Friday, March 26, 2010

Today’s Top Stories ,Greece & Trichet, China headlines, Bernanke and asset sales. $ORCL $SPY

Today’s Top Stories

·         Big story overnight is an agreement by Eurozone officials for a deal on assistance for Greece. A rescue package would involve both Euro states and the IMF in the event of “very serious difficulties.” JPM’s D. Mackie points out that “It is important to stress that what has been agreed is a support mechanism, not a package of loans to be made to Greece now.  The EU statement makes it clear that the mechanism agreed yesterday is not being activated now.” 

·         Greece & Trichet - Trichet, who made some disparaging comments initially on Thurs (Trichet’s comment re the IMF’s involvement being “very bad” was one of the reasons US equities sold off so hard from their highs), came around to the deal….Trichet said he was “entirely content” w/the joint EU-IMF deal and was “extraordinarily happy that the government of the Euro area was able to find a workable solution”.  Trichet added: "I am confident that the mechanism decided today will normally not need to be activated and that Greece will progressively regain the confidence of the market,".

·         Euro area gov’t debt sale update - After Q1 issuance came in line with expectations, our 2010 conventional issuance forecasts are largely unchanged since our last update. We expect around €835bn from the largest 11 Euro area countries.  We expect Q2 issuance to drop €25bn to around €235bn, with a skew to the short end of the curve. However, supply net of redemptions will be broadly in line with Q1.  Gianluca Salford   

·         In China, a slew of headlines crossing overnight - 1) an adviser to the country’s central bank wrote in an opinion piece published today in the government-backed China Daily that “China may resume a managed float of its exchange rate, particularly if the uncertainty of the overall post-crisis economic situation diminishes,” 2) China’s central bank may “soon” raise its reserve ratio requirement for the third time this year to further drain liquidity, the China Securities Journal reported today, citing unnamed analysts, 3) China industrial company profit accelerated in the first two months of the year, and 4) China bank lending in March may hit 1 trillion yuan ($146 billion), a significant jump from 700.1 billion yuan in February, the China Securities Journal reported on Friday.

·         On Japan, the Organization for Economic Cooperation and Development said Japan’s potential growth rate will be the lowest among Group of Seven nations, casting doubt on Prime Minister Yukio Hatoyama’s growth target.

·         Further mortgage assistance program to be unveiled Friday – the White House plans to announce on Friday changes to its homeowner assistance program that include assistance for unemployed workers and principal reductions – Reuters 

·         US banks - JPMorgan credit (K Caprihan) is downgrading the group (from OW to N) to neutral due to agency worries (risk agencies d/g banks b/c of regulatory changes) and valuation; Citi credit d/g from OW to N (NOTE THIS IS A CREDIT CALL – NOT AN EQUITIES CALL). 

·         US equity strategy comments – from JPMorgan’s Tom Lee - Still constructive, but developing short-term concerns - First, the % of stocks above their 50-day moving average is now 89%, putting this in the caution zone.  The other issue is that it seems analysts have upgraded stocks rapidly in the past 6 months and the FC mean rating (aggregate buys vs. sells) is at an 8-yr high.  We still see the S&P 500 reaching 1300 by year end but also see signs of potential short-term turbulence. 

·         Bernanke and asset sales.  The Big 3 newspapers this morning all have articles talking about Bernanke considering asset sales, but all are just reporting what the Fed chairman said during his House testimony on Thurs (during trading).  Bernanke didn’t really say anything at the testimony that he hadn’t previously on the subject of asset sales.  Per NYT: “Bernanke hints at possible sale of mortgage assets”; per the WSJ: “Bernanke edges towards asset sales”; per the FT – “Ben Bernanke yesterday told Congress that the Federal Reserve's balance sheet should shrink by $1,300bn” 

·         tech update - pretty big night of earnings.  the highlight is ORCL, which posted results ahead of expectations.  The core Oracle business had licenses ahead of the St (w/apps driving a lot of the upside).  The Sun business also exceeded expectations and mgmt remains optimistic on the future for the deal (Sun accretion forecasts were reiterated).  Mgmt tone on the call remained sanguine for the most part.  Accenture results were a bit light vs. St ests for the income statement (revs, EPS), but bookings were strong (driven by outsourcing).  Mgmt trimmed its earnings outlook b/c of FX and said revs were going to come in at the low-end of its guidance (although keep in mind that sentiment/expectations weren't very high for Accenture and the guidance was actually a bit better than some worst case scenarios).  JPMorgan's R Hall is making a big wireless call today: we assume QCOM w/OW (same as prior rating); we initiate MOT w/UW; we upgrade both NOK and RIMM from N to OW. 

·         SP500 technicals (from JPMorgan’s Krauss) - Odds are increasing that the market is forming a near term top. Let’s see if we get downside follow through. Closes below the 1154 Feb CH low, and 1150 Jan peak would imply a ST top

·         Returns - Asset managers in 1Q are up 3.55% on average compared to the S&P 500 up 4.72%....performance anxiety could become more pronounced heading into the end of the month/Q. 

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