Tuesday, June 1, 2010

Equities fall around the world-ECB warns of additional bank losses in its Semiannual Financial Stability Review

Today’s Top Stories

· Equities fall around the world; A number of negatives weighing inc. 1) Weaker eco readings around the world, 2) continued Sovereign concerns in Europe, 3) cautious commentary from the ECB, 4) China tightening, 5) Japan/Spain political support concerns and 6) Euro weakness.

· Economics - May readings coming in weaker for the most part inc. both China's PMIs and the Eurozone Manufacturing PMI, however German employment for May came in stronger than expected.

· China PMIs fall short - The official NBS manufacturing PMI series fell from 55.7 in April to 53.9 in May (JPMorgan: 54.4; consensus: 54.5).  Meanwhile, the Markit PMI similarly fell in May to 52.7 (JPMorgan: 54.3) from 55.4 in April.

· China property market – Chinese equities fell 2.4% Mon amid worries about measures being taken to clamp down on the property market (they fellanother 1% on Tues) - China’s cabinet said Mon it had approved a plan from the state planning agency to “gradually push forward reform” of the country’sproperty tax regime.  China plans to launch a property tax trial in the provinces of Hunan and Hubei.  Separately, data signals China property sales in Mayplunge - Property sales in Beijing, Shanghai and Shenzhen fell as much as 70 percent in May – Bloomberg/DJ/FT

· China property market risk greater than the US (FT)

· ECB warns of additional bank losses in its Semiannual Financial Stability Review (out Mon morning) – banks in the eurozone will suffer “considerable”loan losses this year and next; the combined losses could total EU195B; says eurozone bank profitability likely to remain moderate; eurozone bank losses may exceed current ests b/c of heightened sovereign risks and slowing growth owing to fiscal tightening measures.

· France warns that its AAA rating could be in jeopardy - François Baroin, the French Budget Minister, told local television stations that holding on to the country’s AAA rating would be a “stretch”; separately, Spain’s AAA was downgraded by Fitch after Europe closed on Fri (this hit during US trading on Fri).

· European politics – in Germany, Merkel dealt political blow after president Horst Köhler resigns; the departure places further pressure on the chancelor to keep her coalition together (FT); in Spain, the ruling Socialist party faces plunging support according to a poll conducted for the El Mundo newspaper (and austerity measures could cause support to drop further)

· Canada – the country posted very strong Q1 GDP growth on Mon (up 6.1%), raising the odds that the BoC will hike rates on Tues (such an increase would make Canada the first G7 nation to raise rates) – FT

· Australia – RBA leaves rates unchanged, as was expected; statement inline w/expectations.

· Australia – PM Rudd says he is fully committed to resource tax; added that a compromise agreement w/the nation’s miners is a long ways off – CNBC/Bloomberg 

· US' 2nd largest pension fund (CALSTRs) eyes commodity investments as a hedge against the risk of rising inflation; vote to come Thurs on whether to increase allocation; vote >50% chance of passing (FT)

· Hedge fund performance – HFs post largest monthly drop since Lehman – “Hedge funds lost an average of 2.7 percent through May 27” (largest decline since Nov ’08).  Almost every strategy lost money in May – Bloomberg

· BP – the co’s “top killplan ended in failure on Sat the company announced; a new solution is being considered, which would involve sawing through apipe protruding from the well and capping it w/a funnel-like device; there is some risk that this method could wind up making the spill worse; a second relief well being drilled won’t be ready until Aug; AG Holder is meeting w/authorities in New Orleans today to discuss potential criminal investigations into the BP spill.  AP/CNBC

· AAPL – the co announced Mon morning that it has sold more than 2MM iPads in less than 2 months this puts the company firmly on track to beat evenoptimistic analyst forecasts of 2.5MM iPad units this Q – Business Insider

· Fed comments - was a central banking event in South Korea at which a few US officials spoke.  Fed’s Evans and Plosser both sounded upbeat on the US economy and didn’t sound too worried that Europe’s problems will impact domestic growth although Evans said that the sovereign issues in Greece and othernations may cause the Fed to delay hiking rates just a bit.  Bernanke made remarks at this SK event although didn’t say anything too material. 

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