Morning Levels:
· SP500 futures are up ~1 point to 1022 (overnight highs 1028).
· Europe trading: DJ Euro Stoxx +0.3%, FTSE +0.57%, CAC/DAX up 0.3% each.
· Europe – HC off 2% and lagging (following weakness in HC on Thurs in the US); on the upside, Deutsche Borse, Nokia, BNP, Daimler, Philips are leading. Sanofi is off 2% (on BBG article saying co planning major US acquisition). In London, mining stocks strong after Aussi tax update (Xstrata up 3%). London banks also bid (Lloyds and Barclays each up 2%).
· FX: DXY off small today again (after dropping 1.5% on Thurs); DXY off now for last three sessions (DXY off 4.3% from 6/7 high); euro off small today (dwn 0.14%) but surged 2.3% on Thurs. Euro remains > 50day MA. GBP extends gains (up another 0.23%). Yen off small vs. US$. AUD up 0.33% vs. the US$.
· Treasuries – flattish this morning: 2s flattish today (@ ~0.63%, flattish on the week; recall they dipped under 0.60% on Tues); 10yr yields flattish this morning (on the week they are down ~7bp). TIPS spreads flat today (on the week ~12bp tighter).
· Commods: copper +2%, crude flattish ($72.86), gold bouncing 1% (after falling ~3.5% yesterday); gold back above $1200.
· Sov CDS: Greece, Italy, Portugal, Spain all flattish.
· Bank CDS – quiet for the most part; most of the big Europeans are flattish-to-slightly tighter (by 1-2 bps)
· Asia: Japan +0.1%; China +0.4%; Hong Kong dn 1.1%; India flat; Australia flat
Today’s Top Stories
· Jobs preview – Feroli - We look for a gain in private sector employment of 170,000 jobs; we see no reason to change that based on anything that happened this week. Census did revise up by 15,000 their estimate of the change in employment of temporary enumerators, so we've revised up our forecast for nonfarm payrolls to -75,000. The St is looking for 110K private adds and total nonfarm down 130K.
· In Australia, Gillard has reached a consensus with the mining industry, and has subsequently diluted the controversial Resource Super Profits Tax (RSPT). As of today, the RSPT is no longer, with the new Minerals Resource Rent Tax (MRRT) taking its place. Large miners have welcomed the news with a handful of mining companies releasing a press statement shortly after announcement (See below for additional details & read-throughs). Fortescue Metals Group is on the tape saying that banks are already inquiring about funding opportunities in the Australian metals industry now that the tax issue has been put aside.
· On the economic front, a few headlines out of Asia as China revised up its estimate for what GDP growth was last year by 40bp to 9.1% while a sell-side forecast for China growth for this year was cut to +10.1% from +11.4%. Also out last night - HK May Retail sales rose more than expected, Eurozone May Unemployment rate held steady for the 3rd month, Eurozone May PPI growth was lower than expected and Austria’s Eco Growth Forecast was lowered by Wifo.
· Japan - A Reuters preview of the BoJ meeting next week says the Central Bank is expected to revise up its view on Japan eco growth outlook but will retain its cautious view.
· European bank stress tests – “Cash calls expected as Europe’s banks face tests” – up to 20 European banks may be forced to raise capital in response to deficits uncovered as a result of the stress tests; in aggregate, these banks may seek as much as EU30B (FT)
· Spain will need rescue according to Merrill (being cited in a London Telegraph article) - "Spain's debt crisis may force the country to tap the EU-IMF rescue fund over the next two to three months and set off a political storm, according a confidential report by the Bank of America Merrill Lynch"
· European sov bond sales - issuance will slow some next week (only Austria and Germany have planned sales) but will then pick back up as there are some substantial sales yet to come (DJ)
· Growth worries – WSJ headline: “Manufacturing lost momentum around the world in June”; FT: “Fears mount over slowing global demand”; London Telegraph: “Spectre of an economic relapse stalks markets”
· US fin reg reform – Sen Cantwell, who was on of two Dems to vote against reform back in May, says she will now vote in favor of the measure; Dems now need only two Republicans to get to 60+ (passage seems assured when Congress returns to session wk of Jul 12).
· BRK may be spared derivative collateral demands - The new fin reg reform rules won’t alter previously written derivative contracts, Democratic Senators Chris Dodd of Connecticut and Arkansas’s Blanche Lincoln told Democratic Representatives Barney Frank of Massachusetts and Minnesota’s Collin Peterson in a letter. Bloomberg
· Airlines - CAL June consolidated RASM emerged at 21.5%, below our 25% forecast and a consensus that we believe to be in the 23-26% range (see note today from JPMorgan’s J Baker this morning; we are trimming our CAL ests)
· SNY – Sanofi is said to be planning a “major” acquisition in the US according to Bloomberg (citing sources); mgmt briefed the board at a meeting this week; a deal in the US could be worth $20B+ (Bloomberg)
· US Equity technicals - S+P 500 Cash Index closed at 1027. Morning weakness tested the high end of our 950- 1000 macro support range before rallying back to near unchanged. Bears keep the short term agenda below 1040 (Krauss)
· Diageo to use Scotch to plug pension hole – the co will grant maturing Scotch whiskey to its pensions; once the whiskey reaches three years old, the pension can sell it back to Diageo (FT)
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