Monday, August 23, 2010

Today’s Top Stories; In Europe, the August Flash PMI came in worse than expected; “Small investors flee stock market”:Mortgage Repurchase Demands $AAPL


· In Europe, the August Flash PMI came in worse than expected, falling to 56.1 in Aug. vs. 56.7 in July & St. estimates for 56.3 with most of the weakness coming on the Manufacturing component. The improved German eco outlook continues to receive attention w/the country’s chamber of industry and commerce (DIHK) raising its forecast for ’10 eco growth from +2.3% to +3.4% (note though that there have been a bunch of various groups and government bodies to come out and raise the country’s growth view and most of them are due to the robust Q2 GDP # just posted). 

· Australia - Some of the most important headlines over the weekend came out of AsiaPac with Australia holding its election over the weekend. The result is a the first hung parliament for the country in 70 yrs. While the initial expectation was that the uncertainty would be a neg. for stocks and the AUD, the co's bourses are flattish while mining stocks are trading higher (the AUD is dwn 0.11%). It appears as if a government led by Abbott has the best chance of prevailing according to political experts and investors think such an outcome will result in the scrapping of the controversial mining super tax.  

· Japan - In Japan, the much awaited meeting of PM Kan & the BoJ’s Shirakawa took place over the phone today (they didn’t meet in person as the government doesn’t want to give the impression that it is interfering in monetary policy). Kan did not ask the central bank to ease monetary policy further although the two discussed the yen and agreed to work closely going forward.  The two didn’t discuss currency intervention.

· China - a few positive headlines hit out of China with former central bank adviser Li Yang saying that the country’s top priority is to prevent an economic slowdown and Reuters reported that the China bank stress tests reveal that overall bank capital quality would remain pretty healthy even under adverse stress scenarios.

· “Small investors flee stock market”: Individuals have pulled $33B+ from domestic equity MFs in the first 7 months of this year. [NYT]   Bloomberg says US individual investors have now shunned stocks for the longest stretch in 23 yrs; bond funds have attracted more money than equities for 31 consecutive months (longest since early ‘80s).  Bloomberg added that bond funds are getting inflows similar to equities during the dot com boom era of the late ‘90s; FI inflows are on pace to exceed the amount poured into stocks during the internet bubble (Bloomberg)  

· Treasuries: Treasuries aren’t in a bubble: Government bond yields around the globe are collapsing; yields are 90% correlated to Fed policy – w/QE-lite back on (w/the prospect of even more actual QE), policy will remain very accommodative for very long. The average spread between the Fed Funds and the 30yr is 200bp, the 30yr has a lot to rise to get there.  [Barron’s]

· Wall St job cuts could pick up, which would deal another blow to an already weak labor market – Wall St firms could start to contemplate job cuts unless activity levels pick up; slow client flows, market volatility, and new regulations are all factors contributing to the cloudy outlook for Wall St jobs (WSJ) 

· Mortgage Repurchase Demands – a new overhang for the banks - Reps Frank and Kanjorski on Fri afternoon sent a letter to the White House calling on the FHFA (which regulate Fannie and Freddie) to make sure that it uses "all of its powers to recover money from companies that used fraud and deceptive practices to shift losses on to Fannie Mae and Freddie Mac. 

· Health Care – the HHS is awaiting final rules from the NAIC on how much insurance companies must spend on medical costs; the report is due to come in weeks and isn’t likely to be as strict as some top Dems have hoped.  The HHS will have the final say on new rules, although it will be difficult for the HHS to overturn NAIC decisions for both political and practical reasons.  Politico.  

· AAPL – a blog posting on Digg over the weekend says the forthcoming iTV, which is due out in Sept from Apple, will wind up “changing everything” – Fortune 

· TDK – the Japanese electronics parts maker says orders for capacitors and other passive components have been slowing since Jul and will prob. slow further in CQ4 amid growing concerns about demand.  The co says inventories for TVs and PCs “seem to be building up” while demand for consumer electronics in Europe and the US was sluggish.  Reuters

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