Morning note, data, events, bonds and earnings 11th October 2012

Morning,

Once again, we see investors moving to a defensive stance. Over the last few weeks, headlines have pointed towards possible hiccups including Spain and Italy dragging its feet, talks of a 2013 US recession, conflicts in Japan/China, Turkey/Syria and Iraqi domestic disputes.

Last night, the Fed highlighted modest growth, as housing and auto sales improved, despite little change in the labor market. This is in keeping with the Economist report, which shows a 11.4% raise in F-series Ford trucks YoY.

Consumer spending remained flat, which could be attributed to tight credit markets, as well as weaker jobs and sentiment. Manufacturing shows that the market is improving, but we are yet to see this in wholesales building out inventory, mainly again due to tight credit markets.

Markets remain nervous on these numbers, as well as the MBA mortgage applications falling 1.2%, leaving US equities trending easier all session. Jobs growth will be of the highest concern with unemployment rates around 8%. I'm sure the republicans will be highlighting this into the presidential elections on the 6th November.

S&P: -0.6% avg volume, O/P: Financials, cons. services; U/P: O&G, basic mat

A strong performance in the financial sector, helps support the S&P. With JP Morgan and Wells Fargo due to report strong numbers on Friday, the sector continues to outperform the broader index. Given the announcement that the Fed will start buying mortgage based securities, balance sheets will certainly be improved. Earnings are also supported by improved margins, as banks keep "real interest rates" high, whilst interbank rates remain low.

After market, Fitch maintain ratings on a number of the financials, including BoAML, Barclays, BNP, Citi, CS, GS, RBS, DB, MS, SG and UBS.

European markets had a similar session, closing just off the lows. The price action however, did not reflect the European data. Both Greece and France showed strong industrial production numbers, growing at 2.5% and 1.5% respectively. Italy was weaker, with production falling -5.2%, this was better than the -9% expected. I think this highlights sentiment perfectly, the market is far to bearish on southern European growth. The jobs market will start improving.

DAX:-0.4% low volume; O/P: health, financials  U/P: tech, cons. services
FTSE: -0.6% avg volume; O/P: utilities, financials  U/P: tech, industrials
CAC: -0.5% avg volume; O/P: telco, industrials  U/P: tech, basic materials
IBEX: -1.0% avg volume; O/P: utilities, tech  U/P: financials, telco

After S&P cut Spain's debt rating to BBB-, just one level above junk. 10 year yields moved very little, currently at 5.76%, after a sharp rise back in early September. The Euro, however, did weaken 1 figure, from 1.2980 to 1.2880 vs the greenback. Now trading at major technical supports, I expect the Euro to remain steady here, before retesting the 1.30 level into the US presidential election, which should also coincide with Spain agreeing terms for borrowing funds from the EFSF.

Asian markets have opened all weaker. Volumes are mixed but both Japan and HK have seen sharp increases, whilst Australia is looking slightly weaker. Given the strong performance of its banks, I expect some short selling in this sector which should see the ASX200 underperform the region.

Bank of Korea cut rates 25bps, as expected, which had little effect on the Korea Won, currently at 1115. The Won has been strengthening since May, from 1180 to 1109 low just 3days ago, now we are seeing it starting to weaken, which will only be a blessing to exporters, who have been struggling with slowing global consumer discretionary spending over the last quarter.

NKY: -0.2% strong volume; O/P: O&G, tech   U/P: cons. services, financials
HSI: +0.1% v.strong volume: O&G, basic mat  U/P: utilites, tech
KOSPI: -0.34% weak volume: O/P: financials, telco  U/P: tech, health
TAIEX: -1.57% avg volume: O/P: utilites, teclo  U/P: industrials, O&G
SHCOMP: -0.5% strong volume: O/P: O&G, utilites  U/P: tech, cons. goods

For the second day, oil continues to outperform. With tensions in oil producing states, crude prices have seen a strong rebound over the last week. After weak numbers from HTC, the tech sector continues to come under pressure as heavy weight Hon Hai sells down -2.8%.

HK flat, as heavy weights include HSBC, China financials and oil stocks. Oils will continue to run in the near term, but with investors looking to reduce risk, mid-cap and basic materials will give up some of Septembers gains. We should also see short covering in alu and steel, as outflows from coal and cement rotate.
With the S&P looking to test major technical trading levels, I suspect markets will remain weak and we should see volumes fall. I see little inflows and sentiment is that, we can can wait until after the US election. This will throw up some opportunities as volatility increases, so watch for short, sharp moves on low volume as a time to buy, I would avoid shorting on strength as we will see aggressive window dressing into month end.

Data. (in Singapore time, GMT+7)
13:00 Japan confidence
14:00 German CPI
14:45 French CPI
15:00 Spain CPI
15:00 Turkey current a/c
16:00 ECB monthly report
20:30 US import prices, trade balance, jobless claims
Greece unemployment - possible upside surprise here after a strong industrial production number yesterday.
China foreign reserves, new loans and money supply.
US monthly budget statement

Evernts.
13:45 Financial stability board meets
22:00 Merkel meets EU commission
G7 meeting in Tokyo - China still not present.

Bonds.
11:35 Japan 3 month + 30 year auction
01:00 US 30 year auction

Earnings.
Fastenal(US), JB Hunt Transport(US), Safeway(US), WH Smith(UK), LaCie(FR), Medicrea Intl(FR), Wilex(GE), Fast retailing(JP), Taiwan Mobile(TT), Top Glove(MK), Tisco Fin(Thai)

Stoddart