Morning,
The major headline this weekend was the confirmation that on the 1st January, the European banking union will be created. Great. But once again, we have a number of counties adding to the pressure of this new initiative with Merkel quoting "quality takes precedence over speed". The ECB is to be given power to intervene in 6000 eurozone banks, with the aim of easing credit markets, as banks have been reluctant to lend to each other, and government debt markets in Spain and Italy have seen rates recently above the 5% mark, With recent stress tests highlighting the problems faced by domestic banks, this should help ease the burden on domestic credit markets, as the ECB will now act as the "lender of last resort".
European leaders are hoping that improved credit markets will encourage increased lending and improve lending rates, which in turn should increase consumer spending and therefore the jobs market. They do however have concerns that for lower quality lending, the ECB could end up with the high risk assets whilst regional banks and be more selective, choosing to only take on high quality credit.
Although the risks are apparent, its good to see Europe working towards a common goal, and with Spain needing nearly 60bn Euros, the market will take this news with welcome relief.
With US elections just around the corner, I expect investors to continue on a defensive course. The recent run in growth and higher beta is largely in part due to a less negative outlook on GDP, not a expectation of strong growth. There are a number of sectors which are yet to se these inflow, including consumer electronics. This is a sector I would be looking at for short/near term gains as sector rotation finds its way there.
With such a strong run in coals over the last month, its time to switch out of the sector. With such high inventories, the fundamentals havent changed, and margins will remain low. I expect steel and Alu to outperform, more on technicals than improved demand, but with negativity so high on the sector, there is a high chance that short positions will get caught, triggering a squeeze.
Markets.
In the US on friday, markets were hit by a number of missed earnings including McDonald's, mostly due to slowing domestic growth. There will be some negativity in the market ahead of the US durable goods numbers due Thursday, and US house prices due Wednesday.
Commodities look set for a sharp down over the next few days as the USD will firm against the Euro looks set to retest the 200 day moving average once again. Its time to buy Euro on weakness.
Markets today should trend weaker in the first hour, hitting day lows but soon find support and trend sideways, maybe even trend slightly firmer on the short cover.
After such strong run, expect selling in Petrochina(857) and SNP(386), which due to their weighting in the index, will leave HK underperforming the region.
Data.
07:50 Japan import/export
13:00 Japan department store sales
15:00 Spain mortgage data
16:30 HK CPI
Also Greek current a/c
Events.
07:50 Japan BOJ minutes
14:00 German finance minister publishes monthly report
21:00 ECB Constancio testifies to UK lords panel
IADI general meeting
Bonds.
09:30 Korea 1 and 20 year auction
11:00 Thailand 1, 3 and 6 month auction
21:00 France 3, 6 and 12 month auction
23:30 US 3, 6 month auction
Earnings.
Peabody(US), VF Corp(US), Hasbro(US), Caterpiller(US), Western Digital(US), Freeport McMoRan(US), Yahoo(US), Wynn resorts(US), Philips(NL), Svenska Handelsbaken(SW) Electrolux(SW), Scandia(SS), Raffles medical(SG), China Mobile(CH), LG House & Health(KR), Acer(TT), ZhuZhou CSR(CH), Cairn India(IN), Bajaj Auto(IN), L&T(IN), Mahindra & Mahindra(IN), Power grid of India(IN)
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