Morning note, data, events, bonds and earnings 18th December 2012

Good morning,

Markets across the globe appear to be relatively optimistic on 2013, much to the relief of many policy makers in both Europe and the US.
Japan continues to concentrate on growth, with Abe planning a large budget that aims to push the country out of deflation, whilst in the US, hopes of a tighter budget being passed, eases fears of a stalemate.

According to the press, China has increased its holdings in US treasuries to 5 month highs, which should relieve ongoing pressure about China's currency being too weak. I suspect given the falling exports and rising wage costs, Chinese politicians will what to try and increase is export power to help achieve its current growth estimates, and direct subsidies are becoming less of an option with the WTO on its back.

In bond markets, the US 10yr yields rose to 1.766% as outflows appeared to be movign back into equities, similar to that in Europe.
Greece 12.66%, France 2.00%, Germany 1.37%, Italy 4.55%, Spain 5.39%, UK 1.88%

In the FX market, The Euro continued to firm against the Greenback, currently at 1.3163, as the European debt and equity markets continue to see inflows, as talks of additional infrastructure aside from the Banking Union, aims to prepare Europe for any other hiccups. Forward thinking, I'm shocked.
The JPY firmed overnight against the US$ after a rather strong friday session, currently at 83.88. My target of Y85 by year end still looks a tad aggressive but with equity markets seeing inflows, we see the JPY weaken as growth estimates ex-Japan increase.
The AUD is now at major resistance levels, but with sentiment towards China improving, so does Australian export estimates.

Equity markets in Europe were relatively flat on the session however, many benefited from strong volume pick up. After opening weaker and seling down, most found support around midday and rallied from there, closing just off day highs.

FTSE -0.2% avg volume; O/P: basic materials, tech U/P: industrials, telco
CAC -0.1% v.good volume; O/P: tech, industrials U/P: oil&gas, telco
DAX +0.1% low volume; O/P: cons.services, cons.goods U/P: health, telco
IBEX +0.2% avg volume: O/P: cons.services, basic mats U/P: health, telco

Sectors highlight some major rotation. At the start of the 2H12, inflows were seen in telco, health and financials, what we are seeing now are investors moving to a more neutral weighted portfolio or in some cases, going overweight growth. As mentioned before, I believe growth estimates are too weak as negative sentiment drove analysts to with increased downside. We will see a reversal of this.

In the US, bond outflows helped support equity markets, with the S&P trending firmer throughout the day and closing at the highs.

S&P +1.2% avg volume; O/P:financials, cons.services U/P:telco, cons.goods

Inflows once again aimed at the financial sector as investors are encouraged by the budget proposals and inturn, credit markets easing. This is despite a number of increased regulation due including activities the bank may undertake.

Basic materials and oil&gas were both weaker performers overnight, bucking the trend in Europe. I expect we see upstream plays start outperforming as crude starts moving higher inline with the growth estimates and the weaker US$.

Markets.Japan is firmer by +0.6% despite the Yen firing. Inflows favoring telco and basic materials, whist utilities and tech are weaker. In Korea, oil&gas and basic materials are leading the pack, whilst the autos are coming under some heavy selling pressure.

I expect to see markets continue their strength however, moving into the end of the week should see increased outflows from equities and into bonds as investors look to benefit from the interest over the holiday period.

I continue to like basic materials and oils at these levels. Consumer goods in particular electronics look rich here. Samsung(005930 KS) I would be looking to short at these levels, despite the fact Christmas sales are expected to be strong.

Data.09:30 China property prices
10:00 China FDI
13:30 Japan dept store sales
13:30 India reverse repo rate, cash reserve ratio
16:30 HK unemployment
17:30 UK house prices, PPI, CPI, RPI
18:00 Italy current account
19:00 Ireland GDP
21:30 US current a/c balance
23:00 US NHBA housing index

Events.15:00 EU Rompuy meets NATO
18:00 UK BoE publishes paper on supervision of market infra
18:00 EU Rehn briefs press on sustainability report
22:30 US senate hearing on trading venues
US - China joint commission on commerce and trade

Bonds.09:30 Korea 2yr auction
11:00 Thailand 1,3,6 month auction
11:30 HK 3,6 month auction
11:35 Japan 1,20 year auction
17:30 Spain 3,6 month auction
18:00 Greece 3 month auction
00:30 US 4 week auction

Earnings.Diamond foods(US), FactSet research(US), Jefferies(US), Oracle(US), TUI(GE)

Stoddart