Good morning,
It seems many were to keen to reduce positions into the holiday season and are now finding themselves having to get involved in order to maintain performance.
With this new risk on approach, equity markets are seeing considerable increases in volume across the board, and with major bonds yielding less than 2%, investors see greater returns in equities at current levels.
Overnight bond markets received a boost after S&P raised its rating on Greek bonds, due to it buying back its bonds and confirmation that it will receive the next tranche of its bailout. 10 year yields in Europe and the US looked like this:
Greece 12.51% -16, UK 1.95% +6.4, Germany 1.41% +3.8, France 2.03% +3, Italy 4.42% -11.2, Spain 5.28% -12, US 1.81% +4
Currency markets saw the Euro continue its rally against the Greenback and is currently trading at 1.3228 as outflows from US debt moved across the pond to higher yielding sovereign debt such as Spain and Italy.
The JPY continues to weaken, now back above the 84 level at 84.40, which is encouraging inflows into the exporters.
Sterling also benefited from US$ outflows but to a lesser degree than the Euro, currently trading at 1.6250.
Due to the US$ weakness, oil received a $2 bounce, WTI currently at 87.96. Gold was actually weaker overnight despite the US$ as investors looked for yielding assets over US$ hedge, in part due to expectations that growth estimates will now be raised by analysts.
Equity markets overnight in Europe all saw strong volume increases, mostly in southern European states and France, which has a large exposure to Greece.
After opening at the lows, indices trended firmer throughout the session, closing at day highs once again.
FTSE +0.4% good volume; O/P:tech, basic materials U/P:telco, cons.goods
CAC +0.3% v.good volume; O/P:tech, industrials U/P:telco, oil&gas
DAX +0.6% good volume; O/P:cons.services, financial U/P:tech, health
IBEX +1.6% vv.good volume; O/P:tech, cons.services U/P:health, telco
In keeping with "risk on", the sectors show weakness in heath and telco. Both sectors have been extremely strong from May through October but with optimism that we will start seeing growth, investors look for high beta names and sectors.
At these levels, I would be looking to increase exposure to oil and gas, where crude prices have moved very little despite the weaker US$, and increased demand should happen as governments in Asia look to increase spending.
Data in Europe saw UK inflation come in slightly weaker. the RPI was flat vs expected +0.2 MoM which will certainly make many happy as fridges are stocked for Christmas.
The Italian current a/c should also keep the rest of the EU happy with a -245m in October vs Septembers -2581m.
In the US, similar to Europe, we saw markets open at the lows and trend firmer throughout the session, closing at day highs.
S&P +1.2% good volume; O/P:tech, oil & gas U/P:telco, cons.goods
After such at run into Thanks giving, weakness in consumer goods was expected. Finally someone has the same idea as me, with oil and gas being the second best performer. Tech saw a huge boost as heavy weight Apple rallies 2.9% along with other hardware producers HP, Dell and EMC.
Data in the US saw a slightly higher deficit than expected at -107b, vs expected -103b. Whilst the NHBA index came in as expected, 47, which is slightly firmer than Novembers 46.
Markets.
Given the strong rebound in USDJPY and euro overnight, its not surprising that equity markets are all firmer. Japan is seeing good size inflows, with insurance and exporters outperforming on the back of Abe's comments about increasing government spending.
This is from an earlier chat with a client.......
07:48:12 MARK STODDART : "Chatting to a good friend who knows Japan well, he seems to think its still time to load up.
With the new guys looking to increase spending, capital will be looking to do a number of things.
1. increase the birth rate,so expect a policy similar to that of the UK, where the government will give out child bonds.
2. Given the falling birth rate, near term growth will come from increasing exports. A weaker yen and adjustment in taxes for larger exportors should help increase their pricing point overseas. I would avoid the consumer electronic plays and looker closer at autos at current levels
3. Increase infrastructure spending. I would look at hitachi, steel and cement plays to get exposure here as iron and coal prices should remain weak as China growth is unlikely to get back above 8 in the near term"
I expect markets to remain strong in the morning, but we should see some outflows as investors book gains. For example, Dai itchi(8750 JT) is up over 10% in 3 days.
Data.12:30 Japan all industry activity
13:00 Japan leading, coincident index
16:00 Singapore COE....can it get any higher???
17:00 EU current a/c, expect this to be strong given data yesterday
17:00 Italy industrial orders
18:00 EU construction output
20:00 US MBA mortgage apps
21:30 US housing starts, building permits
Events.17:30 UK BoE minutes
22:00 EU Russia summit
BoJ policy meeting, WTO general council meeting
Bonds.11:00 Thailand 5,29 year auction
11:35 Japan 3 month auction
17:30 India 3,6 month auction
02:00 US 7year auction
Earnings.Cracle(US), General mills(US), FedEx(US), Jabil Circuit(US), Navistar(US), Alpha bank(GR), Eurobank Ergasias(GR), Universal Robina(PH)
Stoddart
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