Tuesday, June 8, 2010

Today’s Top Stories; China labor & rising costs - new risk for manufacturer's margins?Bernanke delivers remarks in interview Mon night

Today’s Top Stories
· European equities & SP Futures pulled back ~5amET after Fitch Rating put out a cautious report on the UK saying the countries “fiscal challenge is formidable and warrants ….a faster pace of deficit reduction than set out in the Apr. 2010 budget.”
· Also weighing in Europe were 1) continued concerns over the effectiveness of the ECB’s bond buying as Spanish and Italian yields rose and reported purchases aren’t seen as enough (only EUR5.5B were purchased in the latest week), 2) a weaker than expected Apr. German exports number (dn 5.9% vs. JPM/St. dn 2%) and 3) a large Spanish civil servants strike.
· The Eurogroup meeting also wrapped up last night pretty much as expected with some news about the structure of the SPV for the European Stabilization Mechanism and some commitments on the fiscal front.
· China - Primary home sales fell 11% w/w, correcting to around 3Q08 levels when the market sentiment was extremely weak, concerns are rising for manufacturers over increasing China labor costs, the PBOC sold securities at a higher yield and a China state researcher said that eco growth this quarter may slip to 10-11%.
· China labor & rising costs - new risk for manufacturer's margins?  a new strike has broken out at a factory producting exhaust systems for Honda's Chinese factories; comes as Honda was forced to deal w/a strike at another of its suppliers; meanwhile, Foxconn is trying to hike prices charged to its clients to help offset the higher wages it recently awarded to employees.  Reuters 
· Japannew PM welcomes Yen weakness – “Japan New PM: Yen Weakness Positive For Exports, Econ In General” (DJ)
· US Energy Drilling – White House on Mon said it was moving quickly to roll out new safety requirements to reopen shallow water drilling; the new rules could be published as early as Tues; the WH came under pressure b/c of a loss of jobs – WSJ
· Bernanke delivers remarks in interview Mon night; next up will be his testimony before House on Wed; Mon night Bernanke said the US economy remained on track and that he didn’t see double dip.  "There seems to be a good bit of momentum in consumer spending and investment…My best guess is we'll have continued recovery, but it won't feel terrific." 
· Jobs – Manpower employment outlook survey - U.S. employers anticipate favorable hiring plans for Quarter 3 2010, marking three straight quarters of positive survey findings.

· Steels – few notable headlines: 1) China’s Baosteel says Chinese steelmakers likely to cut production in Q3 b/c of “weak” demand from auto and appliance makers.  Baosteel thinks slower demand could prompt smaller makers to default on iron ore contracts in Q3 (The spot iron ore price may fall below contract prices in the third quarter of this year) (Bloomberg/DJ); 2) the morning edition of the June 8 Nihon Keizai Shimbun reports that Australian resource majors BHP Billiton and Rio Tinto have notified Japanese steelmakers that July-September iron ore prices will be raised by around 23% QoQ; 3) Germany’s second largest steelmaker, Salzgitter, said it was keeping its earnings goalfor its steel ops unchanged this yr but it is more likely to miss it (it added that steel order intakes for Apr and May fell).
· Tech Update - the HTCH neg. profit update last night getting attention and being taken as a neg. indicator for disk drives and PCs (comes after Digitimes on Mon said HPQ's May notebook shipments fell short of plan).  JPMorgan/Moskowitz is cutting his hard drive and PC shipment forecasts (although raising server unit forecasts) and as a result JPMorgan's H Sur is trimming ests for MRVL and LSI (b/c of their drive exposure).  ALTR published a mid-Q update last night and said revs will come in towards the higher-end of plan (LSCC had an update this morning and reiterated its prior guidance).  Elsewhere, we are getting a bunch of may sales results from Asia (UMC came in +8.2% M/M but Digitimes says Mediatek and Richtek revs fell short)
· PIMCO’s Crescenzi says many nations have reached “Keynesian endpoint” - “Time, devaluations, and debt restructurings might be the only way out for many nations,” (Bloomberg)
· Spain’s CDS curve inverts – markets view prob. of default as higher in near-term than in long-term.  Follows inversions in Greek and Portugal curve.  FT 
· US Equity technicals – JPMorgan’s Krauss - Daily momentum rolled over to join the weekly and monthly indicators in a sell mode. Bulls need to break above 1071/1076 to improve the near term tone.  Nearby supports are 1050/1045/ 1041 and then 1029/1024/1020. Nearby resistance is 1056/1059/1064 and then 1071/1076/1071.

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