Good morning,
Sentiment remains weak as Obama highlights being tough on the budget. Headlines point to increased revenue, as opposed to spending cuts, leaving investors fearful of higher taxes and the associated impact on growth in the medium term.
Despite the sell off in equities, the Euro not only remained above 1.27, but firmed throughout yesterday, hitting highs of 1.2778 before easing slightly back to 1.2736 currently.
Bond markets saw Spanish yields increase, with the 10 year at 5.90, up 10 basis points on the day, whilst the Italian 10 year looks set to test the 5% level once more, currently trading 4.95, up 6bps.
After such a strong run on Tuesday, with markets closing at day highs, European equity markets had already looked set to give back some of the gains. Opening relatively flat, indices traded mostly sideways until the US market open weaker, pushing Europe lower and closing at day lows.
FTSE -1.1% good volume; O/P: utilities, tech U/P: basic materials, oil&gas
CAC -0.9% avg volume; O/P: cons.services, tech U/P: industrials, oil&gas
DAX -0.9% avg volume; O/P: tech, cons.services U/P: utilities, industrials
IBEX -0.3% v.good volume; O/P: tech, utilities U/P: basic materials, industrials
Across all indices, growth remained a dirty word, with defensive outperforming. Despite the US$ weakening and crude oil firming to 86.24, oil related stocks were the biggest under-performers last night however, both BP and Shell went ex-dividend.
UK jobless claims increased by 10k, vs expected flat, whilst earnings increased 1.8% inline with expectations. Eurozone industrial production fell -2.5% vs expected -2.0%, with the biggest drops coming in Portugal, Greece and Ireland. Things didnt look much better in German and France, both dropping -2.1% and -2.7% respectfully. The drop was caused mostly by a large fall in durable goods, but all suffered a considerable fall.
In the US, of the 500 stocks in the S&P, only 39 were up on the day, 459 down.
S&P -1.4% good volume; O/P: telco, tech U/P: industrials, financial
The sector map, similar to Europe, shows defensive sectors again outperforming. Profit taking in the US financials is not surprising given 1. investors reducing risk, and 2. the strength over the last 5 months. There also appeared to be a number of short covers going through, with names like Facebook(FB US), finally moving higher... this has more to go.
Data overnight saw a strong MBA mortgage app number, up 12.6%. US producer price index came in weaker than expected at -0.2% vs estimates +0.2%. Retail sales also easier at flat vs expected +0.2%
Then we had the FOMC minutes. Highlights there include using inflation and unemployment as a guide for policy, rather than using a time based method. There are arguments for both but normally, the market would prefer a time line where adjustments are known and expected, therefore priced in.
In typical fashion, central bankers are more interested in popularity, spending more time adjusting policy to boost employment, rather than improving the business environment, which would inturn, increase employment.
Markets.Equity markets once again are coming under some rather heavy selling pressure. Sony is issuing a CB and increase cap ex, which today has seen its stock down 10% @ 780. Consumer electronics all suffering from weak demand in Europe but also hit by the firmer JPY. This sector is really starting to look cheap and at these levels, I would be tempted to pick up stock. Fundamentalist's hate it on outlook, but with the JPY weakening we should see margin improve.
Other names I would be looking to accumulate today include Angang(347), Petrochina(857), Sinopec Shanghai(338), Yanzhou(1171). China's new leaders will look to support domestic demand and will look to ease the public concerns on slowing growth.
Equity markets will sell down in the first half, hitting day lows midway through the morning session, before trending sides in the afternoon. I think there is too much macro overhang to encourage any buying interest, however, a possible bounce on short covering is not out of the question.
Data.13:00 Singapore retail sales
14:30 France GDP
15:00 German GDP
16:00 Spain GDP
16:00 Turkey current a/c, unemployment
16:30 Netherlands GDP
17:00 Italy GDP
17:00 ECB monthly report
17:30 UK retail sales
18:00 EU Eurozone CPI, GDP
18:00 Italy current a/c
21:30 US CPI, Empire manufacturing, initial jobless claims
22:45 US mortgage delinquencies, foreclosures
23:30 US Philadelphia fed
China FDI also expected
Events.09:45 US Feds's William's speaks at a conference on the economy
15:00 EU's Rompuy meets polish PM
20:30 Trokia speak in parliament
Bonds.11:35 Japan 3month and 20 year auction
18:00 France 2,3,5,15 year auction
Earnings.Walmart(US), Viacom(US), TransDigm(US), Target(US), Ahold(NL), Zurich Ins(VX), Merck(GE), Lenzing(GE), NH Hotels(SP), SJM Hldg(HK), OTP Bank(HU), AAC(HK)
Stoddart
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