Good morning,
Hollande is priceless. EU leaders are currently meeting on a continuous basis, discussing austerity including reduced public spending and reducing tax cuts/breaks. Despite this, France's president Hollande, is now looking to nationalise assets of ArcelorMittel.
It been in the press so I wont go through it all, but the basics are, ArcelorMittel wants to sell/close 2 of its furnaces, which upon hearing this, the French president started a witch hunt, threatening to expel it from the country.
Hollande has since toned down these threats, in part due to the 20,000 people ArcelorMittal still employs, and has now decided that nationalisation of the 2 furnaces is an option.
Given his current policy is still heavy on spending, with little indications of how he is going to generate the revenue to cover this, buying a Steel business will certainly upset the rest of Europe.
Hollande's spending is erratic, matched only by US consumers on Black Firday. He continues to believe higher growth will support his spending today, cause a number of downgrades on the countries debt. Should he continue down this path, France will be looking further downgrades causing far worse problems than the current situation.
This man needs to be stopped, before one of the major pillars in the European Union becomes yet another victim of over spending, just to get the popularity vote.
Overnight saw European markets open at the highs, around +50bps on very strong volume early in the session. But they trended easier throughout the day, closing just off the lows around flat on the day.
FTSE +0.2% low volume; O/P: tech, industrial U/P: oil&gas, telco
CAC flat avg volume; O/P: tech, financial U/P: telco, utilities
DAX +0.6% avg volume; O/P: health, financial U/P: telco, cons.services
IBEX -0.1% v.strong volume; O/P: tech, health U/P: oil&gas, telco
Sectors highlight a rebound in the financial sector and a move into defensives once again. Oil and gas continues to remain weak, despite an easing US$ as investors remain nervous on the growth outlook over the next 2 years. My view is that the negativity on GDP is already priced in leaving oil&gas undervalued at these levels. With European policy starting to take effect, we should see bond yields fall, reducing demand for the US$. This should boost US exports, and demand for the commodities.
European bonds continued to firm overnight, with 10yr yields as follows, Spain -10bps at 7.50%, Italy -3bps at 4.71% and Greece -30bps at 15.90%. We should continue to see inflows as investors look to lock in the high yields vs German and France. At these levels, I would be looking to short the French 5yr against both Spain and Italy.
Currencies saw EUR US$ give back some of its early gains, selling down to 1.2940 level currently. The 1.30 level is a major resistance level, which without improving industrial output, its hard to see it breaking in the near term. the US$ JPY continues to see the JPY remain weak at 82.20, which should help support the Nikkei, where the weaker yen aids exportors.
Data out of Europe saw German import price index fall -0.6% vs expected -0.3%.
In the UK, government spending came in slightly higher in the 3rd quarter at +0.6% vs estimates +0.4%, and there was a strong pick up in exports at +1.7% vs estimates 1.1%.
In Spain, there was the budget announcement, which saw October come in at -43.37b Euro, vs August -46.11b..... this should reduce some of the pressure on Spain from EU members German and France.
In the US, equity markets traded sideways for most of the session, before selling off in the last 2hours closing at day lows. Volumes remained quite strong despite the firming US$. UST's also firmed 3bps at 1.64% on the 10yr.
S&P -0.5% avg volume; O/P: utilities, cons.goods U/P: oil & gas, financial
The sector map shows further profit taking in financials, which is due to continue given the strong performance over the last 6 months. As Europe seems to be improving policy wise, we should see global funds take a more balanced weighting in this sector.
Consumer goods continue to outperform on the back of Black Friday. I'm not a fan of buying these names after the event but clearly, investors are excited by the sales numbers. I want to see how the consumer data over the next few months, this should tell us if personal credit markets are finally improving.
Data in the US was strong last night, but markets didnt react. Durable goods came in at flat, vs expectations of -0.7% in October. Ex transportation saw it beat estimates by 2%, estimates -0.5% vs actual +1.5%.
The CaseShiller home prices also came in slightly firmer for September at 146.22k vs August 145.87k. This number is struggling, in part due to the lower end of the market failing to find buyers due tight credit markets and consumers also suffering from weaker credit scores.
The Richmond fed manufacturing was also strong, coming in at 9 vs estimates -9. A strong pick up in Shipments, New orders and rising inventory levels, leaves me optimistic that the US will surprise to the upside with its improving GDP.
Markets. Sorry for the delay in this note, most markets are now in fact open. Japan opens at the lows and trends firmer, as the JPY continues to weaken. Australia remains weak, as commodities and oils still are still struggling to see inflows. Despite huge inventories in basic materials, the negativity on the sector is overdone, as is the outlook for GDP growth. Analysts are being way too conservative given the liquidity that is in the system, therefore I continue to think this sector is oversold, and look cheap.
Equity markets should see some degree of profit taking given the recent run. HK and China property look extremely rich at these levels, as are IPP.
I continue to like oil, oil and steel at these levels, as China will continue to support construction spending.
Markets trend easier in the first hour, then see us drift sideways.
Data.10:00 Philippines GDP
15:30 Thailand interest rates
16:00 Spain retail sales
17:00 Eurozone money supply
21:00 German CPI
20:00 US MBA mortgage apps
23:00 US new home sales
China leading index
Events.18:30 EU Almunia unveils rulings on Spanish banks
19:00 EU growth survey
22:00 Italy's Monti meets China's Jia
Bonds.12:00 Malaysia 2,5,7 month auction
18:00 Italy 6 month auction
18:30 German 5 year auction
02:00 US 5 year auction
Earnings.Express(US), ANN(US), American Eagle outfitters(US), Guess(US), Orco(FP), Untied Utilities(GB), Thomas Cook(UK), Alpha bank(GR), Eurobank Ergasias(GR), Skyworth(HK), Far East cons(HK), Yue Yuen(HK), China gas(HK), Luk Fook(HK), Bosideng(HK), Citic(CH), IJM(MK), Ukrnafta Oil(RU)
Stoddart
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