Friday, February 5, 2010

What are "THEY" talking about this morning ?

Markets Headlines/Desk Color
· PT desk color - 1.15 to 1 better to buy - Moderate Flow; Large Cap 75% and Mid Cap 21%
of total Market Cap; Consumer Discretionary, Financials, Health Care, and Information
Technology better to buy; Consumer Staples, Energy, and Materials better to sell. We had a
quick flurry of activity around the open. we saw some long only quants send in some buy side
programs near the start of the session, only to see activity drop off markedly as the market
continued to grind lower without respite. Near the end of the day, we received a few small
sell side programs. It will be interesting to see if we get a lot of sell programs Fri on any
follow through on today’s sell off.
· SP500 technicals – from JPMorgan’s M Krauss - Sharp decline breaks the 1071 Jan low,
after the AM flush of 1088, and Tues’ 1105 resistance test. Its a bit early, but this weakness
affirms the lower-monthly low implied by Jan’s bearish outside month from 1150, amid our
1150-1200 2010 range high view. Next short term support: 1063 87 point decline similar
to June-July, 1061 Oct ‘07 DTline, and 1058 Apr- July TL. Next medium term supports
are 1043 July 382% retrace/4th wave, 1035 10% drop, 1029 Nov low, and 1019 Oct
trough, 1018 200 day. Favor longs there. Our 2010 range low is 1000-950. We had favored
an interim top against the 1110 Jan 19 50% retrace, 1115 Jan 22 break, and 1120 61.8%
retrace. MT ceiling at the 1130 Jan range break. Interim environment is neutral/weaker.
Weekly momentum stays bearish. Watching for pessimism, and for any capitulative upside
reversal days.
· Bond sales surge this week; Overall issuance rose to at least $33.63 billion from $13.74
billion last week and $28.13 billion a year ago – Bloomberg
· Total equity fund flows (excluding ETFs) saw outflows of $1.1 bn compared to $1.0 bn of
outflows last week. Domestic equity funds had $588 mm of outflows compared to $794 mm
of outflows in the prior week. International and Global equity funds lost $465 mm of assets
compared to outflows of $240 mm in the prior week. Worthington.
· EM outflows spike - Emerging market equity funds lost $1.6 billion in weekly withdrawals,
the biggest outflows in 24 weeks – Bloomberg
· JPMorgan Equity Strategy - The SMid (Cap) Perspective – T Lee - Adding ASH, GPI,
and MWV to the JPM SMid Money List. We recommend investors to be steady buyers of
equities and also take advantage of the fact that 39% of HY companies have equity FCF
yields > JPM HY Bond Index yield. We are adding 3 domestic Cyclicals: Ashland (ASHOW),
Group 1 Automotive (GPI-OW), and MeadWestvaco (MWV-OW). These companies
meet these criteria: (i) FCF
· Europe dn 2.2%; Japan dn 2.9%; China dn 1.9%; Hong Kong dn 3.3%; India dn 2.7%;
Australia dn 2.3%; SP futures dn 8pts.
· Credit-default swaps on the sovereign debt of Greece, Spain and Portugal rose to record
high levels, according to CMA DataVision prices. Contracts on Greece climbed 19.5 basis
points to 446.5, Spain increased 13 basis points to 183 and Portugal increased 9.5 basis points
to 239, CMA prices show. [Bloomberg]
· The J.P. Morgan EMU index is a euro-area aggregate index comprising of 11 EMU
entrants. It provides a comprehensive measure of performance for liquid government bonds
from Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands,
Portugal, and Spain. Greece has come to the spotlight amid multiple ratings downgrades and
their overall fiscal woes, which have driven yields to the highest level since the country was
tracked in the JPMorgan EMU index. In light of the recent downgrades, EMU Greece yield
reached a high of 6.64% at the end of January 2010. This rapid 195bp widening over the past
two months negatively impacted the country's volatility and return correlation. The volatility
has been relatively contained in the co-regional emerging market countries like Hungary and
Poland. Gloria Kim.
· Swiss franc falls from highs overnight amid speculation the country’s national bank came in
and sold the currency – Bloomberg
· Greece can’t be looked at w/o also considering central bank exit policies - earlier this
year, senior ECB officials indicated that they intended to “normalize” the policy, as planned,
at the end of 2010, as part of their exit strategy. That has removed one key source of support
for Greek debt FT
· Greek fiscal consolidation: painful, but not intolerable; Our central view is that Greece
will be able to achieve the necessary fiscal adjustment without resorting to outside financial
help. The scale of the fiscal adjustment needed is very large, but it is not beyond the bounds
of what could be achieved. Importantly, the Greek government has outlined a program that
targets an appropriate amount of fiscal adjustment. Making an assessment of whether the
Greek program is delivering or not will take some time. More pressing is the issue of whether
financial markets will allow that time to pass. We believe they will; if not, the Greek
government would resort to outside financial help. We believe this would be forthcoming,
most likely from the EU and the rest of the Euro area, albeit with significant conditionality
attached to ensure that an appropriate fiscal adjustment still took place. D Mackie
· Germany Dec Industrial Production (2.6%) m/m vs consensus +0.6%
· Portugal's parliament will on Friday vote on an opposition-proposed bill that the
government wants to block to avoid increasing the budget deficit. Finance Minister Fernando
Teixeira dos Santos urged the full house to vote against the bill late on Thursday, saying it
would send the wrong signal to the market – Reuters
· UK – PPI broadly in line with St. estimates although inpu t producer prices rose faster
than expected. Output producer prices +3.8% yoy vs. St. +3.7-3.8% yoy; Input producer
prices +8.4% yoy vs. St. +5.9% yoy. [DJ/Bloomberg]
· China – non-performing loans are said to be soaring - “We work really closely with
SASAC, the state-owned enterprise regulator in China, and there are literally trillions and
trillions of renminbi of, frankly, defaulting loans already in China that no one is doing
anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency
partner with Lovells LLP Bloomberg · China’s current-account surplus fell 35 percent last year; narrowed to $284.1 billion from
a year earlier, the foreign- exchange regulator said in a statement today – Bloomberg
· Chinese steel demand - Steel demand in China, the world’s biggest user, may increase by
9.4 percent this year because of the government’s $586 billion stimulus spending –
· China is likely to prevent its currency from strengthening against the dollar this year to
help its exporters weather the weakness in global demand, according to Fukoku Capital –
· Australia - The Reserve Bank followed its shock decision Tuesday to leave the cash rate
steady at 3.75% by today releasing another upbeat assessment of the economy in the
Statement on Monetary Policy (SoMP). Indeed, as we anticipated, the tone of the language
again was buoyant, an echo of the statement delivered Tuesday. Also, as we anticipated, the
RBA revised modestly higher the GDP growth and inflation forecasts. S Walters.
· Russian Strategy and Macro: Bargain valuations offer protection, upside; Macro
outlook brightens; With the “reflation” trade still on and the implied ERP at the top of the
historic range we overweight equities against bonds and cash. We remain Neutral on Energy
(OW Gazprom), UW Materials (on slow demand and Chinese risk), and OW Financials
(macro-recovery) and Telecoms. We are N on Utilities and Consumers. Alex Kantarovich

· Russia appointed Barclays Capital, Citigroup Inc., Credit Suisse Group AG and VTB Capital as co- organizers of its upcoming Eurobond sale, the Finance Ministry said on its
Web site today – Bloomberg
· India - India can gradually start raising interest rates as the country’s economy is among the first to recover after the global financial crisis, the International Monetary Fund said.

· EM outflows spike - Emerging market equity funds lost $1.6 billion in weekly withdrawals, the biggest outflows in 24 weeks – Bloomberg

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