Morning note, data, events, bonds and earnings 7th December 2012

Good morning,
After such a strong run, markets are starting to feel like they are running out of steam. A pull back in the Euro and USDJPY struggling to continue its run, bond yields in Europe are starting to see slowing inflows.

10 year bonds in Greece remain at 14.37%, Italy 4.56% and Spain 5.44%, whilst the UK 1.71%, Germany 1.29% and France 1.98 saw their bonds firming around 5bps overnight.

Equity markets in Europe remained strong, on good volume, as the region has been underperforming all year. All excluding Spain are up YTD, but markets with a stronger balance sheet like Germany, have outperformed by a country mile.

FTSE +0.2% good volume; O/P:telco, basic materials U/P:industrial, cons.goods
CAC +0.3% v.good volume; O/P:industrial, health U/P:utilities, tech
DAX 1.1% v.good volume; O/P:basic materials, health O/P:utilities, telco
IBEX +0.4% v.good volume; O/P:health, cons.services U/P:tech, oil & gas

Sectors show little correlation. What it does show is some degree of rotation into lagging sectors oil & gas and industrials. I continue to like upstream oil plays as oil, which has fallen from the highs, remains above $85 which looks to be a major support level.

Worth also noting that recently, demand for precious metals has been increasing. With the US budget approaching and Europe coming to some level of a solution, investors are looking increasing at US$ hedges. The has also been a pick up in demand for physical holding, which could highlight the possibility of restrictions due to MiFID 3, however, I suspect this will target soft commodities due to supply constraints.
In the US, markets remained relatively range bound, before a late rally helped push markets to close just off day highs, on good volume.

S&P +0.3% avg volumes; O/P:tech, cons.services U/P: utilities, telco

The sectors again highlight the strength of Apple, which after 2 days of heavy selling, finds support and rebounds. The 200 day moving average will now be a major resistance level, and AAPL looks set to trade in the 500-600 range, provided it can hold the $500 level. Noise is that Samsung on both book and earnings valuations looks cheap, however, I would avoid buying Samsung at these levels.

Data overnight saw the EU government expenditure fall more than expected, at -0.2% vs estimates of flat. Whilst Greek unemployment continued to rise at 26%, which could only hurt progress with the EU.
Eurozone GDP came in at -0.6 (seasonally adjusted), which was inline with estimates.
German factory orders helped markets, falling -2.4% where estimates had the number at -5.6%.
Bank of England rates announcement saw rates unchanged which was no surprise. We could see them drop by another 25bps early next year should UK growth continue to slow.
In the US, initial jobless claims came in at 370k, better than the 380k expected.

Markets.Expect a rebound in the early session after Europe and the US however, this looks set to be just an initial reaction, we should see markets drift easier after the first hour. I would be looking to reduce positions in tech, banks and China property at these levels.
Oil & gas, and coals still look cheap at these levels.

Data.13:00 Japan leading index/coincident index
15:00 German labor cost
15:45 France trade balance
16:30 Netherlands industrial production
17:00 Singapore foreign reserves
17:30 UK manufacturing production
21:30 US non farm payrolls
21:30 US unemployment rate/earnings
22:55 US Uni of Michigan confidence

Events.19:00 EU to adopt proposals on tax evasion
22:00 Monti meets Toshiba CEO - possible asset sale???
ECB holds governing council meeting

Bonds.11:45 Japan 3 month, 1 year auction
18:00 France 6,7,15 and 18 year bonds

Earnings.Piraeus Bank(GR), Berkleley Group(UK), Oldtown(MK)

Stoddart