Good morning,
As the sun breaches the eastern shores of Singapore, and memories of the night before become more vivid, helping explain the plant pot in the middle of the bedroom floor, the US housing data is backing my optimism of US growth beating analysts estimates.
Despite my kind gesture of a tree, the misses remains unimpressed.
Equity markets overnight held quite well, considering such a strong run on Monday, I was looking for some pull back yesterday. Stronger than expected US housing starts and building permits help support equities whilst currencies continued strength against the US$ boosts markets in Europe.
European markets saw a big drop in volume overnight, leaving me a little nervous on the recent strong move. With the Euro at such major technical resistance levels, investors seem to be sitting back and waiting for confirmation that "the world is now ok". Bond markets seems to conform, with Spanish and Italian debt firming 11 and 6 basis points, whilst US treasuries gave back last weeks gains, with the 10yr now trading at 1.67%.
FTSE +0.2% avg volume; O/P: telco, industrial U/P: tech, financial
CAC +0.7% v.low volume; O/P: health, cons.services U/P: tech, telco
DAX +0.7% v.low volume; O/P: basic materials, industrials U/P: utilities, telco
IBEX +0.2% v.low volume; O/P: industrials, cons.services U/P: tech, basic mats
Sector maps show very mixed signals, however, the outperformance of industrials would leave us to believe that there is some short covering out there. This is also reflected with basic materials performing. Huge inventories and slowing China growth has seen prices continue to remain weak, leaving every fundamentalist negative not just in the near term, but as far out as 2015 before we see price recovery. As risk is reduced, so are shorts, helping (finally) to see some rotation of capital back into both industrials and basic materials, I expect this to continue.
The financial sector has been extremely strong over the last 3 months, as the market sees efforts from central banks to boost credit and lending, should see revenues increase. Like 2008, this will come at a cost, quality. The sector is starting to look rich here and yes, they will be the first to benefit from policy, but at these levels, it looks priced in.
US markets were have a rough day early in the session, with a sharp sell off mid-way through as Bernanke warns that the central bank has little power if congress cant agree on the up coming tax cuts and spending policy expiry.
But this was soon reversed, as sentiment remains high on the back of Obama being able to agree with Tea Party representative Paul Ryan, and get new policies through without delay.
Data overnight saw housing starts increase to 894k vs expected 840k, whilst building permits came in at 866k vs expected 864k.
S&P 0.1% low volume; O/P: health, financial U/P: tech, oil & gas
Despite the weaker US$, oil and gas gave back some of Mondays gains with Chevron 0.8% easier. Tech also sold down on the back of HP down 12%, dragging the sector lower, and heavy weight Apple, down 0.9% after a strong run on Monday.
The financial sector was also strong again last night and is starting to look top. A number of private wealth guys were trying to sell the idea of going long the sector but personally, at these levels it looks toppy. REDUCE/SELL
Markets.Asian markets trended easier yesterday, with HK closing at the lows. I expect a bounce on the open but we should see them drift sideways for most of the day. With currencies at major resistance levels, I see limited triggers to push us through those levels.
Bank of England minutes due today at 17:30 singapore time.
At these levels, I continue to like coal and oil, as we see rotation into lagging sectors. China property is starting to look rich here, reduce.
Mitsui OSK, which is suffering from weak dry bulk rates, had a fantastic move yesterday on strong volume, I like this. BUY
Data.16:30 Netherlands house prices
17:30 UK Bank of England minutes, public finances
20:00 US MBA mortgage apps
21:30 US jobless claims
22:55 Uni of Michigan confidence
23:00 US leading indicators
Spain trade balance
Events.08:30 Australia RBA minutes
21:30 Spain Bank of Spain governor speaks in Madrid
22:00 Italy Bank of Italy speaks
Euro finance ministers hold meeting on Greece
Bonds.09:30 China 1,3,5,7,10 year auction
11:00 Thailand 1,3 and 6 month auction
12:30 Taiwan 30 year auction
13:30 Philippines 7year auction
17:30 Spain 364 and 509day auction
18:30 UK 5year auction
00:30 US 1 month auction
Earnings.Deere(US), CareFusion(US), Zodiac Aerospace(FR), Johnson Matthey(UK), China resources Ent(HK), Texwinca(HK), Oriental watch(HK), City telecom(HK), Citic(CH), Airaisa(MK), Ukrnafta oil(RU)
Stoddart
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