Good morning,
US markets on Friday gave us brief relief as Obama speaks to the house regarding the every nearing expiration of tax cuts and spending increases.
Its no surprise that as Obama tries to play "Robin Hood", the republicans are already putting conditions out there. They are willing to agree on increasing revenue by taxing top earners, however, this must be met by spending cuts in areas such as defense and Medicare.
Sector performances in the US point towards profit taking once more in technology and telco, whilst investors look at defensives such as utilities and consumer goods.
Interesting to note, we saw good volume pick up in basic materials. Companies like Alcoa(AA) trading at 52week lows are starting to see inflows I suspect on short covering as the fundamentals and outlook is rather bleak. That said, with some much negativity around growth, there is view that this is priced in.
Markets.The weekend press continued to highlight US debt deadlines and European negative growth. US thanks giving is also coming up on Thursday, which will no doubt leave volumes at the lower end of the range. We also have US housing numbers out this week, which will have been effected by Hurricane Sandy. We also have German GDP data, which looks set to remain flat, however, with the recent pressure on Merkel, should this come in weaker we could see pressure on the Euro once more.
Today we should see equity markets rebound after Friday afternoons sell off. Japan looks set to remain strong as US$JPY continues to trade above 81, at 81.40.
The Euro is also sitting on major support levels here, which could see equities start outperforming should we go back to test 1.28, but as mentioned, German GDP data due Thursday.
Equity markets trend firmer in the first hour, then look to flatten off, trading sideways in the afternoon.
Despite demand for defensives, oil, basic materials and industrials remain attractive here. We should see these start to squeeze as investors reduce risk into year end.
Consumer goods should benefit from the recent move in JPY, and with officials aiming for US$JPY to be at 82 by year end, we should see exporters supported. The question is, with global growth struggling, will overseas investors continue or increase purchases of JGB's.
In China, with the Shanghai indices trading around 2000, this is previous intervention levels, so watch for possible comments from government.
Data.08:00 UK Rightmove house prices
10:30 Thailand GDP
13:00 Japan leading index, coincident index, machine tool orders
16:30 HK unemployment
17:00 Italy industrial orders
18:00 EU construction output
23:00 US NHBA housing index, existing home sales
Greek current a/c
Events.16:30 EU foreign defense ministers meet
17:00 WTO dispute settlement body meets
EU's Barnier to discuss FSB with Carney
BOJ policy meeting
Bonds.10:30 S.Korea 10yr auction
11:35 Japan 2month auction
18:00 Netherlands 3,6 month auction
22:00 France 3,6,12 month auction
00:30 US 3,6 month auction
Earnings.Lowes(US), Tyson foods(US), Nuance Comm(US), Gome(HK), CSI Prop(HK), Next media(HK), Huabao(HK), Cerebos pac(SP), Tokio MArine(JP), SK holdings(SK), Korea exchange bank(SK), Korea gas(SK)
Stoddart
Showing posts with label oils. Show all posts
Showing posts with label oils. Show all posts
Sunday, 18 November 2012
Tuesday, 6 November 2012
Morning note, data, events, bonds and earnings 7th November 2012
Morning all,
Now compliance. Given my upbringing and current position, my sister and father both being compliance officers, I like to think im semi compliance verse with sec, fsa, hkma and mas law.
Having run a risk trading desk and like 98% of the investment banking community, many will tell you it's about managing risk, not making or loosing money. In fact, my economics teacher barred us from using the word "money". And rightfully so, when used in that context.
This brings me on to Basel 3. To start, increased cap requirement, despite the fact, most assets are trading considerably cheaper than 2007. Secondly, firms are now expected to discount credit rating agencies views and guidance.
Am I the only one or has everyone gone mental? Is the world moving closer to the McDonolds coffee warnings "caution, contains hot liquid"?
In the typical "wrong doers step forward" it seems everyone is taking one step back. No blame, no claim.
When markets, investors, mortgage holders and credit card owners are in desperate need of improved credit markets, the Basel 3 looks set to put right it's short comings some 5 years ago.
This is hugely negative growth and equity markets. What is the point in throwing billions of $ at a market, when the basic premise of lending is about to become over regulated and inefficient.
Policy makers; speak to the central banks... Or listen to bernanke, he studied the great depression which should help you in 3 years time, should you continue down this route.
Rant over. Markets overnight again saw volumes fall as the market waits thethe US presidential announcement. After a sharp sell off in Europe on monday, markets rebounded yesterday, closing just off the highs.
FTSE +0.8% avg volume; O/P: tech, financial U/P: utilities, oil&gas
CAC +0.9% v.low volume; O/P: tech, health U/P: utilities, cons.goods
DAX +0.7% avg volume; O/P: cons.services, health U/P: utilities, cons.goods
IBEX +0.2% v.low volume; O/P: basic materials, telco U/P: health, utilities
Comments out from Spain's Rajoy, indicated that at current levels Spain would not need to seek assistance for the ECB/EFSF, which raised some concerns that 1. the butget cuts would not be as aggressive; 2. Should CDS's start to increase, Spain would once again, need to approach the ECB.
Despite the initial sell off in the Euro, hitting 1.2770, it rebounded and is now trading back above 1.28.
In the UK, industrial production missed, coming in at -1.7% vs expected fall of -0.6%, however, manufacturing came in at 0.1% vs expected 0.4%, which although a miss, was better the the prior months number of -1.1%.
Looking at the sector maps in Europe, again we see a more defensive stance outperforming. With the Election due very soon now, wait and see seems to be the strategy.
US markets saw a small fall in volume but not as much as Europe, helped by the US$ weakening over the session.
S&P +0.8% avg volume; O/P: oil&gas, financial U/P: utilities, tech
Sentiment across the board is that, regardless of the result, equity markets should recieve a boost as talks of growth helps lift optimism. Its good to see oil&gass, basic materials and industrials outperforming.... its been a while.
Markets.
Expecting markets to open with an air of caution as eyes are glued to TV sets, where, after the announcement we should see indices move higher. Look for high growth sectors to run hard today, like that in the US. But remember, commodities like coal, are in high supply, and an increase in demand will help, but make only a splash in a pond on inventories.
Again, I want to push Japanese consumer electronic names. The sector has come under huge pressure due to weak earnings, due to both slowing growth and a strong JPY.
I still like Petrochina(857) here, with the US$ set to weaken, and sentiment turning positive on growth outlook, oil is the leveraged US$ hedge.
The financial sector is still looking rich, across the global, and with Australia housing data missing yesterday, we could see loans fall.
Indices open flat to small up, trend sideways in the first 2 hours, then we should see an afternoon rally.
Data.
11:00 S.Korea money supply
13:30 Australia foreign reserves
16:00 Spain industrial production
18:00 EU retail sales
19:00 German industrial production
20:00 US MBA mortgage apps
Events.
18:00 EU issues Autumn economic forecasts
23:15 Germany's Merkel addresses European parliment
UK Bank of England policy meeting
Bonds.
11:00 China 7yr auction
11:00 Thailand 9yr auction
11:35 Japan 6m auction
17:30 Inida 3, 6 month auction
18:30 German 5yr auction
02:00 US 10yr auction
Earnings.
Wellpoint(US), Time Warner(US), Kraft foods(US), Macy's(US), Qualcomm(US), CBS Corp(US), Whole foods market(US), Prudential fin(US), Westlake chem(US), Advance auto(US), Kohl's(US), Duke energy(US), Nordstrom(US), Energizer(US), Telefonica(SP), Hochief(GE), Delhaize(BB), BNP(FP), Bremntag(GE), Holcim(SW), Carlsberg(DK), OMV(AV), ING(NL), Ageas(UK), Muenchener Rueckversicherungs(GE), Randgold resources(UK), Burberry(UK), Vedanta(UK), Vestas wind(DK), Alstom(FP), Kakkaku.com(JP), Chiyoda(JP), Toray ind(JP), Nippon Paper(JP), Isuzu(JP), Bridgestone(JP), Link REIT(HK), Ascendas hospital(SG), HKEx(HK), Melco(HK), GS Engineering & construction(KR), Daewoo ship & marine(KR), citic securities(CH), AAC tech(HK), Advance Info services(TH), Tata motor(IN), Cadila health(IN), Bharti Airtel(IN),
Stoddart
Now compliance. Given my upbringing and current position, my sister and father both being compliance officers, I like to think im semi compliance verse with sec, fsa, hkma and mas law.
Having run a risk trading desk and like 98% of the investment banking community, many will tell you it's about managing risk, not making or loosing money. In fact, my economics teacher barred us from using the word "money". And rightfully so, when used in that context.
This brings me on to Basel 3. To start, increased cap requirement, despite the fact, most assets are trading considerably cheaper than 2007. Secondly, firms are now expected to discount credit rating agencies views and guidance.
Am I the only one or has everyone gone mental? Is the world moving closer to the McDonolds coffee warnings "caution, contains hot liquid"?
In the typical "wrong doers step forward" it seems everyone is taking one step back. No blame, no claim.
When markets, investors, mortgage holders and credit card owners are in desperate need of improved credit markets, the Basel 3 looks set to put right it's short comings some 5 years ago.
This is hugely negative growth and equity markets. What is the point in throwing billions of $ at a market, when the basic premise of lending is about to become over regulated and inefficient.
Policy makers; speak to the central banks... Or listen to bernanke, he studied the great depression which should help you in 3 years time, should you continue down this route.
Rant over. Markets overnight again saw volumes fall as the market waits thethe US presidential announcement. After a sharp sell off in Europe on monday, markets rebounded yesterday, closing just off the highs.
FTSE +0.8% avg volume; O/P: tech, financial U/P: utilities, oil&gas
CAC +0.9% v.low volume; O/P: tech, health U/P: utilities, cons.goods
DAX +0.7% avg volume; O/P: cons.services, health U/P: utilities, cons.goods
IBEX +0.2% v.low volume; O/P: basic materials, telco U/P: health, utilities
Comments out from Spain's Rajoy, indicated that at current levels Spain would not need to seek assistance for the ECB/EFSF, which raised some concerns that 1. the butget cuts would not be as aggressive; 2. Should CDS's start to increase, Spain would once again, need to approach the ECB.
Despite the initial sell off in the Euro, hitting 1.2770, it rebounded and is now trading back above 1.28.
In the UK, industrial production missed, coming in at -1.7% vs expected fall of -0.6%, however, manufacturing came in at 0.1% vs expected 0.4%, which although a miss, was better the the prior months number of -1.1%.
Looking at the sector maps in Europe, again we see a more defensive stance outperforming. With the Election due very soon now, wait and see seems to be the strategy.
US markets saw a small fall in volume but not as much as Europe, helped by the US$ weakening over the session.
S&P +0.8% avg volume; O/P: oil&gas, financial U/P: utilities, tech
Sentiment across the board is that, regardless of the result, equity markets should recieve a boost as talks of growth helps lift optimism. Its good to see oil&gass, basic materials and industrials outperforming.... its been a while.
Markets.
Expecting markets to open with an air of caution as eyes are glued to TV sets, where, after the announcement we should see indices move higher. Look for high growth sectors to run hard today, like that in the US. But remember, commodities like coal, are in high supply, and an increase in demand will help, but make only a splash in a pond on inventories.
Again, I want to push Japanese consumer electronic names. The sector has come under huge pressure due to weak earnings, due to both slowing growth and a strong JPY.
I still like Petrochina(857) here, with the US$ set to weaken, and sentiment turning positive on growth outlook, oil is the leveraged US$ hedge.
The financial sector is still looking rich, across the global, and with Australia housing data missing yesterday, we could see loans fall.
Indices open flat to small up, trend sideways in the first 2 hours, then we should see an afternoon rally.
Data.
11:00 S.Korea money supply
13:30 Australia foreign reserves
16:00 Spain industrial production
18:00 EU retail sales
19:00 German industrial production
20:00 US MBA mortgage apps
Events.
18:00 EU issues Autumn economic forecasts
23:15 Germany's Merkel addresses European parliment
UK Bank of England policy meeting
Bonds.
11:00 China 7yr auction
11:00 Thailand 9yr auction
11:35 Japan 6m auction
17:30 Inida 3, 6 month auction
18:30 German 5yr auction
02:00 US 10yr auction
Earnings.
Wellpoint(US), Time Warner(US), Kraft foods(US), Macy's(US), Qualcomm(US), CBS Corp(US), Whole foods market(US), Prudential fin(US), Westlake chem(US), Advance auto(US), Kohl's(US), Duke energy(US), Nordstrom(US), Energizer(US), Telefonica(SP), Hochief(GE), Delhaize(BB), BNP(FP), Bremntag(GE), Holcim(SW), Carlsberg(DK), OMV(AV), ING(NL), Ageas(UK), Muenchener Rueckversicherungs(GE), Randgold resources(UK), Burberry(UK), Vedanta(UK), Vestas wind(DK), Alstom(FP), Kakkaku.com(JP), Chiyoda(JP), Toray ind(JP), Nippon Paper(JP), Isuzu(JP), Bridgestone(JP), Link REIT(HK), Ascendas hospital(SG), HKEx(HK), Melco(HK), GS Engineering & construction(KR), Daewoo ship & marine(KR), citic securities(CH), AAC tech(HK), Advance Info services(TH), Tata motor(IN), Cadila health(IN), Bharti Airtel(IN),
Stoddart
Sunday, 21 October 2012
Morning note, data, events, bonds and earnings 22nd October 2012
Morning,
The major headline this weekend was the confirmation that on the 1st January, the European banking union will be created. Great. But once again, we have a number of counties adding to the pressure of this new initiative with Merkel quoting "quality takes precedence over speed". The ECB is to be given power to intervene in 6000 eurozone banks, with the aim of easing credit markets, as banks have been reluctant to lend to each other, and government debt markets in Spain and Italy have seen rates recently above the 5% mark, With recent stress tests highlighting the problems faced by domestic banks, this should help ease the burden on domestic credit markets, as the ECB will now act as the "lender of last resort".
European leaders are hoping that improved credit markets will encourage increased lending and improve lending rates, which in turn should increase consumer spending and therefore the jobs market. They do however have concerns that for lower quality lending, the ECB could end up with the high risk assets whilst regional banks and be more selective, choosing to only take on high quality credit.
Although the risks are apparent, its good to see Europe working towards a common goal, and with Spain needing nearly 60bn Euros, the market will take this news with welcome relief.
With US elections just around the corner, I expect investors to continue on a defensive course. The recent run in growth and higher beta is largely in part due to a less negative outlook on GDP, not a expectation of strong growth. There are a number of sectors which are yet to se these inflow, including consumer electronics. This is a sector I would be looking at for short/near term gains as sector rotation finds its way there.
With such a strong run in coals over the last month, its time to switch out of the sector. With such high inventories, the fundamentals havent changed, and margins will remain low. I expect steel and Alu to outperform, more on technicals than improved demand, but with negativity so high on the sector, there is a high chance that short positions will get caught, triggering a squeeze.
Markets.
In the US on friday, markets were hit by a number of missed earnings including McDonald's, mostly due to slowing domestic growth. There will be some negativity in the market ahead of the US durable goods numbers due Thursday, and US house prices due Wednesday.
Commodities look set for a sharp down over the next few days as the USD will firm against the Euro looks set to retest the 200 day moving average once again. Its time to buy Euro on weakness.
Markets today should trend weaker in the first hour, hitting day lows but soon find support and trend sideways, maybe even trend slightly firmer on the short cover.
After such strong run, expect selling in Petrochina(857) and SNP(386), which due to their weighting in the index, will leave HK underperforming the region.
Data.
07:50 Japan import/export
13:00 Japan department store sales
15:00 Spain mortgage data
16:30 HK CPI
Also Greek current a/c
Events.
07:50 Japan BOJ minutes
14:00 German finance minister publishes monthly report
21:00 ECB Constancio testifies to UK lords panel
IADI general meeting
Bonds.
09:30 Korea 1 and 20 year auction
11:00 Thailand 1, 3 and 6 month auction
21:00 France 3, 6 and 12 month auction
23:30 US 3, 6 month auction
Earnings.
Peabody(US), VF Corp(US), Hasbro(US), Caterpiller(US), Western Digital(US), Freeport McMoRan(US), Yahoo(US), Wynn resorts(US), Philips(NL), Svenska Handelsbaken(SW) Electrolux(SW), Scandia(SS), Raffles medical(SG), China Mobile(CH), LG House & Health(KR), Acer(TT), ZhuZhou CSR(CH), Cairn India(IN), Bajaj Auto(IN), L&T(IN), Mahindra & Mahindra(IN), Power grid of India(IN)
The major headline this weekend was the confirmation that on the 1st January, the European banking union will be created. Great. But once again, we have a number of counties adding to the pressure of this new initiative with Merkel quoting "quality takes precedence over speed". The ECB is to be given power to intervene in 6000 eurozone banks, with the aim of easing credit markets, as banks have been reluctant to lend to each other, and government debt markets in Spain and Italy have seen rates recently above the 5% mark, With recent stress tests highlighting the problems faced by domestic banks, this should help ease the burden on domestic credit markets, as the ECB will now act as the "lender of last resort".
European leaders are hoping that improved credit markets will encourage increased lending and improve lending rates, which in turn should increase consumer spending and therefore the jobs market. They do however have concerns that for lower quality lending, the ECB could end up with the high risk assets whilst regional banks and be more selective, choosing to only take on high quality credit.
Although the risks are apparent, its good to see Europe working towards a common goal, and with Spain needing nearly 60bn Euros, the market will take this news with welcome relief.
With US elections just around the corner, I expect investors to continue on a defensive course. The recent run in growth and higher beta is largely in part due to a less negative outlook on GDP, not a expectation of strong growth. There are a number of sectors which are yet to se these inflow, including consumer electronics. This is a sector I would be looking at for short/near term gains as sector rotation finds its way there.
With such a strong run in coals over the last month, its time to switch out of the sector. With such high inventories, the fundamentals havent changed, and margins will remain low. I expect steel and Alu to outperform, more on technicals than improved demand, but with negativity so high on the sector, there is a high chance that short positions will get caught, triggering a squeeze.
Markets.
In the US on friday, markets were hit by a number of missed earnings including McDonald's, mostly due to slowing domestic growth. There will be some negativity in the market ahead of the US durable goods numbers due Thursday, and US house prices due Wednesday.
Commodities look set for a sharp down over the next few days as the USD will firm against the Euro looks set to retest the 200 day moving average once again. Its time to buy Euro on weakness.
Markets today should trend weaker in the first hour, hitting day lows but soon find support and trend sideways, maybe even trend slightly firmer on the short cover.
After such strong run, expect selling in Petrochina(857) and SNP(386), which due to their weighting in the index, will leave HK underperforming the region.
Data.
07:50 Japan import/export
13:00 Japan department store sales
15:00 Spain mortgage data
16:30 HK CPI
Also Greek current a/c
Events.
07:50 Japan BOJ minutes
14:00 German finance minister publishes monthly report
21:00 ECB Constancio testifies to UK lords panel
IADI general meeting
Bonds.
09:30 Korea 1 and 20 year auction
11:00 Thailand 1, 3 and 6 month auction
21:00 France 3, 6 and 12 month auction
23:30 US 3, 6 month auction
Earnings.
Peabody(US), VF Corp(US), Hasbro(US), Caterpiller(US), Western Digital(US), Freeport McMoRan(US), Yahoo(US), Wynn resorts(US), Philips(NL), Svenska Handelsbaken(SW) Electrolux(SW), Scandia(SS), Raffles medical(SG), China Mobile(CH), LG House & Health(KR), Acer(TT), ZhuZhou CSR(CH), Cairn India(IN), Bajaj Auto(IN), L&T(IN), Mahindra & Mahindra(IN), Power grid of India(IN)
Sunday, 7 October 2012
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
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
Sunday, 16 September 2012
Morning note, events and data 17th September 2012
Morning,
After a strong performance in Europe on Friday and US markets adding to the recent gains, I expected a bit more optimism in the press over the week.
With Europe and the Euro clearly dominating the headlines, along side the US QE3 program, I was expecting a more upbeat sentiment, like talks of improving growth targets, increased liquidity supporting lower rates and talks of "now we can concentrate on jobs". We didnt get it.
Headlines in the FT and Economist, highlight, Spain's reluctance to apply for the bailout. Rajoy's stalling, they blame, is due to the Spanish elections due on 21st October. This has part to play, but the main reason comes from the lack of clarity regarding the terms attached to the bailout. Current procedure is, you ask for support, then you get the cash and terms.
Rajoy's fears are justified. With his Government desperately trying to cut is deficit, currently 8.9% of GDP, conditions under the bailout could put additional austerity measures, further hurting employment. A major concern, when Spanish unemployment is at 24.7%, and protests for independence are increasing in size.
This is sounding more and more like Greece's predicament. Once again, fears are creeping in that delays could hamper job creation and in turn, the growth outlook.
Now moving to the US. Headlines in the FT highlight mortgage processing delays slowing US growth. In reality, regards of QE3, real interest rates across the globe have not reflected central bank rates. For example, with FED rates at 0.25%, mortgages rates are still at 3.50%. Now that is for a 30 year fixed rate, however, it has not changed over the last 6 months, despite 30 year treasuries getting as low as 2.5%.
Banks are still extremely nervous of NPL's. Given the pressure they face from new regulation, capital adequacy requirements and constraints on selling packaged debt products, it is not surprising that they reluctant to lend.
In addition to this, mortgage brokers and alternative lending sources have been squeezed out of the space, reducing competition. Prices have been impacted and with barriers to entry, now higher than ever, I suspect its a long time before we see this environment changing. A more relaxed stance on capital requirement and lighter regulation, would certainly support the market. But with the presidential election due, and lack of regulation being blamed for the recession, a policy of less regulation could be political suicide.
Its a good job people quick to forget the bad.
Markets.Given the recent rally in everything from basic materials to industrials, I expect to see some outflows today. Ok, we have QE3, but QE1 and QE2 outcomes have been shorted lived. Investors now want to see the data improving.
This should encourage profit taking, especially in gold miners, which looking at the junior gold miner ETF, GDXJ US, has rallied over 30% since July.
I agree with many, that the Euro squeeze has more to go, given how heavily underweight the market is, but the sudden movement will soon run out of steam as the data is slow to react. For example, Spanish unemployment is highly unlikely to come in below 18% before 1Q 2013.
With the weakness in the US$ supporting basic materials, coal, iron and copper should continue to run, but with inventories so high, physical prices have a very heavy ceiling as firms look to maintain revenue through increased sales. Oversupply will continue for some time to come.
China banks.
Have seen some strength, mostly on the back of short covering. Time to look at shorting again. With Reserve Rate Requirements(RRR) and interest rate cuts due, margins will decline whilst NPL's increase. Not a pleasant position to be in.
HK Property.
Very strong performance last week as the US signal low rates til 2Q 2015. With the HK$ peg, HK property is seen as a strong US$ hedge and investors are looking for a strong pick up in demand. My issue here, HK property prices have hardly corrected. Property developers for years have controlled supply, supporting prices and the mark to market of its inventory. My fear is, the HK government have already shown concerns of a property bubble, which will need to be addressed. Looking to short the sector into strength.
China utilities and telecoms. Looking to buy on weakness. Recent strength has seen yields fall, but with a strong pull back as investors increase risk, should leave these names look attractive. Not a buyer at these levels, but are on the radar.
China railway.
Huge short covering on the back of the rail minister pushing of increased roll out of projects. Near term earnings look dramatically improved, however, the outlook passed 2015/16 is limited. Increasing competition for maintenance contracts has reduced margins, and unless exporting products and services increase, new projects will once again start to slow. Short into strength
China oils.
Very strong rally helped by pump price increases, weaker US$ pushing crude higher and to a less degree, improving growth outlook. Time to take profits in the sector. PTR(857) up HK$1 in a week, now trading at $10. We can look at buying again on the pull back.
Markets today, open at the highs and trade sideways early session, then in the afternoon as Europe come in, we should see them trend easier.
Events.Merkel Q&A with Journalists in Berlin, Romney speaks in LA
Data.13:30 Indian repo rate
15:00 Turkey unemployment rate
16:00 Eurozone current account
16:00 Italian trade balance
17:00 EU labour costs and trade balance
20:30 US empire manufacturing
Also due is China FDI, Russian industrial production
Stoddart
After a strong performance in Europe on Friday and US markets adding to the recent gains, I expected a bit more optimism in the press over the week.
With Europe and the Euro clearly dominating the headlines, along side the US QE3 program, I was expecting a more upbeat sentiment, like talks of improving growth targets, increased liquidity supporting lower rates and talks of "now we can concentrate on jobs". We didnt get it.
Headlines in the FT and Economist, highlight, Spain's reluctance to apply for the bailout. Rajoy's stalling, they blame, is due to the Spanish elections due on 21st October. This has part to play, but the main reason comes from the lack of clarity regarding the terms attached to the bailout. Current procedure is, you ask for support, then you get the cash and terms.
Rajoy's fears are justified. With his Government desperately trying to cut is deficit, currently 8.9% of GDP, conditions under the bailout could put additional austerity measures, further hurting employment. A major concern, when Spanish unemployment is at 24.7%, and protests for independence are increasing in size.
This is sounding more and more like Greece's predicament. Once again, fears are creeping in that delays could hamper job creation and in turn, the growth outlook.
Now moving to the US. Headlines in the FT highlight mortgage processing delays slowing US growth. In reality, regards of QE3, real interest rates across the globe have not reflected central bank rates. For example, with FED rates at 0.25%, mortgages rates are still at 3.50%. Now that is for a 30 year fixed rate, however, it has not changed over the last 6 months, despite 30 year treasuries getting as low as 2.5%.
Banks are still extremely nervous of NPL's. Given the pressure they face from new regulation, capital adequacy requirements and constraints on selling packaged debt products, it is not surprising that they reluctant to lend.
In addition to this, mortgage brokers and alternative lending sources have been squeezed out of the space, reducing competition. Prices have been impacted and with barriers to entry, now higher than ever, I suspect its a long time before we see this environment changing. A more relaxed stance on capital requirement and lighter regulation, would certainly support the market. But with the presidential election due, and lack of regulation being blamed for the recession, a policy of less regulation could be political suicide.
Its a good job people quick to forget the bad.
Markets.Given the recent rally in everything from basic materials to industrials, I expect to see some outflows today. Ok, we have QE3, but QE1 and QE2 outcomes have been shorted lived. Investors now want to see the data improving.
This should encourage profit taking, especially in gold miners, which looking at the junior gold miner ETF, GDXJ US, has rallied over 30% since July.
I agree with many, that the Euro squeeze has more to go, given how heavily underweight the market is, but the sudden movement will soon run out of steam as the data is slow to react. For example, Spanish unemployment is highly unlikely to come in below 18% before 1Q 2013.
With the weakness in the US$ supporting basic materials, coal, iron and copper should continue to run, but with inventories so high, physical prices have a very heavy ceiling as firms look to maintain revenue through increased sales. Oversupply will continue for some time to come.
China banks.
Have seen some strength, mostly on the back of short covering. Time to look at shorting again. With Reserve Rate Requirements(RRR) and interest rate cuts due, margins will decline whilst NPL's increase. Not a pleasant position to be in.
HK Property.
Very strong performance last week as the US signal low rates til 2Q 2015. With the HK$ peg, HK property is seen as a strong US$ hedge and investors are looking for a strong pick up in demand. My issue here, HK property prices have hardly corrected. Property developers for years have controlled supply, supporting prices and the mark to market of its inventory. My fear is, the HK government have already shown concerns of a property bubble, which will need to be addressed. Looking to short the sector into strength.
China utilities and telecoms. Looking to buy on weakness. Recent strength has seen yields fall, but with a strong pull back as investors increase risk, should leave these names look attractive. Not a buyer at these levels, but are on the radar.
China railway.
Huge short covering on the back of the rail minister pushing of increased roll out of projects. Near term earnings look dramatically improved, however, the outlook passed 2015/16 is limited. Increasing competition for maintenance contracts has reduced margins, and unless exporting products and services increase, new projects will once again start to slow. Short into strength
China oils.
Very strong rally helped by pump price increases, weaker US$ pushing crude higher and to a less degree, improving growth outlook. Time to take profits in the sector. PTR(857) up HK$1 in a week, now trading at $10. We can look at buying again on the pull back.
Markets today, open at the highs and trade sideways early session, then in the afternoon as Europe come in, we should see them trend easier.
Events.Merkel Q&A with Journalists in Berlin, Romney speaks in LA
Data.13:30 Indian repo rate
15:00 Turkey unemployment rate
16:00 Eurozone current account
16:00 Italian trade balance
17:00 EU labour costs and trade balance
20:30 US empire manufacturing
Also due is China FDI, Russian industrial production
Stoddart
Subscribe to:
Posts (Atom)