Wednesday, June 16, 2010

3 major catalysts the market is watching in the next 1.5 months-Financial Regulatory Reform

3 major catalysts the market is watching in the next 1.5 months

· Financial Regulatory Reform – the goal is to have a bill reconciled and signed by Obama by the Jul 4 weekend (B Frank just said he hoped to have a final vote a week from this Thurs, which means June 24).  It still seems like the stocks are already assuming some of the most onerous provisions of the House/Senate versions while the final outcome may not be as bad.  The process kicked back-off today @ 11amET, w/rating agencies on the agenda (B Frank wants the Franken amendment stripped from the final bill, which would be a pos. for the agencies if it happens).  The most contentious issues are still being debated though: 1) Durbin interchange – there seems to be high levels of bipartisan opposition to this measure; Durbin is holding a hearing Mar 16; 2) Volcker Rules – seems like inclusion a given; looks like the Merkley/Levin language will be adopted in the final bill; 3) Lincoln amendment – this remains a wildcard.  Seems like not many people in favor, but Lincoln’s victory has given a shot in the arm.  Lincoln proposed a “compromise” on Mon (whereby swaps subs could stay within bank holding company and banks would have 2 years to implement); 4) Collins (she has already acknowledges that tweaks will have to be made to this, esp. around TruPS). 

· Q2 earnings season – kicks off the week of Mon Jul 12.  Major companies in blue.  Note that the tone from companies over the last ~3 weeks at all the sell-side conferences wasn’t as neg. as investor sentiment had become.  Mon Jul 12: earnings (AA).  Tues Jul 13: earnings (INTC, YUM, ADTN)  Wed Jul 14: earnings (ASML, Rio Tinto, London Stock Exchange, JNS, ISRG, WABC, LSTR, MAR).  Thurs Jul 15: earnings (JPM, PBCT, GOOG, JBHT, SCHW, LPL).  Fri Jul 16: earnings (C, GE, BAC, COL) 

· Europe debt sales – June/Jul very busy - European sovereigns and financials must redeem more debt in June/July than in any other two-month period over the next two years.  The next six weeks are the crunch period for currency markets, as it marks the heaviest two-month period of European sovereign and bank refundings over the next two years.  June’s combined redemptions total €215bn (€118bn sovereign, €97bn financial), and July’s are €275bn (€188bn sovereign, €87bn for financials). Only a third of sovereign issuance and a fifth of financials issuance is from the periphery, but coming at a time when core markets are also generating such high supply, there are decent odds that some auctions and placements do not run smoothly.

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