Morning note, data, events, bonds and earnings 15th October 2012

Morning,

Volumes in the US on Friday remained strong, trading around the recent average, as markets traded around flat. Again, we see a more defensive stance with tech and consumer goods the top performing sectors, however, utilities and telcoms were among the weaker. This leads us to believe there is still some repositioning going on, as we approach the November 6th US presidential election.

With headlines over the weekend, again, questioning growth, sentiment is still relatively weak. Europe has seen a rebound in the Euro, but Spain and Italy continue to drag their feet, causing the Euro rally to grind very quickly to a halt. This is also reflected in the bond market where Spanish and Italian yields have steadily started to rise. We need the EFSF to quickly agree terms with states needing aid.

Another major headline is the individuals claiming against libor manipulation. Many thought this could be a possiblity but now, its reality. This will be a major case for the banks and could see banks ha ve to increase provisions. A large number of banks have been fined, which technically speaking implies they are guilty of malpractice. Should a single homeowner be able to claim damages, this would open the window to nearly everyone with a mortgage. Although total loses would be hard to calculate, and would take considerable time to calculate rates without the fictitious prices in place, mortgages owners will have been impacted by higher interbank rates. This could have the similar repercussion as the mini-bond lawsuit.

Markets.
Australia currently trading flat, with consumer goods and financials outperforming. With global growth concerns increasing, basic materials is the worst performing sector. At these levels, the knock on effect of a slow down will hit the banking sector, especially with house prices still relatively high, leaving the possibility of 1. further rate cuts, 2. increased bad loan provisions, 3. lower credit growth. On this basis, time to short the Australian banks.  
With the issues involving Libor, Standard Chart and HSBC will both come under pressure today, holding the HSI index lower. I expect markets to open up near the day highs and trend easier as investors reduce risk going into the US elections. Defensive names will continue to outperform.

Events.
09:20 Japan BOJ deputy governor speach
15:00 Portugal cabinet meeting
15:30 EU foreign ministers meeting
17:00 Bank of Italy public finance release
Asian and European finance ministers meet in BKK
Portugal budget announcement

Bonds.
09:30 Korea 3,6 month and 10 year auction
13:30 Philippines 3, 6 and 12 month auction
17:30 Dutch 3, 6 month auction
21:00 French 3, 6 and 12 month auction
23:30 US 3 and 6 month auction

Earnings
Gannett(US), Charles Schwab(US), Citi(US), Packaging corp of America(US), Blyth(US), Kuehne + nagel(GE), KREIT(SP), M1(SP), Yuanta(TW)

Stoddart