Good morning,
Strong earnings and positive macro data overnight helped lift equity markets and saw bond yields fall. Currencies also saw the US$ EUR testing Septembers highs of 1.3140, which supported commodity rices such as gold, currently trading at 1750.
In Europe, Moody's kept Spain's debt rating unchanged, meaning it is still investment grade quality. This saw bond yields fall with the 10yr falling from 5.71 to the 5.40 level, and closing at 6 month lows. Spain's 5yr CDS has now sold down 80bps in the last 2 sessions and is now trading back at early 2011 levels....finally.
The bond market helped boost equities, where we saw extremely strong volumes overnight across all markets, with Spain and France both seeing 80% increases over daily averages. Strong performances in financials and a inflows into basic materials helping drive markets higher.
FTSE +0.7% strong volume; O/P: basic materials, O&G U/P: health, utilities
CAC +0.8% v.strong volume; O/P: financial, industrial U/P: health, cons. goods
DAX +0.3% strong volume; O/P: cons. services, industrials U/P: tech, health
IBEX +2.4% v.strong volume; O/P: tech, financial U/P: health, cons.service
Sectors highlight investors increasing risk, which seems aggressive going into a major US election and with little increased clarity from Europe. Yes, Spain has agreed to help from the EFSF, but this time delay once again shows the inpact of a single nation on the EU. Its time to come down tough, and implement policies that already expect these issues. Time delays are only increasing the debt burden.
Data in Europe was strong overnight. UK jobless claims came in better at -4k vs expected 0. UK weekly earnings also came in slightly better at 1.7% vs expected 1.6%.
The EU construction output was also better, at 0.7% for August MoM, vs July's number of -0.3%. Although coming from a low base, this is a big turn around and should see sentiment towards property improve. European homes sales should be watched closely.
Germany cut its economic growth forecast to 1% from 1.6% for 2013. Although a reduction was expected, German has been one of the major powers behind Euro policy, this slowdown could see further pressure from the public against support to the Euro. Its a risk, but with data improving, fears maybe short lived.
US markets traded flat to slightly higher overnight as strong earnings and improving macro helped boost oil & gas and basic materials. Earnings from CSX, Intel, BoNY, US Bancorp, Pepsi and Halliburton all beating expectations. Unfortunatly both Stanley, Black & Decker, and Texton missed.
SPX +0.4% strong volume; O/P: utilities, financials U/P: tech, health
Data overnight in the US saw a weak mortgage apps number for the week, with a decline of -4.2%. This was however, completely over shadowed by the housing starts, which came in at +15% vs expected just +2.7%. Building permits also increased at 11.6% vs expected 1.1% MoM. This helped push the US home builders ETF (XHB US) to a 52 week high and closing 25.88. It was trading at $17.00 at the start of the year.
Markets.
I expect markets today to trade inline with Europe and the US. Inflows into basic materials and O&G. We have seen these sectors run already but this move could trigger a squeeze int he less liquid names. I would be looking to short these sectors into the move, as we have yet to see major policy adjustments in China and inventories are already sufficient.
Equity markets should open and trade high in the first hour, hitting day highs before trending easier as investors look in the recnet gains over both the week and fortnight. I expect funds to take an underweight equities approach into the US election.
With a short squeeze coming, I expect to see some of the consumer goods names run. This should alos be aided by the weakening US$. Sony(6758) is my pick in the sector for a near term positive movement.
Data.
07:50 Japan foreign buying
08:30 RBA FX transactions
09:30 China property prices, govt intervention so lmtd impact.
10:00 China real GDP, govt has highlighted 7.5% target, survey 7.4%
10:00 China industrial production
15.30 Netherlands unemployment
16:30 UK retail sales
17:00 Italian current a/c
19:00 Turkey repo rate
20:30 US jobless claims
22:00 Philadelphia Fed, leading indicators
Also due, Spain house prices + trade balance
Events.
15:30 Portugal cabinet meeting
15:30 EU Van Rompuy meets labour, employer leaders
16:00 Bk of Spain bad loans data
Bonds.
11:00 Thai 2 year auction
11:45 Japan 3 month, 20 year auction
16:30 Spain 3, 4 and 10 year auction
16:50 France 2, 3, 4, 5 year auction
17:30 UK 7 year auction
01:00 US 30 year tips
Earnings.
Boston Scientific(US), PPG Ind(US), Philip Morris(US), MS(US), Verizon(US), Alliance data(US), Advanced micro devices(US), Union Pacific(US), B&G foods(US), Sandisk(US), Goodle(US), Etrade(US), Microsoft(US), Blackstone(US), Bankinter(IT), Akzo Nobel(NL), Svenska Cellulsa(SW), Nokia(FI), Modern Times(SW), Telenet(BB), Singapore exchange(SG), Bank of Queensland(AU), China State Consruction(CH), Kepple(SG), Mapletree log(SG), KT&G(KR), Bursa Malaysia(MK), VST Ind(HK), Hindustan Zinc(IN), Jindal Steel(IN), Ambuja cement(IN), ACC (IN)
Stoddart
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