Good morning,
As the sun breaches the eastern shores of Singapore, and memories of the night before become more vivid, helping explain the plant pot in the middle of the bedroom floor, the US housing data is backing my optimism of US growth beating analysts estimates.
Despite my kind gesture of a tree, the misses remains unimpressed.
Equity markets overnight held quite well, considering such a strong run on Monday, I was looking for some pull back yesterday. Stronger than expected US housing starts and building permits help support equities whilst currencies continued strength against the US$ boosts markets in Europe.
European markets saw a big drop in volume overnight, leaving me a little nervous on the recent strong move. With the Euro at such major technical resistance levels, investors seem to be sitting back and waiting for confirmation that "the world is now ok". Bond markets seems to conform, with Spanish and Italian debt firming 11 and 6 basis points, whilst US treasuries gave back last weeks gains, with the 10yr now trading at 1.67%.
FTSE +0.2% avg volume; O/P: telco, industrial U/P: tech, financial
CAC +0.7% v.low volume; O/P: health, cons.services U/P: tech, telco
DAX +0.7% v.low volume; O/P: basic materials, industrials U/P: utilities, telco
IBEX +0.2% v.low volume; O/P: industrials, cons.services U/P: tech, basic mats
Sector maps show very mixed signals, however, the outperformance of industrials would leave us to believe that there is some short covering out there. This is also reflected with basic materials performing. Huge inventories and slowing China growth has seen prices continue to remain weak, leaving every fundamentalist negative not just in the near term, but as far out as 2015 before we see price recovery. As risk is reduced, so are shorts, helping (finally) to see some rotation of capital back into both industrials and basic materials, I expect this to continue.
The financial sector has been extremely strong over the last 3 months, as the market sees efforts from central banks to boost credit and lending, should see revenues increase. Like 2008, this will come at a cost, quality. The sector is starting to look rich here and yes, they will be the first to benefit from policy, but at these levels, it looks priced in.
US markets were have a rough day early in the session, with a sharp sell off mid-way through as Bernanke warns that the central bank has little power if congress cant agree on the up coming tax cuts and spending policy expiry.
But this was soon reversed, as sentiment remains high on the back of Obama being able to agree with Tea Party representative Paul Ryan, and get new policies through without delay.
Data overnight saw housing starts increase to 894k vs expected 840k, whilst building permits came in at 866k vs expected 864k.
S&P 0.1% low volume; O/P: health, financial U/P: tech, oil & gas
Despite the weaker US$, oil and gas gave back some of Mondays gains with Chevron 0.8% easier. Tech also sold down on the back of HP down 12%, dragging the sector lower, and heavy weight Apple, down 0.9% after a strong run on Monday.
The financial sector was also strong again last night and is starting to look top. A number of private wealth guys were trying to sell the idea of going long the sector but personally, at these levels it looks toppy. REDUCE/SELL
Markets.Asian markets trended easier yesterday, with HK closing at the lows. I expect a bounce on the open but we should see them drift sideways for most of the day. With currencies at major resistance levels, I see limited triggers to push us through those levels.
Bank of England minutes due today at 17:30 singapore time.
At these levels, I continue to like coal and oil, as we see rotation into lagging sectors. China property is starting to look rich here, reduce.
Mitsui OSK, which is suffering from weak dry bulk rates, had a fantastic move yesterday on strong volume, I like this. BUY
Data.16:30 Netherlands house prices
17:30 UK Bank of England minutes, public finances
20:00 US MBA mortgage apps
21:30 US jobless claims
22:55 Uni of Michigan confidence
23:00 US leading indicators
Spain trade balance
Events.08:30 Australia RBA minutes
21:30 Spain Bank of Spain governor speaks in Madrid
22:00 Italy Bank of Italy speaks
Euro finance ministers hold meeting on Greece
Bonds.09:30 China 1,3,5,7,10 year auction
11:00 Thailand 1,3 and 6 month auction
12:30 Taiwan 30 year auction
13:30 Philippines 7year auction
17:30 Spain 364 and 509day auction
18:30 UK 5year auction
00:30 US 1 month auction
Earnings.Deere(US), CareFusion(US), Zodiac Aerospace(FR), Johnson Matthey(UK), China resources Ent(HK), Texwinca(HK), Oriental watch(HK), City telecom(HK), Citic(CH), Airaisa(MK), Ukrnafta oil(RU)
Stoddart
Tuesday, 20 November 2012
Monday, 19 November 2012
Morning note, data, events, bonds and earnings 20th November 2012
Good morning,
Optimism was lifted overnight as strong debt and headlines now support Obama's plans to reduce the US deficit. As expected, equity markets finally start reacting to the currency markets, where the US$ continues to weaken vs majors. Now with the Euro and Sterling at major technical levels, do they have the momentum to push through resistance levels, or are they setting up to move sideways in the near term?
European markets opened at the lows and trended firmer throughout the session, closing on the highs, however, volumes remained below average.
Spanish bad loans are over the headlines today, mostly on loans and mortgages, equating to 10.7% of total loans or 182.2 billion euros in September.
Overnight we also had a French bond downgrade, loosing the almighty AAA rating, now AA1 by Moody's. Fears will be others are to follow. The downgrade cited 1. worse longer term outlook; 2. uncertainty on economic growth prospects; 3. falling resilience to future euro shocks.
This is mud on the face of Hollande, who was looking for increased spending to boost GDP, and tax revenues to pay for the spending.
FTSE +2.4% avg volume; O/P: tech, financials U/P: health, utilities
CAC +2.9% low volume; O/P: financials, tech U/P: health, telco
DAX +2.5% avg volume; O/P: cons.good, tech U/P: health, utilites
IBEX +2.3% avg volume; O/P: tech, financials U/P: health, industrial
A complete reversal from last weeks defensive move into healthcare. With improving housing markets in the UK, investors brush off the Spanish bad loans data, and European bonds remain relatively unchanged. The Euro is also supporting which rallied nearly 1 big figure overnight, now trading at 1.2780.
European indices are looking rich here with German's DAX trading on 14x earnings, vs the S&P also trading on 14x, however, on book value the DAX is only 1.35, and the S&P is on 2.09.
With such negativity since the US election, equity markets were long overdue a bounce, and with volume remaining around average plus the Euro at major resistance levels, this move has little behind it. The longer term outlook is positive for European equities but with growth set to increase slowly, overnight moves on little data will soon correct.
Data overnight saw Italian industrial production fall -4.0% vs expected -1.0% but this is also impacted by floods in Europe.
Greece current a/c came in at 775m, as exports of services fell from 3965m to 2920m month on month, mostly in travel.
The EU construction output fell -1.4% MoM, due mostly to a large fall in the Czech republic, German and Poland. Spain was actually up 1.4%, whilst Slovenia went from a -19.6% to -0.2% quarter on quarter.
US markets traded similar to that of Europe, opening at the lows and trending firmer throughout the session, closing at day highs. UST's saw yields fall slightly but with the 10year still at 1.61, and AAA rated, there will continue to be demand, especially if we see investors increase cash positions into year end.
S&P +2.0% avg volume; O/P: tech, basic materials U/P; utilities, health
Tech seeing a strong rebound, helped mostly by Apple (AAPL), which rebounded +7.2% last night. Expect this stock to squeeze further given the recent stream of negativity on its growth. I have to agree, the outlook for AAPL is limited due to falling innovation, however, short levels would be nearer $600 again.
With equities finally mirroring currencies, oil and basic materials were both strong last night. The US sectors map highlights Paper +3.7%, industrial materials +.3.1% and mining +1.9%, this sector has more to go as funds move to a more equally weighted position, also expect a short squeeze.
With optimism on the US finding a solution to reduce its deficit whilst spending to encourage growth, investors turn to the financial sector. Credit markets are such, that banks remain nervous on lending, ie tight credit markets, which mean real interest rates remain high and loan growth weak. However, as growth estimates improve and housing markets get support, we should see an increased level of lending. Bad credit ratings will improve but a full blown property market rally is some way off.
Markets.Asian markets already priced in some of this move yesterday, but should have more to go. Expect markets to rally on the open to day highs, and then trade easier as the Euro struggles at resistance levels.
Sectors, still not too late to buy Alu, coal, steel and oil. Top picks, Angang(347), Chalco(2600), Yanzhou(1171) and Petrochina(857), but CNOOC(883) will also benefit from improving crude.
As China property prices increase, banks should also see inflows as will property developers, however, due to government intervention the credit markets will remain tight.
IPP has been a strong sector this year and going into China winter, but is now looking rich. SELL
US building permits/housing starts today... lets see if we get some follow-through on US housing.
Data.10:00 China FDI
12:30 Japan industrial activity
15:00 German PPI
16:30 Netherlands consumer confidence (important due to noise on the Euro)
21:30 US housing starts, building permits
BoJ target rate
Events.02:00 EU Van Rompuy meets ministers on budget talks
07:00 Monti in UAE
08:30 Australia reserve minutes
17:00 EU general affairs minister prep budget summit
22:00 US Fed's Lacker speaks on monetary policy
Bonds.09:30 China 1,3,5,7,10 year auction
11:30 Thailand 1,3/12 month auction
12:30 Taiwan 30 year auction
17:30 Spain 1,2 year auction
18:30 UK 5 year auction
19:00 EFSF 6 month auction
00:30 US 1 month auction
Earnings.Campbell soup(US), HJ Heinz(US), HP(US), Medtronic(US), Best Buy(US), British Land(UK), OPAP(GR), easyjet(UK), Digital China(HK), Lee & Man(HK), Guinness Anchor(MK), SK Chem(SK)
Stoddart
Optimism was lifted overnight as strong debt and headlines now support Obama's plans to reduce the US deficit. As expected, equity markets finally start reacting to the currency markets, where the US$ continues to weaken vs majors. Now with the Euro and Sterling at major technical levels, do they have the momentum to push through resistance levels, or are they setting up to move sideways in the near term?
European markets opened at the lows and trended firmer throughout the session, closing on the highs, however, volumes remained below average.
Spanish bad loans are over the headlines today, mostly on loans and mortgages, equating to 10.7% of total loans or 182.2 billion euros in September.
Overnight we also had a French bond downgrade, loosing the almighty AAA rating, now AA1 by Moody's. Fears will be others are to follow. The downgrade cited 1. worse longer term outlook; 2. uncertainty on economic growth prospects; 3. falling resilience to future euro shocks.
This is mud on the face of Hollande, who was looking for increased spending to boost GDP, and tax revenues to pay for the spending.
FTSE +2.4% avg volume; O/P: tech, financials U/P: health, utilities
CAC +2.9% low volume; O/P: financials, tech U/P: health, telco
DAX +2.5% avg volume; O/P: cons.good, tech U/P: health, utilites
IBEX +2.3% avg volume; O/P: tech, financials U/P: health, industrial
A complete reversal from last weeks defensive move into healthcare. With improving housing markets in the UK, investors brush off the Spanish bad loans data, and European bonds remain relatively unchanged. The Euro is also supporting which rallied nearly 1 big figure overnight, now trading at 1.2780.
European indices are looking rich here with German's DAX trading on 14x earnings, vs the S&P also trading on 14x, however, on book value the DAX is only 1.35, and the S&P is on 2.09.
With such negativity since the US election, equity markets were long overdue a bounce, and with volume remaining around average plus the Euro at major resistance levels, this move has little behind it. The longer term outlook is positive for European equities but with growth set to increase slowly, overnight moves on little data will soon correct.
Data overnight saw Italian industrial production fall -4.0% vs expected -1.0% but this is also impacted by floods in Europe.
Greece current a/c came in at 775m, as exports of services fell from 3965m to 2920m month on month, mostly in travel.
The EU construction output fell -1.4% MoM, due mostly to a large fall in the Czech republic, German and Poland. Spain was actually up 1.4%, whilst Slovenia went from a -19.6% to -0.2% quarter on quarter.
US markets traded similar to that of Europe, opening at the lows and trending firmer throughout the session, closing at day highs. UST's saw yields fall slightly but with the 10year still at 1.61, and AAA rated, there will continue to be demand, especially if we see investors increase cash positions into year end.
S&P +2.0% avg volume; O/P: tech, basic materials U/P; utilities, health
Tech seeing a strong rebound, helped mostly by Apple (AAPL), which rebounded +7.2% last night. Expect this stock to squeeze further given the recent stream of negativity on its growth. I have to agree, the outlook for AAPL is limited due to falling innovation, however, short levels would be nearer $600 again.
With equities finally mirroring currencies, oil and basic materials were both strong last night. The US sectors map highlights Paper +3.7%, industrial materials +.3.1% and mining +1.9%, this sector has more to go as funds move to a more equally weighted position, also expect a short squeeze.
With optimism on the US finding a solution to reduce its deficit whilst spending to encourage growth, investors turn to the financial sector. Credit markets are such, that banks remain nervous on lending, ie tight credit markets, which mean real interest rates remain high and loan growth weak. However, as growth estimates improve and housing markets get support, we should see an increased level of lending. Bad credit ratings will improve but a full blown property market rally is some way off.
Markets.Asian markets already priced in some of this move yesterday, but should have more to go. Expect markets to rally on the open to day highs, and then trade easier as the Euro struggles at resistance levels.
Sectors, still not too late to buy Alu, coal, steel and oil. Top picks, Angang(347), Chalco(2600), Yanzhou(1171) and Petrochina(857), but CNOOC(883) will also benefit from improving crude.
As China property prices increase, banks should also see inflows as will property developers, however, due to government intervention the credit markets will remain tight.
IPP has been a strong sector this year and going into China winter, but is now looking rich. SELL
US building permits/housing starts today... lets see if we get some follow-through on US housing.
Data.10:00 China FDI
12:30 Japan industrial activity
15:00 German PPI
16:30 Netherlands consumer confidence (important due to noise on the Euro)
21:30 US housing starts, building permits
BoJ target rate
Events.02:00 EU Van Rompuy meets ministers on budget talks
07:00 Monti in UAE
08:30 Australia reserve minutes
17:00 EU general affairs minister prep budget summit
22:00 US Fed's Lacker speaks on monetary policy
Bonds.09:30 China 1,3,5,7,10 year auction
11:30 Thailand 1,3/12 month auction
12:30 Taiwan 30 year auction
17:30 Spain 1,2 year auction
18:30 UK 5 year auction
19:00 EFSF 6 month auction
00:30 US 1 month auction
Earnings.Campbell soup(US), HJ Heinz(US), HP(US), Medtronic(US), Best Buy(US), British Land(UK), OPAP(GR), easyjet(UK), Digital China(HK), Lee & Man(HK), Guinness Anchor(MK), SK Chem(SK)
Stoddart
Sunday, 18 November 2012
Morning note, data, events, bonds and earnings 19th November 2012
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
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
Thursday, 15 November 2012
Morning note, data, events, bonds and earnings 16th November 2012
Jo san,
Friday is here and there is a certain buzz in the GTO office. I'm already pricing the US up around 50bps on tonights close, where I was instantly hit by all but one of my colleagues.... but he was in the toilet so missed the price.
With TV's, newspapers and ever other note I read mentioning the "fiscal cliff", its feels like the investment community is heading down the Kardasian route, and dramatising ever event.
Agreed, Obama is having to play Robin Hood, taking from the rich, and giving to the poor. But the markets view that these tax increases will hit consumer spending is incorrect, infact, its the lower end of the income chain that spend the highest percentage of their earnings. Consumer spending and improved credit markets are the key to jobs growth.
Equity markets overnight were all easier, with little direction, however, volumes remain strong in major indices. In the currency markets, Eur continued to firm against the US$, testing the 1.28 level, currently 1.2780. The JPY also continued to weaken vs the US$, now 81.14. Very mixed signals from equity and currency markets, given these moves look bullish.... will correlation between currencies and equities correct back to normal.... I'd bet on it.
In bonds, we saw Spanish and Italian 10yr yields tighten around 4bps, whilst UST's widened from 1.5900 to 1.5930, which will also help support the Eur, as outflows from the US move across the pond.
In Europe, markets traded sideways in a 60bps range on around average volumes, leaving indices up just 5% year to date.
FTSE -0.8% avg volume; O/P: heath, financial U/P: cons.services, tech
CAC -0.5% avg volume; O/P: telco, cons.services U/P: tech, utilities
DAX -0.9% avg volume; O/P: telco, financial U/P: cons.services, tech
IBEX +0.3% avg volume; O/P: oil & gas, tech U/P: health, basic materials
Sector maps again looking relatively defensive, however, oil&gas which has been one of the worst performers over the last few weeks, is finally in the upper end of the table on all indices. Expect to see a short squeeze as we see sector rotation in to oil and commodities as the US$ continues to weaken against majors.
Data overnight saw French GDP come in at 0.2% vs expected flat. Spanish GDP came in as expected at -0.3, whilst Italy's was better at -0.2% vs expected -0.5%.
UK retail sales were weak at -0.7% vs estimates -0.1%, partly blamed on the cold weather but I suspect its more to do with credit remaining tight in the UK.
Euro-zone CPI was inline with expectations at 1.5%, as was the GDP number at -0.1%.
US markets opened positive on the open but drifted to day lows early session as jobless claims came in higher, blamed on hurricane Sandy.
S&P -0.2% avg volume; O/P: cons.goods, financial U/P: telco, basic materials
Financial stocks rebounding after Wednesdays sell off. Tech continuing to under perform but mostly due to Apple and Microsoft, as others in the sector like hardware are all outperforming. With the market getting super bearish Apple products, which I agree, the new Microsoft platform looks impressive, its time to short cover here.
Data in the US as CPI inline @ 0.1%. Empire manufacturing came in stronger than expected but still down, -5.22 in November vs estimates -8.00. US jobless claims increased 439k, vs estimates 375k.
Slightly concerning was the number of delinquencies, which have seen little improvement at 7.4%, with foreclosures still above the 4% level in the 3rd quarter.
Markets.Expect markets today to open flat to small down, but with the US$ weakening, we should see them trend firmer throughout the day, closing just off highs.
NB, oil heavy weight indices like HK will see additional strength as Petrochina outperforms...its still not to late to buy the sector, including chemicals.
Data.15:00 EU new car registrations
16:00 Turkey consumer confidence
16:30 HK GDP
17:00 ECB current a/c
17:00 Italy trade balance
18:00 EU trade balance
22:00 US foreign net transactions
China FDI, Japan monthly economic report
Events.17:00 Italian cabinet meets
23:15 US Obama meets lawmakers
Bonds.11:35 Japan 1 year auction
18:00 German 1,3 and 6 month auction
Earnings.Foot locker(US), Henkel(GE), LSE(GB), F&N(SP), YTL(MK), IOI(MK), Thai Bev(TH), KOC holding(TR), Trakya Cam Sanayi(TR), Turk Hava Yollari(TR), Philip Morris(CZ), Bank Forum(RU), Truly Intl(HK), City eSolutions(HK), Parkson(HK), Shandong Weigao(CH)
Stoddart
Friday is here and there is a certain buzz in the GTO office. I'm already pricing the US up around 50bps on tonights close, where I was instantly hit by all but one of my colleagues.... but he was in the toilet so missed the price.
With TV's, newspapers and ever other note I read mentioning the "fiscal cliff", its feels like the investment community is heading down the Kardasian route, and dramatising ever event.
Agreed, Obama is having to play Robin Hood, taking from the rich, and giving to the poor. But the markets view that these tax increases will hit consumer spending is incorrect, infact, its the lower end of the income chain that spend the highest percentage of their earnings. Consumer spending and improved credit markets are the key to jobs growth.
Equity markets overnight were all easier, with little direction, however, volumes remain strong in major indices. In the currency markets, Eur continued to firm against the US$, testing the 1.28 level, currently 1.2780. The JPY also continued to weaken vs the US$, now 81.14. Very mixed signals from equity and currency markets, given these moves look bullish.... will correlation between currencies and equities correct back to normal.... I'd bet on it.
In bonds, we saw Spanish and Italian 10yr yields tighten around 4bps, whilst UST's widened from 1.5900 to 1.5930, which will also help support the Eur, as outflows from the US move across the pond.
In Europe, markets traded sideways in a 60bps range on around average volumes, leaving indices up just 5% year to date.
FTSE -0.8% avg volume; O/P: heath, financial U/P: cons.services, tech
CAC -0.5% avg volume; O/P: telco, cons.services U/P: tech, utilities
DAX -0.9% avg volume; O/P: telco, financial U/P: cons.services, tech
IBEX +0.3% avg volume; O/P: oil & gas, tech U/P: health, basic materials
Sector maps again looking relatively defensive, however, oil&gas which has been one of the worst performers over the last few weeks, is finally in the upper end of the table on all indices. Expect to see a short squeeze as we see sector rotation in to oil and commodities as the US$ continues to weaken against majors.
Data overnight saw French GDP come in at 0.2% vs expected flat. Spanish GDP came in as expected at -0.3, whilst Italy's was better at -0.2% vs expected -0.5%.
UK retail sales were weak at -0.7% vs estimates -0.1%, partly blamed on the cold weather but I suspect its more to do with credit remaining tight in the UK.
Euro-zone CPI was inline with expectations at 1.5%, as was the GDP number at -0.1%.
US markets opened positive on the open but drifted to day lows early session as jobless claims came in higher, blamed on hurricane Sandy.
S&P -0.2% avg volume; O/P: cons.goods, financial U/P: telco, basic materials
Financial stocks rebounding after Wednesdays sell off. Tech continuing to under perform but mostly due to Apple and Microsoft, as others in the sector like hardware are all outperforming. With the market getting super bearish Apple products, which I agree, the new Microsoft platform looks impressive, its time to short cover here.
Data in the US as CPI inline @ 0.1%. Empire manufacturing came in stronger than expected but still down, -5.22 in November vs estimates -8.00. US jobless claims increased 439k, vs estimates 375k.
Slightly concerning was the number of delinquencies, which have seen little improvement at 7.4%, with foreclosures still above the 4% level in the 3rd quarter.
Markets.Expect markets today to open flat to small down, but with the US$ weakening, we should see them trend firmer throughout the day, closing just off highs.
NB, oil heavy weight indices like HK will see additional strength as Petrochina outperforms...its still not to late to buy the sector, including chemicals.
Data.15:00 EU new car registrations
16:00 Turkey consumer confidence
16:30 HK GDP
17:00 ECB current a/c
17:00 Italy trade balance
18:00 EU trade balance
22:00 US foreign net transactions
China FDI, Japan monthly economic report
Events.17:00 Italian cabinet meets
23:15 US Obama meets lawmakers
Bonds.11:35 Japan 1 year auction
18:00 German 1,3 and 6 month auction
Earnings.Foot locker(US), Henkel(GE), LSE(GB), F&N(SP), YTL(MK), IOI(MK), Thai Bev(TH), KOC holding(TR), Trakya Cam Sanayi(TR), Turk Hava Yollari(TR), Philip Morris(CZ), Bank Forum(RU), Truly Intl(HK), City eSolutions(HK), Parkson(HK), Shandong Weigao(CH)
Stoddart
Wednesday, 14 November 2012
Morning note, data, events, bonds and earnings 15th November 2012
Good morning,
Sentiment remains weak as Obama highlights being tough on the budget. Headlines point to increased revenue, as opposed to spending cuts, leaving investors fearful of higher taxes and the associated impact on growth in the medium term.
Despite the sell off in equities, the Euro not only remained above 1.27, but firmed throughout yesterday, hitting highs of 1.2778 before easing slightly back to 1.2736 currently.
Bond markets saw Spanish yields increase, with the 10 year at 5.90, up 10 basis points on the day, whilst the Italian 10 year looks set to test the 5% level once more, currently trading 4.95, up 6bps.
After such a strong run on Tuesday, with markets closing at day highs, European equity markets had already looked set to give back some of the gains. Opening relatively flat, indices traded mostly sideways until the US market open weaker, pushing Europe lower and closing at day lows.
FTSE -1.1% good volume; O/P: utilities, tech U/P: basic materials, oil&gas
CAC -0.9% avg volume; O/P: cons.services, tech U/P: industrials, oil&gas
DAX -0.9% avg volume; O/P: tech, cons.services U/P: utilities, industrials
IBEX -0.3% v.good volume; O/P: tech, utilities U/P: basic materials, industrials
Across all indices, growth remained a dirty word, with defensive outperforming. Despite the US$ weakening and crude oil firming to 86.24, oil related stocks were the biggest under-performers last night however, both BP and Shell went ex-dividend.
UK jobless claims increased by 10k, vs expected flat, whilst earnings increased 1.8% inline with expectations. Eurozone industrial production fell -2.5% vs expected -2.0%, with the biggest drops coming in Portugal, Greece and Ireland. Things didnt look much better in German and France, both dropping -2.1% and -2.7% respectfully. The drop was caused mostly by a large fall in durable goods, but all suffered a considerable fall.
In the US, of the 500 stocks in the S&P, only 39 were up on the day, 459 down.
S&P -1.4% good volume; O/P: telco, tech U/P: industrials, financial
The sector map, similar to Europe, shows defensive sectors again outperforming. Profit taking in the US financials is not surprising given 1. investors reducing risk, and 2. the strength over the last 5 months. There also appeared to be a number of short covers going through, with names like Facebook(FB US), finally moving higher... this has more to go.
Data overnight saw a strong MBA mortgage app number, up 12.6%. US producer price index came in weaker than expected at -0.2% vs estimates +0.2%. Retail sales also easier at flat vs expected +0.2%
Then we had the FOMC minutes. Highlights there include using inflation and unemployment as a guide for policy, rather than using a time based method. There are arguments for both but normally, the market would prefer a time line where adjustments are known and expected, therefore priced in.
In typical fashion, central bankers are more interested in popularity, spending more time adjusting policy to boost employment, rather than improving the business environment, which would inturn, increase employment.
Markets.Equity markets once again are coming under some rather heavy selling pressure. Sony is issuing a CB and increase cap ex, which today has seen its stock down 10% @ 780. Consumer electronics all suffering from weak demand in Europe but also hit by the firmer JPY. This sector is really starting to look cheap and at these levels, I would be tempted to pick up stock. Fundamentalist's hate it on outlook, but with the JPY weakening we should see margin improve.
Other names I would be looking to accumulate today include Angang(347), Petrochina(857), Sinopec Shanghai(338), Yanzhou(1171). China's new leaders will look to support domestic demand and will look to ease the public concerns on slowing growth.
Equity markets will sell down in the first half, hitting day lows midway through the morning session, before trending sides in the afternoon. I think there is too much macro overhang to encourage any buying interest, however, a possible bounce on short covering is not out of the question.
Data.13:00 Singapore retail sales
14:30 France GDP
15:00 German GDP
16:00 Spain GDP
16:00 Turkey current a/c, unemployment
16:30 Netherlands GDP
17:00 Italy GDP
17:00 ECB monthly report
17:30 UK retail sales
18:00 EU Eurozone CPI, GDP
18:00 Italy current a/c
21:30 US CPI, Empire manufacturing, initial jobless claims
22:45 US mortgage delinquencies, foreclosures
23:30 US Philadelphia fed
China FDI also expected
Events.09:45 US Feds's William's speaks at a conference on the economy
15:00 EU's Rompuy meets polish PM
20:30 Trokia speak in parliament
Bonds.11:35 Japan 3month and 20 year auction
18:00 France 2,3,5,15 year auction
Earnings.Walmart(US), Viacom(US), TransDigm(US), Target(US), Ahold(NL), Zurich Ins(VX), Merck(GE), Lenzing(GE), NH Hotels(SP), SJM Hldg(HK), OTP Bank(HU), AAC(HK)
Stoddart
Sentiment remains weak as Obama highlights being tough on the budget. Headlines point to increased revenue, as opposed to spending cuts, leaving investors fearful of higher taxes and the associated impact on growth in the medium term.
Despite the sell off in equities, the Euro not only remained above 1.27, but firmed throughout yesterday, hitting highs of 1.2778 before easing slightly back to 1.2736 currently.
Bond markets saw Spanish yields increase, with the 10 year at 5.90, up 10 basis points on the day, whilst the Italian 10 year looks set to test the 5% level once more, currently trading 4.95, up 6bps.
After such a strong run on Tuesday, with markets closing at day highs, European equity markets had already looked set to give back some of the gains. Opening relatively flat, indices traded mostly sideways until the US market open weaker, pushing Europe lower and closing at day lows.
FTSE -1.1% good volume; O/P: utilities, tech U/P: basic materials, oil&gas
CAC -0.9% avg volume; O/P: cons.services, tech U/P: industrials, oil&gas
DAX -0.9% avg volume; O/P: tech, cons.services U/P: utilities, industrials
IBEX -0.3% v.good volume; O/P: tech, utilities U/P: basic materials, industrials
Across all indices, growth remained a dirty word, with defensive outperforming. Despite the US$ weakening and crude oil firming to 86.24, oil related stocks were the biggest under-performers last night however, both BP and Shell went ex-dividend.
UK jobless claims increased by 10k, vs expected flat, whilst earnings increased 1.8% inline with expectations. Eurozone industrial production fell -2.5% vs expected -2.0%, with the biggest drops coming in Portugal, Greece and Ireland. Things didnt look much better in German and France, both dropping -2.1% and -2.7% respectfully. The drop was caused mostly by a large fall in durable goods, but all suffered a considerable fall.
In the US, of the 500 stocks in the S&P, only 39 were up on the day, 459 down.
S&P -1.4% good volume; O/P: telco, tech U/P: industrials, financial
The sector map, similar to Europe, shows defensive sectors again outperforming. Profit taking in the US financials is not surprising given 1. investors reducing risk, and 2. the strength over the last 5 months. There also appeared to be a number of short covers going through, with names like Facebook(FB US), finally moving higher... this has more to go.
Data overnight saw a strong MBA mortgage app number, up 12.6%. US producer price index came in weaker than expected at -0.2% vs estimates +0.2%. Retail sales also easier at flat vs expected +0.2%
Then we had the FOMC minutes. Highlights there include using inflation and unemployment as a guide for policy, rather than using a time based method. There are arguments for both but normally, the market would prefer a time line where adjustments are known and expected, therefore priced in.
In typical fashion, central bankers are more interested in popularity, spending more time adjusting policy to boost employment, rather than improving the business environment, which would inturn, increase employment.
Markets.Equity markets once again are coming under some rather heavy selling pressure. Sony is issuing a CB and increase cap ex, which today has seen its stock down 10% @ 780. Consumer electronics all suffering from weak demand in Europe but also hit by the firmer JPY. This sector is really starting to look cheap and at these levels, I would be tempted to pick up stock. Fundamentalist's hate it on outlook, but with the JPY weakening we should see margin improve.
Other names I would be looking to accumulate today include Angang(347), Petrochina(857), Sinopec Shanghai(338), Yanzhou(1171). China's new leaders will look to support domestic demand and will look to ease the public concerns on slowing growth.
Equity markets will sell down in the first half, hitting day lows midway through the morning session, before trending sides in the afternoon. I think there is too much macro overhang to encourage any buying interest, however, a possible bounce on short covering is not out of the question.
Data.13:00 Singapore retail sales
14:30 France GDP
15:00 German GDP
16:00 Spain GDP
16:00 Turkey current a/c, unemployment
16:30 Netherlands GDP
17:00 Italy GDP
17:00 ECB monthly report
17:30 UK retail sales
18:00 EU Eurozone CPI, GDP
18:00 Italy current a/c
21:30 US CPI, Empire manufacturing, initial jobless claims
22:45 US mortgage delinquencies, foreclosures
23:30 US Philadelphia fed
China FDI also expected
Events.09:45 US Feds's William's speaks at a conference on the economy
15:00 EU's Rompuy meets polish PM
20:30 Trokia speak in parliament
Bonds.11:35 Japan 3month and 20 year auction
18:00 France 2,3,5,15 year auction
Earnings.Walmart(US), Viacom(US), TransDigm(US), Target(US), Ahold(NL), Zurich Ins(VX), Merck(GE), Lenzing(GE), NH Hotels(SP), SJM Hldg(HK), OTP Bank(HU), AAC(HK)
Stoddart
Tuesday, 13 November 2012
Morning note, data, events, bonds and earnings 14th November 2012
Good morning,
Equity markets mixed overnight. Strong volumes and rebounds in Europe were overshadowed by a weaker US market.
As Greece avoids default, equity markets receive a boost whilst bond yields in Spain and Italy hold current levels. CDS's in Europe over the last 20 days have been creeping higher into the Greek budget announcement, which took place on Monday. Since then, investors had expected bonds to firm as CDS's eased back to mid September levels, however, we are yet to see this.
Strongest performers overnight were Spain's IBEX and Italy's FTSE MIB, both up around 1.5% on strong volume, despite the Euro remaining unchanged at 1.27.
FTSE +0.3% v.good volume; O/P: financial, cons.goods U/P: telco, utilities
CAC +0.6% avg volume; O/P: financial, tech U/P: utilities, telco
DAX flat v.good volume; O/P: financial, cons.services U/P: utilities, cons.goods
IBEX +1.7% avg volume; O/P: financial, telco U/P: basic materials, tech
Sectors clearly pointing to a more positive stance. Financial's continue to run due to optimism on growth. With the banking union due in Jan 2013, and the date again confirmed by Italy's Monti, the market is expecting 1. credit markets to start improving, 2. banks will now be protected by Trokia, who are looking to encourage lending.
Earnings from Vodafone yesterday saw a GBP 6bn writedown on Italy and Spain, weighting down on the FTSE as the stock sold down 2.5%, despite a huge buyback program. This didnt stop a strong rebound in Telefonica, boosting Spain's IBEX.
Data in Europe saw the UK RPI come in slightly higher at 0.6% vs expected 0.2% MoM, raising possible fears on inflation. Bloomberg headlines highlight a strong UK property market as overseas buyers continue to purchase high end homes.
Germany's Zew survey saw economic sentiment come in at -15.7 vs expected -10.0, whilst current situation was 5.4 vs expected 8.0.
In the US, equity markets opened in negative territory and sharply rose to the positive, where we saw them range for most of the session. Only in the last hour did we see them sell back down, with the S&P ending the day just 3 points off day low.
S&P -0.4% avg volume; O/P: utilities, cons.services U/P: tech, financial
The sector map shows a polar opposite to Europe. The recent run in financials continues to see outflows, as does technology, which is one of the top performing sectors this year. Heavy selling in Microsoft and Intel hitting the sector hard, whilst defensive names like Home Depot outperforming after strong earnings.
Data in the US, we had small business optimism which came in at 93.1, vs expected 93.0
Markets.Given the news coming out of Europe, I mentioned over the last 2 weeks, I would be looking to go long Euro. In addition to this, basic material names are trading at some rather attractive levels, and with the creation of the banking union in January, we should growth estimates increased in medium term.
Equity markets in Asia have come under some pressure of late, this should see us trend firmer today, opening at the lows and getting to day highs in first session. With currencies remaining steady, I suspect we flatten off in the second session, with indices trading in a tight range.
Stock picks to own today, Yangzhou Coal(1171), Natl Australia Bank(NAB AU), Petrochina(857), Angang Steel(347 HK).
Data.08:30 Australia wage cost
14:30 India monthly wholesale prices
15:45 French CPI
16:30 Netherlands retail sales
17:30 UK jobless claims, earnings
18:00 Eurozone industrial production
18:30 UK BoE inflation report
20:00 US MBA mortgage apps
21:30 US PPI, retail sales
23:00 US business inventories (big number)
03:00 US FOMC minutes
China FDI
Events.15:30 EU budget framework
18:00 Bank of Italy public finance supplement
20:45 EU regional aid recipients hold meeting
22:30 Greek finance minister meets EU lawmakers
22:45 Italy's Monti meets UK's Cameron
Bonds.11:00 Thailand 1,3 and 6month auction
11:45 Japan 5 year auction
17:00 Netherlands 10 year auction
18:00 Greece 1,3 year auction
00:30 US 3,6 month auction
Earnings.
Staples(US), Abercrombie & Fitch(US), Williams-sonoma(US), NetApp(US), Spectrum Brands(US), RWE(GE), Infineon(GE), J Sainsbury(UK), Solarworld(GE), Natixis(VX), CSR(HK), OLAM(SP), Global logistic(SP), Vtech(HK), City dev(SP), China pharm(HK), CIMB(MK), Jollibee(PH), San Miguel(PM), Citic SEc(CH), PTT(TH), MOL(HU), Turkiye IS Bank(TR), Dogan Yayin(TR), Bank BPH(PW), Echo Inv(PW)
Stoddart
Equity markets mixed overnight. Strong volumes and rebounds in Europe were overshadowed by a weaker US market.
As Greece avoids default, equity markets receive a boost whilst bond yields in Spain and Italy hold current levels. CDS's in Europe over the last 20 days have been creeping higher into the Greek budget announcement, which took place on Monday. Since then, investors had expected bonds to firm as CDS's eased back to mid September levels, however, we are yet to see this.
Strongest performers overnight were Spain's IBEX and Italy's FTSE MIB, both up around 1.5% on strong volume, despite the Euro remaining unchanged at 1.27.
FTSE +0.3% v.good volume; O/P: financial, cons.goods U/P: telco, utilities
CAC +0.6% avg volume; O/P: financial, tech U/P: utilities, telco
DAX flat v.good volume; O/P: financial, cons.services U/P: utilities, cons.goods
IBEX +1.7% avg volume; O/P: financial, telco U/P: basic materials, tech
Sectors clearly pointing to a more positive stance. Financial's continue to run due to optimism on growth. With the banking union due in Jan 2013, and the date again confirmed by Italy's Monti, the market is expecting 1. credit markets to start improving, 2. banks will now be protected by Trokia, who are looking to encourage lending.
Earnings from Vodafone yesterday saw a GBP 6bn writedown on Italy and Spain, weighting down on the FTSE as the stock sold down 2.5%, despite a huge buyback program. This didnt stop a strong rebound in Telefonica, boosting Spain's IBEX.
Data in Europe saw the UK RPI come in slightly higher at 0.6% vs expected 0.2% MoM, raising possible fears on inflation. Bloomberg headlines highlight a strong UK property market as overseas buyers continue to purchase high end homes.
Germany's Zew survey saw economic sentiment come in at -15.7 vs expected -10.0, whilst current situation was 5.4 vs expected 8.0.
In the US, equity markets opened in negative territory and sharply rose to the positive, where we saw them range for most of the session. Only in the last hour did we see them sell back down, with the S&P ending the day just 3 points off day low.
S&P -0.4% avg volume; O/P: utilities, cons.services U/P: tech, financial
The sector map shows a polar opposite to Europe. The recent run in financials continues to see outflows, as does technology, which is one of the top performing sectors this year. Heavy selling in Microsoft and Intel hitting the sector hard, whilst defensive names like Home Depot outperforming after strong earnings.
Data in the US, we had small business optimism which came in at 93.1, vs expected 93.0
Markets.Given the news coming out of Europe, I mentioned over the last 2 weeks, I would be looking to go long Euro. In addition to this, basic material names are trading at some rather attractive levels, and with the creation of the banking union in January, we should growth estimates increased in medium term.
Equity markets in Asia have come under some pressure of late, this should see us trend firmer today, opening at the lows and getting to day highs in first session. With currencies remaining steady, I suspect we flatten off in the second session, with indices trading in a tight range.
Stock picks to own today, Yangzhou Coal(1171), Natl Australia Bank(NAB AU), Petrochina(857), Angang Steel(347 HK).
Data.08:30 Australia wage cost
14:30 India monthly wholesale prices
15:45 French CPI
16:30 Netherlands retail sales
17:30 UK jobless claims, earnings
18:00 Eurozone industrial production
18:30 UK BoE inflation report
20:00 US MBA mortgage apps
21:30 US PPI, retail sales
23:00 US business inventories (big number)
03:00 US FOMC minutes
China FDI
Events.15:30 EU budget framework
18:00 Bank of Italy public finance supplement
20:45 EU regional aid recipients hold meeting
22:30 Greek finance minister meets EU lawmakers
22:45 Italy's Monti meets UK's Cameron
Bonds.11:00 Thailand 1,3 and 6month auction
11:45 Japan 5 year auction
17:00 Netherlands 10 year auction
18:00 Greece 1,3 year auction
00:30 US 3,6 month auction
Earnings.
Staples(US), Abercrombie & Fitch(US), Williams-sonoma(US), NetApp(US), Spectrum Brands(US), RWE(GE), Infineon(GE), J Sainsbury(UK), Solarworld(GE), Natixis(VX), CSR(HK), OLAM(SP), Global logistic(SP), Vtech(HK), City dev(SP), China pharm(HK), CIMB(MK), Jollibee(PH), San Miguel(PM), Citic SEc(CH), PTT(TH), MOL(HU), Turkiye IS Bank(TR), Dogan Yayin(TR), Bank BPH(PW), Echo Inv(PW)
Stoddart
Monday, 12 November 2012
Morning note, data, events, bonds and earnings 13th November 2012
Good morning,
The phrase "fiscal cliff" I hate with a passion. Created by the likes of Mickey Mouse market commentators to add drama to the everyday lives of you and I.
The reason I mention this is, whilst sitting at the bus station last night, I was pondering the predicament in the US. With the tax cuts due to come to an end, Obama will now have to consider how the sudden cancellation of these policies will impact.
Lets look at the aims of the taxes. They were designed for one reason, increase consumer purchasing power. Whether this is to increase consumer spending, or ease the burden of higher mortgage payments, it was aimed to help support individuals during this period of tight credit and low growth.
As mentioned before, despite flooding the system with capital, banks remain reluctant to lend, causing tighter credit markets. This then has a knock-on effect on everything from car loans, home loans, all the way down to credit card limits.
And this is the real question, how do will encourage consumer spending that includes supporting/boosting the housing market?
Ans:
1. Increasing individuals spending power, outside of the bank infrastructure.
2. Encourage banks to increase lending, and associated securities.
Dealing with No.1 first. According to the University of Wisconsin, spending looks like this, as a total of American house hold spending:
Age 21: 9.5%
Age 30: 21.7%
Age 40: 27.4%
Age 49: 25.1%
Age 59: 16.2%
Age 75: 10.0%
By adjusting rules on inheritance tax, the government could encourage the transfer of capital from a lower spending group, to a hire one without impacting near term tax payments.
Currently, the US tax system for estate tax, allows the annual transfer(or "gift") payment of US$13,000 per person per year, caped at US$1m over a lifetime. By relaxing the laws for annual gifts, flows should increase to the lower age brackets, which currently represent 30% of the total annual expenditure in the US.
This should also help support housing markets, where even at correct rates, first time homebuyers are struggling to raise the large deposits needed to own property.
This brings us onto No.2; Banks will now feel more comfortable lending due to lower risk of default. With increased lending by the banks, we should see competition within the mortgage space push "real interest rates" lower, whilst encouraging an increase in mortgage securitisation. Despite the hatred of these products, with set guidelines and credit agencies correctly rating the risks, we should see mortgage markets improve.
This would of course need to pass the republicans, which given the general publics sentiment towards banks will be tough to pass, but given Romney's attempt as easing higher rate tax payers liabilities we should see support of a policy that reduces inheritance tax.
Covering the future inheritance tax revenue. Well, this could be balanced in a number of ways. In places such as the UK, investment taxes have been added on second properties or tax exempt savings plans have been scaled back. Given the inflows of capital into the market, an increase in capital gains tax could be an option, however, the expectations of revenue could be missed should markets remain weak over the next 3 years.
This is not the only option, but it certainly would solve a number of short/medium term issues. America will not be forced to endure a sudden stop of tax cuts, which would make data extremely hard to read and policy adjustments thereafter. I suspect there will be some near term extensions but at reduce rates, hopefully increasing sentiment once more.
Overnight, markets saw some considerable volume drops. US down around 28% and Europe of an average of 15%, this is bucking the idea that volumes would improve after the US election.
The overhang of macro news in both regions, and the new China premier is leaving many investors on the sidelines.
FTSE flat avg volume; O/P: financial, cons.services U/P: basic mats, health
CAC -0.4% low volume; O/P: financial, health U/P: tech, industrial
DAC +0.1% avg volume; O/P: cons.services, health U/P: industrial, tech
IBEX -0.9% v.low volume; O/P: basic mat, utils U/P: industrial, cons.services
With the Euro breaking below 1.27, European CDS's firming and bond yields indicating outflows, equity markets are once again going defensive. The strength overnight in financial's feels more like a technical bounce after banks like HSBC are off around 3% from last weeks highs.
In the US, its much the same story. Firming US$ sees defensives outperform.
S&P flat v.low volume; O/P: financial, cons.services U/P: basic mats, health
Sector maps highlight demand for safety. It seems we cant catch a break as eyes that followed the US presidential election are now all focused on the tax cuts expiry. We need to see more clarity from leaders going into these events if they wish to stabilise markets domestically and globally.
Markets.We will see continued fears over the European and US marco environment. Yesterdays late rally came quickly to an end, leaving me looking for markets to ease on the open, before finding some support, then trading sideways in a tight range.
This is an opportunity to pick up some of the better basic material names. Oil and copper would be the top picks and I will be watching cements closely.
The Euro is also getting to levels were I would accumulate, both against the US$ and the JPY.
Data.09:00 Philippines exports
12:30 Japan industrial production
15:45 France current a/c, non farm payrolls
16:00 Spain CPI
17:00 Italian CPI
17:30 UK PPI, CPI
17:30 Italian government debt
18:00 German ZEW survey
20:30 US small business optimism
03:00 US monthly budget statement
Events.Monti meets French prime minister
15:30 EU budget framework
20:45 EU regional-aid recipients hold meeting in Brussels
22:30 Greek finance minister speaks to lawmakers
22:45 Italy's Monti meets UK's Cameron
Bonds.11:00 Thailand 1,3 and 6 month auction, 3year auction
11:45 Japan 5year auction
17:00 Netherlands 10year auction
18:00 Italian 1year auction
18:00 Greece 1 and 3 month auction
00:30 US 3, 6 month auction
Earnings.Home depot(US), Pirelli(IT), K&S(GE), E.ON(GE), Vodafone(UK), Mediaset(IT), Vivendi(FP), Acciona(FP), Banco Espirito Santo(SP), Unicredit(IT), Intesa Sanpaolo(IT), Enel(IT), Salvatore Ferragamo(IT), Banco Popolare(SP), Man Wah(HK), Bumi resources(IJ), Bank Pekao(PW), Impel(PW)
Stoddart
The phrase "fiscal cliff" I hate with a passion. Created by the likes of Mickey Mouse market commentators to add drama to the everyday lives of you and I.
The reason I mention this is, whilst sitting at the bus station last night, I was pondering the predicament in the US. With the tax cuts due to come to an end, Obama will now have to consider how the sudden cancellation of these policies will impact.
Lets look at the aims of the taxes. They were designed for one reason, increase consumer purchasing power. Whether this is to increase consumer spending, or ease the burden of higher mortgage payments, it was aimed to help support individuals during this period of tight credit and low growth.
As mentioned before, despite flooding the system with capital, banks remain reluctant to lend, causing tighter credit markets. This then has a knock-on effect on everything from car loans, home loans, all the way down to credit card limits.
And this is the real question, how do will encourage consumer spending that includes supporting/boosting the housing market?
Ans:
1. Increasing individuals spending power, outside of the bank infrastructure.
2. Encourage banks to increase lending, and associated securities.
Dealing with No.1 first. According to the University of Wisconsin, spending looks like this, as a total of American house hold spending:
Age 21: 9.5%
Age 30: 21.7%
Age 40: 27.4%
Age 49: 25.1%
Age 59: 16.2%
Age 75: 10.0%
By adjusting rules on inheritance tax, the government could encourage the transfer of capital from a lower spending group, to a hire one without impacting near term tax payments.
Currently, the US tax system for estate tax, allows the annual transfer(or "gift") payment of US$13,000 per person per year, caped at US$1m over a lifetime. By relaxing the laws for annual gifts, flows should increase to the lower age brackets, which currently represent 30% of the total annual expenditure in the US.
This should also help support housing markets, where even at correct rates, first time homebuyers are struggling to raise the large deposits needed to own property.
This brings us onto No.2; Banks will now feel more comfortable lending due to lower risk of default. With increased lending by the banks, we should see competition within the mortgage space push "real interest rates" lower, whilst encouraging an increase in mortgage securitisation. Despite the hatred of these products, with set guidelines and credit agencies correctly rating the risks, we should see mortgage markets improve.
This would of course need to pass the republicans, which given the general publics sentiment towards banks will be tough to pass, but given Romney's attempt as easing higher rate tax payers liabilities we should see support of a policy that reduces inheritance tax.
Covering the future inheritance tax revenue. Well, this could be balanced in a number of ways. In places such as the UK, investment taxes have been added on second properties or tax exempt savings plans have been scaled back. Given the inflows of capital into the market, an increase in capital gains tax could be an option, however, the expectations of revenue could be missed should markets remain weak over the next 3 years.
This is not the only option, but it certainly would solve a number of short/medium term issues. America will not be forced to endure a sudden stop of tax cuts, which would make data extremely hard to read and policy adjustments thereafter. I suspect there will be some near term extensions but at reduce rates, hopefully increasing sentiment once more.
Overnight, markets saw some considerable volume drops. US down around 28% and Europe of an average of 15%, this is bucking the idea that volumes would improve after the US election.
The overhang of macro news in both regions, and the new China premier is leaving many investors on the sidelines.
FTSE flat avg volume; O/P: financial, cons.services U/P: basic mats, health
CAC -0.4% low volume; O/P: financial, health U/P: tech, industrial
DAC +0.1% avg volume; O/P: cons.services, health U/P: industrial, tech
IBEX -0.9% v.low volume; O/P: basic mat, utils U/P: industrial, cons.services
With the Euro breaking below 1.27, European CDS's firming and bond yields indicating outflows, equity markets are once again going defensive. The strength overnight in financial's feels more like a technical bounce after banks like HSBC are off around 3% from last weeks highs.
In the US, its much the same story. Firming US$ sees defensives outperform.
S&P flat v.low volume; O/P: financial, cons.services U/P: basic mats, health
Sector maps highlight demand for safety. It seems we cant catch a break as eyes that followed the US presidential election are now all focused on the tax cuts expiry. We need to see more clarity from leaders going into these events if they wish to stabilise markets domestically and globally.
Markets.We will see continued fears over the European and US marco environment. Yesterdays late rally came quickly to an end, leaving me looking for markets to ease on the open, before finding some support, then trading sideways in a tight range.
This is an opportunity to pick up some of the better basic material names. Oil and copper would be the top picks and I will be watching cements closely.
The Euro is also getting to levels were I would accumulate, both against the US$ and the JPY.
Data.09:00 Philippines exports
12:30 Japan industrial production
15:45 France current a/c, non farm payrolls
16:00 Spain CPI
17:00 Italian CPI
17:30 UK PPI, CPI
17:30 Italian government debt
18:00 German ZEW survey
20:30 US small business optimism
03:00 US monthly budget statement
Events.Monti meets French prime minister
15:30 EU budget framework
20:45 EU regional-aid recipients hold meeting in Brussels
22:30 Greek finance minister speaks to lawmakers
22:45 Italy's Monti meets UK's Cameron
Bonds.11:00 Thailand 1,3 and 6 month auction, 3year auction
11:45 Japan 5year auction
17:00 Netherlands 10year auction
18:00 Italian 1year auction
18:00 Greece 1 and 3 month auction
00:30 US 3, 6 month auction
Earnings.Home depot(US), Pirelli(IT), K&S(GE), E.ON(GE), Vodafone(UK), Mediaset(IT), Vivendi(FP), Acciona(FP), Banco Espirito Santo(SP), Unicredit(IT), Intesa Sanpaolo(IT), Enel(IT), Salvatore Ferragamo(IT), Banco Popolare(SP), Man Wah(HK), Bumi resources(IJ), Bank Pekao(PW), Impel(PW)
Stoddart
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