Morning note, data, events, bonds and earnings 31st October 2012

Good morning,

Early yesterday evening, a good friend and I were quenching our thirst with some of Japan's finer lager, shooting the breeze, as you do. And surprise surprise, the topic of Hurricane Sandy came up. Mr Gorton was in fact telling me about his sister, and of the life in NY. During this discussion, one thing became very clear, that is, regardless of what you throw at them, "they aint going nowhere". He was telling me, that regardless of the warnings and the risks, his sister wouldnt even think about leaving the city, choosing instead to rough it out regardless.
When you look at unemployment, housing stats, GDP and other economic data, you lose track of a countries "natural resources", its people. I suspect th damage will be considerably high, and will take time to rebuild, but when its done, it will be bigger and better.

With US markets closed, volumes across global indices have fallen considerably. Despite this, European equities saw some relatively strong performances, with markets up an average of 1.2%. This is despite a sharp move in Euro-Yen, after the BoJ announcement. personally, this was a great opportunity to get even shorter Jpy. Bond markets in Europe stayed relatively unchanged, but Spanish and Italian CDS's have been creeping up from the lows over the last week or so.

FTSE +1.0% v.low volume; O/P: oil&gas, basic mats  U/P: utilities, cons.goods
CAC +1.5% v.low volume; O/P: health, basic mats  U/P: telco, industrials
DAX +1.1% v.low volume; O/P: financials, cons.services  U/P: health, utilities
IBEX +1.4% v.low volume; O/P: basic mats, oil&gas  U/P: industrials, cons.services

Sector maps are a bit more telling, with basic materials outperforming, investors were looking at growth names. Added to the weaker US$ which should see commodities well supported as companies look to increase inventories and lock in lower rates.
Germany's DAX was supported by strong earnings from Deutsche Bank, pushing the financial sector to the top performer.

Markets.
Asian equity indices look set for a strong bounce. After such an aggressive sell off into the close, Japan looks set to be todays outperformer. I expect markets to trend sideways for most of the session, however, going into month end, watch out for window dressing.
Again, looking at Jiangxi Copper(358) and Chalco(2600). Also, Kobe steel in Japan had some strong earnings yesterday, so will be watching Nippon Steel closely.
With the JPY weakening once more, I still like consumer electronics, including Sharp(6753) and Sony(6758).

Data.
08:00 Australia building approvals/consumer credit
09:30 Japan labor cash earnings
13:00 Japan construction orders/housing starts
15:00 German retail sales
15:30 Thailand trade balance
16:00 Spain housing permits
17:00 HK money supply
17:00 Italy unemployment rate
18:00 EU CPI
18:00 Italy CPI
19:00 US MBA mortgage apps
20:30 US employment cost
21:45 Chicago purchasing power

Events.
16:00 Italian cabinet meet
17:30 UK Taylor testifies to UK banking standards panel

Bonds.
17:50 France 7, 10 and 23 year auction
18:30 German 30 year auction
19:00 India 3 and 12 month auction

Earnings.
Cummins(US), MAstercard(US), Omnicare(US), GM(US), Hess(US), MGM Resorts(US), Eaton(US), Phillips66(US), Visa(US), Metlife(US), First Solar(US), Tesoro(US), WABCO(US), BorgWarner(US), Murphy oil(US), Novo Nordisk(DM), ArcelorMittal(NL), Clariant(GE), Air France(FP), Deutsche Lufthansa(GE), Vossloh(GE), Barclays(UK), Total(FP), Continental(GE), Garmin(US), GlaxoSmithKline(UK), Fiat(IT), BBVA(SP), Toyota Ind(JP), Kawasaki heavy(JP), Denso(JP), Mitsui OSK(JP), Alps Elec(JP), Shiseido(JP), Daiichi Sankyo(JP), Aisin Seike(JP), Hoya(JP), Sumitomo(JP), Makita(JP), Konica Mintola(JP), Nippon sheet glass(JP), Fuji film(JP), Murata Manu(JP), TDK(JP), Toshiba(JP), panasonic(JP), Takeda pharma(JP), Sumitomo elec(JP), Seiko Epson(JP), NTT Data(JP), Mazda(JP), Capcom(JP), Yamaha(JP), Tokyo Elec(JP), Nitto denko(JP), Kyocera(JP), Chubu elec(JP), TEPCO(JP), SJM holdings(HK), Giodano(HK), UMC(TT), S-oil(KR), Shinhan fin(TT), Compal(TT), Astra intl(IJ)

Stoddart

Morning note, data, events, bonds and earnings 30th October 2012

Good morning,
With US markets closed, and disruptions across the east coast, equity volumes fall globally. In Europe, average volumes fell by around 40% greater than that of Asia which fell around 25%

FTSE -0.7% v.low volume: O/P; tech, industrials  U/P; O&G, basic materials
CAC -0.8% v.low volume: O/P; cons.goods, financials  U/P; utilities, telco
DAX -0.4% v.low volume: O/P; tech, basic mat  U/P; cons.services, financials
IBEX -0.6% v.low volume: O/P; health, tech  U/P; telo, financials

Mixed signals from the sector maps, however, it does feel like there is a more prominent defensive theme. Italy saw the biggest fall in the region, with its main index off 1.5%, after Berlusconi threatens to bring down Monti, due to a recent court case that could see him do 2 years in prison. Once again, we see that instinct of self-survival threaten the Euro, which could cause some heavy setbacks.
With the progress made so far, including a banking union due in January, Monti has held his own against major powers. After tough budget cuts, clamping down on tax evasion and trying to reduce corruption, Monti has also managed to protect many of the state assets, which were long expected to be put up for sale to help with their debt burden.
Where does this leave us? Well, once again, Berlusconi will no doubt be given a "get out of jail free card", which he shall use immediately, unless of course the Italian prisons have "bunga-bunga Tuesdays", Dom Perignon and unlimited conjugal visits.
Under pressure from other European states, Monti will be forced into this position, which should then allow European leaders to concentrate on bailout terms and ways to stimulate growth.

Another major story overnight, was the arrest of a Greek Journalist who published a list of tax evaders. This in itself is a relatively minor event, however, 1. the documents obtained by this reporter, had infact passed the hands of Christine Lagarde and Greek finance minister; 2. Give the upset caused by austerity, the pressure is set to increase.  
What is the impact? Despite freedom of the press, this could be dealt with quickly, unlike that of wikileaks. More than likely, is this could be the push needed, with public backing, to take on tax evaders. Lagarde should see this as an opportunity; support the clamp down on tax evasion.
This could, however, trigger a witch hunt, putting further pressure to restrict the use of offshore bank accounts. Already we are seeing headline of Chinese banks moving to Luxembourg to avoid UK regulation. This kind of disruption, could only further alienate EU members.
The answer is, for now, lets deal with the problem at hand. Like a banker with a new telephone, no one likes sudden change.

Markets.
With the US off today, expect volumes to continue to miss recent averages. I am also expecting some negativity which will see indices fall once more.
Honda was a big miss yesterday, Paypal job cuts highlight weak consumer spending whilst Apple management shift, shows just how sales dependent even a great giant can be.
Further noise on Libor could hit HSBC, which has been an extremely strong performer of late, as has the sector globally.
Basic materials look set to fall, again, on growth concerns. Jiangxi Copper(358) saw net income miss estimates by -13%, which given the fall in copper prices was not a surprising as that figure suggests. With the sector having a very lack luster bounce, any sell off does leave stocks looking cheap, which given governments efforts to support growth, I see as a buying opportunity. Spreads between Copper and Jiangxi Coppers share price are now at the lows, leaving the company looking cheap. Yes inventories are high, yes demand and outlook currently look weak, BUT, conditions are improving.
Oil should also see outflows, as crude oil falls. This looks like a short term move in the physical, due to Hurricane Sandy. There are still many drivers that could see oil increase back to the 95 level. BUY

Data.
07:30 Japan jobless rate
12:00 Japan vehicle production
12:30 India cash rate
16:00 Spain CPI/GDP
21:00 US Case Shiller home prices
Spain budget balance

Events.
13:30 India RBI meeting
16:00 Monti speaks at World economic forum
19:00 Portugal reports retail sales//industrial production
Japan BOJ policy meeting

Bonds.
11:00 Thai 1,3, 6 and 12 month auction
11:30 HK 1, 3 and 6 month auction
18:00 Italian 5, 10 year auction

Earnings.
Archer Daniels Midland(US), Johnson controls(US), Ford(US), DaVita(US), Avis(US), Dreamworks(US), Onyx Pharma(US), Ashland(US), US Steel(US), Valero Energy(US), Deutsche Bank(GE), Hugo Boss(GE), UBS(SF), Geberit(SF), Danske Bank(NO), Erste Bank(VI), Bayer(GE), ENI(IT), MAN(SW), BP(UK), Imperial Tobaco(UK), Ferrovial(SP), Tom Tom(NL), Fiat(IT), Seagate tech(UK), Mitsubishi motor(JP, Kobe steel(JP), Tokyo gas(JP, West Japan rail(JP), Hitachi(JP), Komatsu(JP), Japan tobaco(JP), Asahi group(JP), Ricoh(JP), Fuji heavy(JP), SIA Eng(SG), Lai Sun dev(HK), Samsung SDI(KR), KEPCO(KR), Hyundai Marine and fire(KR), Sichuan ecpress(HK), Metallurgical corp(HK), Ping An(China), China rail construction(CH), Mega fin(TT), BoCom(CH), SAIC (CH), C.Minsheng(CH), CSCL(CH), China Rail(CH), COSCO(CH), CCCC(CH), Air China(CH), Guangzhou Auto(CH), C.Shipping development(CH), Huadian power(CH), Dalian port(CH), China Eastern(CH), Quanta comp(TT), Zoomlion(CH), Tsingtao(CH), ICBC(CH), Compal(TT), petrochina(CH), CITIC sec(CH), Asustek(TT), Hon Hai(TT), Foxconn tech(HK), Shanghai Elec(CH), Chalco(CH), Taiwan cement(TT), satyam(IN), Dr Ready's (IN)

Stoddart     

Morning note 7th October 2012

Morning all,
Apols for the delay in getting this out.

I like the fact volumes are holding up in Europe. With leaders, once again dragging their feet, I was really expecting inflows to slow. This was helped on Friday by a strong performance by the financials with BNP and SG both up nearly 4%. With the US elections coming up in November, Spain and Italy questioning bail out terms, and no direct strategy to improve growth, volumes will fall.

Press over the weekend feels like sentiment is falling away. There talks of a number of countries falling into a technical recession in 2013. This is not surprising, given some of the aggressive budget cuts and politicians doing little to ease concerns.

There are continued coverage over Japan and China's dispute over land ownership. This is not helped by the US sending out the new Osprey aircraft to Okinawa. Tensions are also building between Turkey and Syria, whilst Iraq saw the worst month for violence since 2010.

With policies designed to help ease the debt burden, with the US buying bonds and now mortgages, Europe set to become the lender of last resort to both governments and financial institutions, we are still yet to see anything directly related to encouraging growth.

With central banks so fixated on balancing budgets, politicians are looking to increase taxes, rather than cut public spending, or even redirecting public spending. Clearly, politicians such as Merkel and Hollande have great focus on self-preservation and votes. During Hollande's election campaign we was keen to keep votes but not increasing spending cuts.... now we see how he plans to reduct the deficit, through tax. This will only hit growth over the next 10+ years, with lower R&D, investment and onshore capital.
With the macro data showing global markets under continued pressure, fighting sentiment and growth, investors will look to new data for signs of improvement. The key is improved liquidity. Real interest rates still remain high. For example in the UK, where BoE rates are 0.5%, mortgage rates are currently offered at around 3.5%. Credit markets remain tight and with growth still slow, banks have a limited interest in lending to home buyers.... once bitten, twice shy.

What to look for? Governments are already trying to free up credit markets. The recent announcement to buy mortgages was something they were desperate not to do back in 2008. Products are too complicated; pricing is made difficult due credit/risk and mark-to-market of the property. Still, 4 years on and the banks are now reluctant to lend, leaving the government to step up and try to defrost the credit markets. 
With the recent announcements, we should see credit improving. The buying of mortgage securities by the Government, should encourage competition to increase in the mortgage markets. It should also improve corporate credit facilities, so we should see an increase in inventories.

The US wholesale inventory number is one I will be watching closely, as will US earnings. With improving credit, we should see lower interest rate payments, so earnings data and consumer spending should also we watched closely. Earnings should improve before the unemployment rate.

Where from here? Markets should give back some of the recent gains. The current inflows into the equity markets will now be replaced with rotation, as under-weight positions are covered.
Talks of a technical recession will continue, but the outcome of a market having to quarters of negative growth, will be discounted due to the EFSF and US stimulus packages. Defensives will remain in favor, but with data set to improve in 1H2013, I would be looking at a more aggressive growth strategy.
In currencies, we should continue to see the Euro rally. With bond yields in Italy and Spain still trading above 5%, despite being able to borrow from the EFSF, investors will be looking to take advantage of the improving credit.

With capital inflows into Europe, and the current level of the Euro encouraging exports, Gold, silver and to a lesser degree oil, should also see in flows, as investors hedge against a weakening Euro. The AU$ should see some support here, despite easing rates, however, with such large inventories, its hard to see the AU$ getting back up to 1.08 level.

Japan is desperate for the Yen to fall. With imports making up a large part of its GDP, companies are being forced to increase overseas production or in some cases, close operations. A weaker Yen would help support domestic jobs and increased exports. Unfortunately it is doubtful we get back to the 2006 levels, purely due to huge overseas loans in that period, but within the next 6 months the JPY should be trading nearer the 83.00 level.

Key data this week:
Monday: Watch out for German Industrial production
Tuesday: UK trade balance  
Wednesday: IT, FR industrial prod, US wholesale inventories, beige book
Thursday: US jobs and trade balance
Friday: US PPI
Stoddart
 

Morning note, events, data and earnings 26th September 2012

Morning,
Volumes are starting to fade in Europe, with an average of 25% reduction. Feels like the run is losing steam as investors look to data to see improvements.

European equity markets up between 0.16 and 0.5% despite the Euro falling to 1.29 against the greenback.
This correlation will correct, giving either a boost to the Euro, or equity markets give back some of the recent gains; I suspect the latter. 

DAX: Outperformers: Utilities, basic materials and industrials
     Underperformers: Telecom, consumer goods and healthcare

CAC: Outperformers: Consumer goods, telecoms and financials
     Underperformers: Utilities, basic materials and O&G

IBEX: Outperformers:Consumer services, utilities and financials
      Underperformers: Healthcare, industrials and telecoms

UKX: Outperformers: Tech, consumer services and utilities
     Underperformers: Basic materials, industrials and financials

European data saw Italian wages grow, 0.1% MoM or 1.6% YoY. Wage growth should be taken as positive, however, its job creation we need to start seeing coming through in southern Europe.... plus if people are working, they have less time to protest.

European bond yields continued to see spreads between Spain/Italy tighten against France/Germany. Yields of the southern European states continue to fall, which against a falling Euro, suggests this is region re-balancing rather than overseas inflows.
10yr yields: Spain 5.69%, Italy 5.08%, France 2.27%, Germany 1.58%, UK 1.82%

US markets saw volumes remain stable, dropping just 3% on the S&P, despite markets falling 1%. The nasdaq underperforming, which given its outperformance over the last quarter, is not surprising. Feels like risk off again.

S&P: Outperformers: Healthcare, utilities and telcoms
     Underperformers: Basic materials, technology and financials

Data out in the US saw some strong positive data. Richmond fed increased 4 vs expected -5, however house prices came in slightly lower at +0.2% vs expected +0.6%. Given the purchasing of mortgage debt by the US government, we could see the competition increase in the loan space, encouraging both transactions and prices to increase. 

Today. Japan and Korea both weaker on the open. Tension over China and Japan sees the Nikkei off 1.7% whilst Korea down 1%. Despite basic materials underperforming in the UK, Australia is holding up well, down just 0.5%. Utilities and industrials outperforming there.

I expect HK to come off sharply after the recent strength in the HSI. Old support levels remain at 20400 and 20100 for the HSI, 9650 and 9550 for the HSCEI.

I continue to like some of the short squeeze names as investors reduce risk and take cash off the table.
BUY DF(489), Hengdeli(3389), Maanshan(323), Angang(347), Chalco(2600)
SHORTS SHK(16), China Banks

In Japan, with the re-balances due, I am looking to BUY Japan Airlines(9201 JT) at these levels... I've been called mental, given the current dispute over the islands and China's new anti-Japan uprising. I am not falling in love with an airline, just pure short term play.

Events.17:00 China 20 year auction
17:35, German 10 year auction
17:00 Indonesian 5 year auction
EU's Van Rompuy speaks to the UN general assembly

Data.14:45 France consumer confidence
16:00 Italian retail sales
19:00 US MBA mortgage apps
20:00 German CPI
22:00 US New home sales
00:00 France Jobs

Earnings:
Providence Res(ID), Esprit(330), Nitori(JP), New World Dev(HK), Boshiwa(HK), Polo Res(UK), CD Projekt red(PW), Echo Inv(PW)

The weak ahead, data, events, bonds and earnings

Please see attached for PDF print out.

Highlights: Data is a lot lighter this week.
Tuesday China property prices (although discount without total sales data), US NAHB index also.
Wednesday BOJ rates, BoE minutes and US housing data.
Thursday US jobs data, and on Friday we have Spanish Housing and trade balance.
Bond auctions this week look light. Worth watching Spain and Greek short dated
auctions for possible weakness. Also the EFSF 6m auction on Tuesday.
Stoddart
Stoddart's Week Ahead 17th-21st September