Good morning,
After such a strong run over the past 10 or so days, markets finally take a breather overnight. With the holiday period ow so near, I would expect to see volumes ease, as many "shut up shop" and prepare for those wonderful 12 hour plus flights back to see relatives.
Like every year, upgrades have to be turned down, in order to spend the 12 hours in cattle class, whilst Cathey's new reclining seats p1ss off anybody over 5ft 1in. It gets better. Thanks to many airlines looking to increase profitability, breakfast is microwaved seafood congee, dinner is battery chicken in some kind of brown slime and the highlight of the whole journey is sneaking off for a quadruple Black label and Ritz crackers.
Anything more than a quadruple will require the stewards informing the Air Marshall, in order to save the booze for themselves. FYI, the Air Marshall is always the guy that never takes off his jacket and is lucky enough to sit in First Class, next to the pilots door... lucky sod.
And to top it off, airlines increase prices between 50-200% for this privilege. Happy traveling.
Now back to markets. Currencies saw the Euro give back some of the recent gains against the greenback after hitting highs yesterday of 1.33, its now trading at 1.32. The JPY is still trading just off the highs at 84.26 as government spending is expected to increase, allocating a portion of that to encourage export driven growth.
Bond markets in Europe saw some heavy inflows, in particular Southern States. Greece had a whopper of a day, will yields firming 126bps after they were raised by S&P to -B moving them out of the selective default bracket, plus investors are looking for higher yielding assets. UST's also firmed as funds put unused capital into interest bearing assets over the holiday period.
10 year yields:
UK 1.95% +0.2, France 2.00% -2.9, Germany 1.43% +1.9, Italy 4.38% -6.0, Spain 5.23% -4.7, Greece 11.25% -126, UST 1.80% -1.6
Equity markets in Europe again saw strong volumes, again in countries with higher debt levels or countries with exposure to them. Markets opened strong, trending firmer throughout the session, but with the US opening easier, European markets sold down into the close ending the day close to where they opened.
FTSE +0.4% v.good volume; O/P:financial, tech U/P:cons.goods, basic materials
CAC +0.4% v.good volume; O/P:tech, financial U/P:health, telco
DAX +0.2% good volume; O/P:tech, industrial U/P:health, cons.goods
IBEX +1.2% vv.good volume; O/P:tech, oil&gas U/P:basic materials, telco
Sectors clearly highlight tech as the outperforming sector across the region, with huge outpformance of hardware produces, inline with that of the US on Tuesday.
Despite my expectations of sector rotation, basic materials and oil & gas continue to underperform, however, with sentiment positive future growth, buying these sectors here should set you up well for 2013, when we see analysts increase GDP estimates.
Data overnight saw the Eurozone current a/c increase to 7.2B, whilst Italian industrial output missed at flat vs expected +1.0% for October (Seasonally adjusted).
In the UK, the BoE minutes was 8-1 vote for rates unchanged.
The EU announced construction output, which fell -1.6% in October (seasonally adjusted).
In the US, equity markets opened unchanged and trended easier throughout the session, closing at day lows, however, volume remained around the 10 day average.
S&P -0.8% avg volume; O/P:tech, basic materials U/P:telco, health
The sectors in the US do seem to be getting rotation, with basic materials in the top 2 performers. Tech continued it run on the back of strong earnings from Oracle, whilst hardware producers are also running, possible on the back of the new Windows operating system.
Telco and health, both of which are considered defensive, seeing outflows as investors look for high growth sectors.
Data overnight saw MBA mortgage apps last week fall -12.3%, however the previous week was strong, up 6.2%.
Housing starts came in slightly easier in November, 861k vs expected 872. Building permits increased to 899k, beating expectations of 875k.
Markets. After such a strong run, Asian indices are mirroring the US overnight, with Japan selling down sharply in the first 30mins. Sector performances favor utilities and basic materials, whilst the consumer goods and services are giving back some of the recent gains.
I continue to like the oil & gas and basic materials as a sector. We should see sentiment continue to improve with investors searching for higher growth names and sectors.
In HK, profit taking in Banks, property and autos should be expected. These have been huge outperforms for 2H12. Inflows should be seen into basic materials such as Steels and Alu.
Markets should all sell down, but we should find support and see them continue to trend firmer as the JPY weakens further and the Euro gets its bounce.
Data.10:00 China leading index
15:00 Germany PPI
15:00 Japan convenience store sales
16:00 Spain Total housing permits
17:00 Italy retail sales
17:30 UK retail sales
21:30 US GDP, personal consumption, jobless claims
23:00 US Philly Fed, existing home sales
Greek current account, Spain budget
Events.19:15 EU Alumunia conference on Spain bank aid
22:00 UK BoE publishes remarks by Robert Jenkins
WTO general council meeting
BOJ holds monetary policy
Earnings.11:00 Thailand 2 year auction
12:00 Malaysia 6 month auction
02:00 US 5 year auction
Earnings.KB home(US), Rite Aid(US), Darden rest(US), ConAgra food(US), American Greetings(US), CarMax(US), Discover financial(US), Carnival(US), Micron tech(US), Carnival(UK), Far east hospitality(SG)
Stoddart
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