Good Morning,
We all know that the US are focused heavily on employment, or lack of, so lasts nights rates on hold and comments from Bernanke were no surprise. Operation Twist is set to be replaced by outright bond purchases, which its expected to concentrate on the 5yr part of the market, having a similar impact to the Twist, but not going out at as far.
The Euro continued its strong run, getting as high at 1.31 but since pulling back slightly to 1.3070. Helped by confirmation that Greek bond buyback meets the criteria set out the the EU, Greece is now set to receive the next payment of from the EFSF.
The Japanese Yen weakened further, currently 83.30, which is currently helping exporters. With rates globally set to remain low in the near to medium term, there seems to be limited interest in the "carry trade".
Bond markets saw southern European states continue to outperform, whilst UK, Germany and France all yields increased around 2bps. 10year yields;
UK 1.82%, France 1.96%, Germany 1.33%, Italy 4.63%, Spain 5.32%, Greece 12.84%
Equity markets all benefited from strong volume overnight, up around 15% on average. Again, southern European states outperforming, where Spain was also boosted by strong earnings from Inditex, owners of Zara.
FTSE 0.4% avg volume; O/P: oil&gas, basic materials U/P: tech, cons.goods
CAC flat good volume; O/P: telco, tech U/P: cons.goods, utilities
DAX +0.3% avg volume; O/P: cons.services, telco U/P: health, tech
IBEX +0.8% v.good volume; O/P: tech, basic materials U/P: oil & gas, health
Sectors highlight some strong sector rotation into basic materials and oil & gas. Many investors have been under weight or short both in 2012 as global growth remains low to negative. Added to this, construction spending has remained light, as developers, banks and governments are already struggling with current inventory levels. Only yesterday, German sold off 800 properties to Lone Star.
After a strong run in tech and telco, we see these sectors underperforming as investors take profits into year end. There is lots of press on "risk on" trades, however, the performance is more likely to be repositioning to a more neutral stance.
Data in Europe saw German CPI come in at -0.1% in November, as expected, whilst France came in slightly easier at -0.2% vs expected flat.
Spain's house transactions came in at 12.8% for October, vs Septembers number of just 0.9%, highlighting that prices should stabilise, helping banks offload current inventory levels. NB, Spanish banks are currently offering 100% mortgages on properties it has on it books.
In the UK, Jobless claims fell -3k vs expected 7.0k, whilst earnings came through in line for October at 1.8%.
Slightly worrying was the EU industrial production numbers, coming in at -1.4% vs expected flat (seasonally adjusted). Biggest drops were Netherlands, German and a number of countries in Eastern Europe.
In the US, equity markets staged a strong rally mid session, which was short lived and sold back down to close at day lows.
S&P flat avg volume; O/P: telco, financial U/P: tech, cons.services
After a strong rally in tech names on the back of DRAM chips, technology stocks gave back some of their gains. Like Europe, basic materials and oil & gas were both outperformers, closing positive on the day, whilst telco and financials run once again.
Data in the US saw MBA mortgage apps increase +6.2% on the week, which along with strong sales over Thanks Giving, could highlight improving credit markets. We also had import prices which fell -1.6% vs expected -1.0%.
Markets.Asian markets all open firmer as the US$ continues to firm against the JPY, helping push autos and other heavy export dependent companies.
I expect markets to trend easier in the first 2 hours before finding support and trading sideways.
I continue to like upstream oil & gas, coal and Alu.
Outflows should be seen in banks, China autos and China housing.
Data. 12:00 Tokyo condo sales
16:00 Spain CPI
16:00 Philippine interest rates
16:30 HK industrial production, PPI
17:00 ECB monthly report
17:00 Italy CPI
21:30 US retail sales, PPI and jobless claims
Events.13:00 US financial stability oversight council meeting
15:30 Italian politicians meet on EU summit
17:00 EU ministers meet on Greece, Cyprus
Bonds.11:35 Japan 3 month, 5 year auction
12:00 Malaysia 1,5 year auction
12:30 Taiwan 6 month, 10 year auction
17:30 Spain 3,5,28 year auction
18:00 Italy 3,14 year auction
02:00 US 30 year auction
Earnings.Restoration hardware(US), Hovnanian(US), Pier 1 Imports(US), Ciena(US), Adobe(US), VeriFone(US), Aurubis(GR), Sportsdirect(UK), Betfair(UK), Ascendas hospitality(SP), Far East hospitality(SP), Gamuda(MK)
Stoddart
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