Friday, July 23, 2010

Todays Top Stories: Trichet has an oped in the FT calling for the end to global stimulus S&P that Chinese banks will need to raise more capital,

Today’s Top Stories
· EU stress tests - On the stress test front, FT says that European regulators think the tests will come as a “pleasant surprise” to the markets when results are released. Reports in the media for the most part have pointed to banks in Germany and Switzerland passing the tests (Switzerland is not subject to the tests but Swiss regulators said they plan on publishing results of a test that is "twice as tough" as the EU scenario w/CS and UBS both passing) while Spain and Greece may see some failures (newspaper report this morning says several of the 18 Spanish banks have failed while shares of Greek bank ATEbank fell on Friday on concerns that it would announce it needs to raise capital after bank stress tests are published later in the day). A Goldman survey of investors says that expectations are for 10 of the 91 banks to fail.
· Europe eco - Elsewhere in Europe, eco datapoints continue to come in better than expected with UK GDP rising ~twice as much as expected and German July IFO unexpectedly rose 4.4pts vs. St. expecting a 0.3pt drop. ECB’s Gonzalez-Paramo said the latest eco reports lower the risk the Eurozone falls back into a recession.
· In Asia, newsflow was on the quite side for the most part (Japan bounced back from recent weakness as the JPY weakened). China lagged the region on comments from S&P that Chinese banks will need to raise more capital, but traded up as technicals continue to improve for the Shanghai Composite index (see comments from JPM's Technical Strategist JPMorgan's M Krauss)
· CARD earnings – AXP and COF both beat St views w/earnings (magnitude of COF upside greater than AXP); both sound relatively sanguine re impact from Durbin amendment (both think CARD legislation a bigger neg, although think in total can handle Washington w/o major impairments to their businesses – much dif. tone vs. BoA last Fri when it comes to Durbin impact).
· CARD SPENDING - AXP’s billed business performance strong and looks like continuing into Jul - On an FX adjusted basis, April and May grew 15%, and June grew 14%, for the average of 15% in the second quarter. July month to date growth is in the double digits. And the growth rate is down slightly from June due to a tougher grow-over in 2009. Capital One’s 2Q10 domestic purchase volume increased 4% y/y versus a 2% y//y increase last quarter.
· ECB – Trichet has an oped in the FT calling for the end to global stimulus – he says now is the time for nations to ratchet down spending and raise taxes to help reduce budget deficits – “it is now time for all to tighten”
· China steel - pos. news this week from the sector - Steel physical and futures prices, along w/Chinese steel stocks, rose meaningfully this week; Jiangsu Shagang Group held its key prices steady this week (following 2 months worth of cuts); Shagang also raised its export offer prices. Nearly 40 Chinese steel makers have raised prices this week. WSJ
· Pentagon Spending – cautious NYT article – after decades of rapid military spending, the Times says the Pentagon is now facing “intensifying” political and eco pressures to restrain its budget.
· TECH update after earnings - very busy night/morning of earnings for tech. MSFT earnings + outlook both pretty strong, but stock unchanged in after hrs (keep in mind it was v strong on Thurs ahead of the report); some disappointment that MSFT didn’t return more cash to shareholders (i.e. divi hike and/or buyback). AMZN was a disappointment, w/margins coming in below expectations (top line was fine and AMZN didn’t have anything neg. to say re consumer spending). ERIC out Fri morning was pretty disappointing across the board. Some semi/component SMID cap numbers maybe disappointing - MCRL, PMCS, and QLGC. INFA and RVBD both look like they came in strong. EFII also was strong (another pos. printer data point after XRX).
· component constraints abating - FLEX on its call Thurs night said that while constraints hurt its June Q, they are optimistic that things will ease in the Sept Q and that availability will increase b/c of the capacity coming online. WDC on its call Wed said OEM customers less worried about securing supply. PMCS said lead times from its foundries have started to steady and that they are seeing fewer expedited orders (PMCS says this is a good thing as the tech supply chain overall normalizes). If this trend continues, lead times will fall for the component suppliers….and to the extent any double ordering was occuring, this will come to an end also. TXN talked about its lead times coming down, but said this was b/c it was expanding capacity (not b/c of weakening demand). Despite all this, on Fri morning, ERIC posted a weak Q and talked in part about ongoing component shortages.

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