Friday, March 19, 2010

Today’s Top Stories ...On the Greek front--European financials - Fund flow update $SPY

Today’s Top Stories

·         On the Greek front, (this story was out throughout trading in NY on Thurs), a senior German official said Chancellor Angela Merkel is "open to a financial participation by the IMF" in any aid package for Greece; Greece wants a firm commitment of support by next week’s Head of State summit in Europe (Mar 25), although European officials say privately that a decision on Greek aid may not be reached at the summit, despite Greek pressure. (WSJ). S&P warned on a potential downgrade for Greek banks, saying profitability at Greece’s largest banks may be “challenging” in coming years

·         In Asia, China attempts to cool the ongoing yuan dispute w/the US, saying it was going to send on envoy to Washington to try an ease frictions. Yuan forwards rose on Fri for the first increase of the week, following reports yesterday that Chinese authorities were stress testing companies to determine the impact from a higher yuan.  Chinese real estate developers gained as investors anticipate competitors leaving the market; A total of 78 companies supervised by the State-Owned Assets Supervision and Administration Commission have already been told to withdraw from the property industry after their current projects are completed because real estate isn’t their core business. 

·         European financialsLloyds issues upbeat trading update this morning; This morning Lloyds released a short statement ahead of its presentation on the Morgan Stanley conference where it has updated guidance for 2010E. It refers to revenue and cost trends in line with what it had previously guided in end February, however it states that the impairment performance has been better, leading to the business being profitable on a combined basis in 2010E.  Carla Antunes da Silva 

·         Transports – the TRAN index has climbed for the last 11 consecutive sessions and is one of the best performing groups this week (up >3% so far) and YTD (up 11%).  JPMorgan’s T Wadewitz has an update on the group today – “Rail volume trends in 1Q10 have been significantly better than anticipated, and we expect volumes to remain above our prior forecasts beyond 1Q. As a result, we are raising both our 1Q and full year 2010 EPS estimates for the major railroads”.  

·         Autos this morning – couple items today.  WSJ article: US auto sales rise during month of Mar; expectations for industry sales on the rise.  Total sales could hit 12MM in Mar, the highest in 18 months (except for last Aug, when sales were inflated by clunkers).  Separately, JPMorgan has a preview out this morning for Mar sales (from H Patel) - We expect 11.5MM March US LV SAAR vs. 10.8MM in February (+17% y/y; +6% m/m). We expect retail sales to strengthen to ~9MM, the highest since the Cash-for-Clunkers month of August 2009 (11.7MM).  Note that JPMorgan is hosting a conf call @ 10amET today discussing the outlook for the autos industry. 

·         Moody's Investors Service has revised higher its loss projections for 2005-2007 second lien U.S. residential mortgage backed securities (RMBS); As a result of the increasing loss expectations, Moody's placed 948 tranches of second lien RMBS with an original balance of $113 billion and an outstanding balance of $35 billion on review for possible downgrade.

·         Health Care – House Dems appear to be heading for successful vote on Sun – from Politico – “House Speaker Nancy Pelosi still had plenty of work to do, and no one in leadership was yet saying she has 216 votes in hand. But a series of events Thursday — the president postponing his overseas trip, a solid deficit reading and a handful of members firming up as “yes” votes — all left the impression of a bill gaining ground” 

·         PALM earnings – the Feb-end Q came in OK, esp. on the cash front (burn was much better than feared); however, they built a ton of inventory (sell-through of 408k units fell significantly short of sell-in of 960k units) and as a result, guidance for May-end Q fell meaningfully short of expectations (expects Q4 revenues to be less than $150m compared to our current estimate for $309m).  Palm emphasized increased efforts to educate and provide incentives to the carrier channel to increase sell-through performance. 

·         Fund flow update – from E Beinstein - Mutual fund flows for this week were +$1.3B for HG bond funds which is very strong, and +$600mm for HY funds. The last four weeks HY funds have had inflows which total more than the $1.9B of outflows recorded in the middle two weeks of February. Equity funds had $2.8B of inflows which is the 5th consecutive week of such inflows. Money market fund outflows remain massive – this week $60B was withdrawn from these funds. Investors are reducing cash positions aggressively in favor of higher yielding asset classes. There is no evidence in the funds flow data recently that they are favoring equities or bond funds in favor of the other – both are receiving strong inflows.

·         Credit Update – from E Beinstein - This morning we publish the 4Q09 High Grad Credit Fundamentals report. Credit fundamentals of non-financial companies in our investment grade index continued to improve in 4Q09.

·         Buffett dresses up as Axl Rose -  

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