Last night saw UK jobs and earnings inline. Claimant count was 4.8% vs expected 4.9%. Earnings 1.5% vs expected 1.6%
Eurozone industrial production fell -0.6%, slightly negative vs the expected +0.1%. Given the political climate and recent results from the German court, I expect this number to pick up.
US had some very positive data. MBA mortgage apps came in at 11.1% for the week vs last weeks -2.5%.
Import prices slightly easier at 0.7% vs expected +1.5%, however, this was overshadowed by the wholesale inventory numbers, which increased 0.7% vs expected 0.3%. I like this number and shows an increasing optimism of future sales. Now we need to see it continue at this pace.
Markets today.
Equity markets today trading flat as the US$ finds support. Strong run in basic materials and industrials, whilst defensive names are underperforming. The move in iron ore certainly helping the mining companies in Australia. This sector will continue to short squeeze.
HK futures sold off sharply into the close yesterday. I expect them to bounce on the open but after the first hour, we will drift easier as volumes start to ease ahead of the FOMC tonight.
Events: BOE mintues, ECB monthly report, G20 meeting in Mexico and the World Bank releases its global report.
Data: (Singapore times, BST+8hrs)
09.00 Australian inflation expectations
16.00 Italian CPI
16.30 HK industrial production + PPI
16.30 Italian government debt
20.30 US PPI and jobless claims
02.00 FOMC rate decision
Also due is Greek unemployment.
Stoddart
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