JP Morgan- China Equity Strategy and Economics $CAF

China Market Thoughts – Downside earnings risk to MSCI China due to the economic deceleration $CAF

• China Market Thoughts – Downside earnings risk to MSCI China due to the economic deceleration due to the combined ripple effect of the crackdown on the property sector and the slowdown in banks’ lending to local government-funded investment projects; 
• Policy risks such as the resource tax, which may hurt earnings of and de-rate multiples of energy and upstream resources companies;  tight liquidity situation in China
• Possible additional tightening measures in property and FAI areas. The uncertainties on domestic and external front, you should continue to stick to sectors with most visible growth, such as consumer staples, and low- and middle-end consumer discretionary sectors whose sales are least affected by the economic slowdown. 

China Headlines $CNY-Obama said he “thinks” WTF??? China is serious about its pledge for greater FX flexibility

Image via Wikipedia

· China Yuan - the PBOC sets a record high fixing for the yuan today, although the currency  actually falls slightly - the country's central bank set the dollar-yuan central parity rate at  another record low of 6.7890, down from the previous low of 6.7896 on Friday. However,  the yuan actually ticked up small – DJ
· China insists its yuan shift didn’t come about as a result of int’l pressure on the country  (DJ)
· China’s ministry of commerce tells reporters that exports from his country will slow this  year b/c of the rising yuan – Bloomberg
· China – Economy still faces a “complicated situation” but is rebounding, Vice Premier L.  Keqiang said. Bloomberg
· Global companies increasing seek China listing – the London Stock Exchange and Seaspan  are among the firms that are considering a Shanghai listing – Bloomberg
· China – Obama said he “thinks” WTF??? China is serious about its pledge for greater FX flexibility and
believes the yuan will rise “significantly” (Reuters)

Todays TOP Stories 04/12/10

Todays TOP Stories by theback9 04/12/10

• Greece - the big story over the weekend being the announcement by Eurozone governments of a loan package for Greece worth at least EU30B (US$41B). From JPM’s D. Mackie – “In our view, the support mechanism should work in the sense of limiting both near term liquidity stress on Greece and contagion in the rest of the region. But, the medium term issue of debt sustainability remains.” JPMorgan’s J. Normand comments re the loan that “These terms are good but not great.”
• Greece - Luxembourg PM Junker told reporters on Sunday that “this is a step of clarification that markets are waiting for – it shows there is money behind this”. A “loaded gun” to ward of speculators is now “on the table” according to Greece’s PM. The agreement came about after Germany dropped its opposition to subsidies for Greece lending. Greece has not asked for aid from its euro zone peers, a German government spokesman said on Monday, adding that a summit of European leaders would be needed to activate a financial rescue mechanism agreed for Athens; "Just because I have a fire extinguisher on the wall doesn't mean I'm going to use it," (an EU spokesman denied the German comment about a summit being required….. "No. We do not have to organise a big summit here in Brussels. As you saw yesterday, the euro group can activate itself in a very quick, effective ... way.". Bloomberg/Reuters
• Spain - Spain’s PM told the FT this weekend that the country will implement its economic austerity plan to cut its budget deficit “whatever the cost”, and will introduce even harsher measures if necessary.
• Poland - Polish president Lech Kaczynski and other high ranking officials from the country were killed in a plane crash (the president of the National Bank of Poland, the army chief of staff and the Deputy Foreign were also on board the plane – WSJ).
• China - A few China datapoints out overnight inc. 1) March Trade balance came in as a deficit as was expected but the magnitude was greater than the St. was looking for (-$7.24B vs. St. -$0.39B), 2) Chinese banks extended a less-than- estimated 510.7 billion yuan ($74.8 billion) of new loans in March, and 3) China’s FX reserves rose at a slower pace in Q1 vs. Q4 (+$47.9B vs. +$127B). Re the Yuan and a potential devaluation, Chinese officials pointed to the March deficit as evidence to refute claims that the yuan level was distorting economic relationships and PBOC governor Z. Xiaochun said he doesn’t know where the NYT received its story about an imminent revaluation last week. Property Developer shares were weak in Asia after a top China bank regulator said the country's banks must do more to rein in risky lending to land developers (Reuters) with some banks in Beijing “voluntarily and prudently” raising down-payment requirements for second mortgages to 60% of a property’s value.

International Headlines , China and the yuan,Xi Jinping says" the country must emphasize domestic consumption"

International Headlines

• China’s trade deficit comes in larger than forecast - Trade balance turned red in March, posting the first deficit since May 2004 at US$ 7.24bn (JPMorgan: -$2.3 bn; consensus: -$0.39 bn). We think the deficit will only be temporary. Seasonally adjusted, trade deficit came in more modest at $0.6bn. March exports rose 24.3% over-year-ago (JPMorgan: 28.2%; consensus: 26.9%), translating into a significant fall of 7.2%m/m, sa. This comes on the back of the strong 5.9%m/m, sa monthly average pace of expansion since December09, with the sequential trend growth moderating to a still decent level of 39.2%3m/3m, saar by March. We believe the decline last month represents some payback to earlier gains, rather than reverses the solid recovery trend in overall exports. Meanwhile, imports also rose notably at 64.7%oya in March (JPMorgan: 64.1%; consensus: 55.7%), translating into a 6.0%m/m, sa gain, though the sequential trend similarly moderated to 66.5%3m/3m, saar through March. 

·         China and the yuan – China reported a trade deficit over the weekend (as was expected), which officials from the country pointed to as evidence to refute claims that the yuan level was distorting economic relationships.  The official Xinhua News Agency cited Yao Jian, a commerce ministry spokesman, as saying the March trade deficit “proves” that the level of the renminbi was not the “decisive” factor that caused trade imbalances.  FT  

Calendar of events to watch 04/09/10 $BAC $JJ $SPY

• Obama will speak at 1:20pmET today; will address the W VA mine explosion and Justice Stevens’ retirement, among other items.

• China –There could be some news out of China this weekend (per the NYT, China may announce a yuan revaluation as soon as Fri night; we will be getting China trade balance and import/export #s Fri night/Sat morning; China is expected to post a trade deficit this weekend for the first time in a while).

• Greece – activation of IMF-EU rescue this weekend? Reuters reported that a deal has been reached on the specific terms of a rescue but its not clear if Athens has requested the plan to be activated. In terms of the parameters of IMF debt, for loans up to three years, Greece will be charged the SDR rate plus 300 bps plus 50 bps service charge (per Reuters).

Corporate Calendar for the week of Mon Apr 12 – earnings season for Q1 will kick off w/AA coming Mon after the close. PKX (S Korean steel company) will hit overnight on Mon w/a call on Tues morning. There will be a bunch of tech results. For the semis, watch for INTC and LLTC on Tues, ASML on Wed, and AMD, FCS on Thurs. In the internets, GOOG kicks things off Thurs night. JPM is the first financial earnings of the season (Wed morning) and will be followed by PBCT (Thurs night) and BAC, FHN (Fri morning). GE reports Fri morning also. 

Updates on Greece $EWG $TLT

Market Movers ahead

1. In Europe focus will continue to be on Greece. The scheduled data releases for next week suggest a relatively quiet week coming up.
   
2. In the US the agenda next week is heavy. Amongst a wide range of economic data the most important will be retail sales and CPI for March. Retail sales appear to have been very strong in March.
   
3. There is increasing speculation that China will move on the exchange rate before the Chinese president's arrival in Washington this week to participate in the Nuclear Security summit.

Today’s Top Stories; #GREECE #IMF $EWG $SPY $AA

Today's Top Stories

·         Greece continues to receive a lot of attention in the press with the country planning to push ahead w/a planned US$-denominated debt sale later this month despite a recent spike in yields according to officials and Reuters is reporting that Greek's central bank is taking actions to limit short sales of its gov't debt.  Greece's Finance Minister says the country isn't asking for an activation of the aid mechanism (although there is rampant speculation that activation could come soon) but EU president Herman Van Rompuy said aid to Greece must be made operational and talks are currently under way on the technicalities of implementing the plan (Bloomberg)

·         Greece – update from JPMorgan's D Mackie - With government bond yields having risen sharply over the past week, and concerns about market liquidity and deposit outflows from the banks mounting, we are likely getting close to the point when the Greek government will ask for the EU/IMF support mechanism outlined two weeks ago to be activated. 

·         A few stories out on the China front – 1) the chief economist at China's State Information Centre think-tank said China might increase interest rates as early as this month, but Beijing will probably not resume yuan appreciation as soon as that (China reports its March Trade Accounts tomorrow and St. is looking for a $0.4B deficit which could weaken arguments that the nation is keeping its currency undervalued to gain an advantage), 2) China's finance ministry failed to draw enough demand at sales of 273-day and 91-day treasury bills today

Today’s Top Stories 04/08/10 $SPY $EWG $GS

Today's Top Stories

         Keys for today: NYT says China yuan reval to come within next few days; Greek CDS @ all-time wides; ECB mtng due out this morning (focus on new lending rules); retailer sales hit all morning; LCC/UAUA in merger talks per NYT/WSJ; Kohn/Bernanke speak after bell

         European shares were hit as Greek CDS spreads blow out to all-time wides (traded out 32bps to a record 445.5 overnight per CMA DataVision) despite positive comments from Greek officials (i.e. Greek central bank official said that bank deposit outflows have stopped, finance minister said Greece is continuing to borrow normally and is executing its fiscal consolidation plan on schedule, etc.). Also weighing on European shares were cautious comments from the Bank for Int'l Settlements (BIS) which said the UK needs "drastic" austerity measures to prevent public debt from exploding out of control and that the Sovereign debt crisis is at a "boiling point."

Announcement Raises More Questions $GOOG

• Redirect to Google.com.hk appears to be a compromise Google today began redirecting users visiting Google.cn to Google.com.hk where it offers uncensored search results in simple Chinese (designed for mainland China users). Though we think it’s likely that results would be censored by Chinese authorities for users within mainland China soon, we view this move as a positive for Google as it can maintain a search and advertising presence in mainland China (vs. a complete withdrawl), though we think market share declines are likely
•  Looking back pre-2006 provides a precedent for Google.com.hk GOOG’s rationale for launching Google.cn in Jan 2006 offers some clues to how Google.com.hk might appear to users in mainland China. Prior to 2006, users in mainland China accessed search results via Google.com and according to GOOG, the site was down 10% of the time or was slow. Clicking on results would stall a user’s browser. Google News was unavailable while Images worked only about half the time. We believe these issues could re-occur if authorities begin restricting results, which could lead to market share losses vs. search engines operating in China.
• Ball in China’s court; Some unknowns remain The largest unknown is the extent to which authorities restrict Google.com.hk to users in mainland China. Best case: Only controversial queries are censored; Worst case: Google.com.hk is completely blocked, like YouTube. Google will provide performance data for its China sites, raising visibility on the filtering issue.
• Valuation Our $700 price target is based on our DCF analysis.

Goldman Sachs Q1 EPS estimate cut to low on the Street at Macquarie

Image by Getty Images via Daylife

Goldman Sachs Q1 EPS estimate cut to low on the Street at Macquarie

:
		Macquarie believes Goldman's global markets activity has slowed due to sovereign debt concerns, China's attempts to slow growth, and potential anti-business actions by the U.S. government. The firm has lowered its Q1 EPS estimate to a Street low $3.10 vs. consensus of $4.17 to reflect lower revenue forecasts and higher compensation costs. Shares are Neutral rated with a $185 price target.

Global ABS/CDO Weekly Market Snapshot

Global ABS/CDO Weekly Market Snapshot
The certifying analyst(s) is indicated by AC. See last page of the report for analyst certification and important legal and regulatory disclosures.

Save the Date: April 15, 2010, J.P. Morgan Securitized Products Research Conference, 383 Madison Ave, NYC
Investment Themes: The ABS market remained solid this week. Short high quality bonds continue to trade very well. Riskier bonds
held up, although the aggressive bids that started the year have faded. We stay Overweight benchmark Consumer ABS as Treasury
surrogates. We recommend Overweight cash Subprime RMBS based on favorable loss-adjusted yields and technicals. On ABX, we
stay Neutral and would express that in a 06-1 trade to sell the PEN.AAA and buy the LCF.AAA.

This Week: US ABS. A $470mn Prime Auto Loan ABS priced this week. This brings year-to-date Auto-related ABS (Loan, Lease,
and Fleet) supply to roughly $7bn. In addition, the auto captives have been active in Dealer Floorplan ABS issuance with close to $4bn.
In total, year-to-date ABS volume stands at $14bn. Over the last two rounds (January and February), TALF loan subscriptions totaled
just $1.7bn across ABS (excluding $0.4 in Small Business), a sign of the program’s diminishing significance. The TALF program since
inception saw approximately $56bn in loan subscriptions for ABS. ABS spreads remained firm on the week with generally orderly and
stable trading across sectors. ABX prices were also unchanged on low volumes.
European ABS. It was a quiet week in primary European markets, with one structure-to-repo transaction from ING and a marketing
roadshow for a pass-through UK prime RMBS. Secondary markets saw some generic widening on the back of volatility in the
sovereign space, but more on observable prices as opposed to traded levels.

CDOs. CLOs emerged relatively unscathed from the week’s volatility. US CLO AAAs stayed at 215bp while AAs, single-As, BBBs,
and BBs were down only a few points to $82, $70, $60, and $45 as buyers stepped in. European CLOs are unchanged, though tiering
between stronger and weaker bonds is more pronounced. We note US investors are increasingly buying into the basis, and see
European single-As to AAAs as the primary beneficiaries. CLOs will not be impervious to heightened risk aversion, renewed sovereign
and policy risks, and the gradual withdrawal of monetary stimulus (e.g., China again raised its reserve requirement), but given the
relative value to comparables, we stay Overweight and point out the negative net supply which cushions against major price weakness.
Further, we recently proposed AAA CLO paper as a ‘safe haven’ trade to weather the volatility, à la Consumer ABS. So far this has
proved to be the case, with tighter AAA spreads and Super Senior bonds moving to inside 150bp, within striking distance of our
midyear 100-150bp spread target. However, the strength in US CLO equity is interesting. Strong performers are well bid by those
seeking higher yields, and in some cases investors are paying 3-4 years of cashflows for performing US CLO equity, implying prices as
high as the $50s-60s (lower for non-performers). At these levels, pricing takes the view of incremental improvement in O/C and excess
spread, particularly as existing CLOs reinvest in primary loans issued with historically wider spread margins. We broadly agree, but
point out the transaction-specific risks of this strategy.

In the News: Fitch upgraded three subordinate classes of FORDO 2007-A by one category and affirmed the seniors at AAA. Moody’s
upgraded various tranches of AMCAR 2005-2006 transactions. S&P upgraded 2008-1 subordinates and affirmed 2009-1 classes of
Huntington Auto Trust ABS. FULL REPORT HERE

Cashin’s Comments AN ENCORE PRESENTATION 02.16.10

Cashin’s Comments

On this day (-1) in 1922, a 28 year old kid named Sam Hammett resigned from the
Pinkerton Detective Agency. The Pinkerton's were the most famous detective agency
in the world. Begun over 60 years earlier, Alan Pinkerton's firm was the model for the
U.S. Secret Service. And, when Pinkerton took his tactics private, he chose as his logo
an open and possibly all-seeing eye. Thus the Public adopted the image of a nonpolice
detective as a "private eye."

Sam Hammett resigned from what he thought had become a bureaucratic form of
investigation. He liked free style - lone wolf. So he left the firm, dropped his first
name and began to write about the private eye he always dreamed he'd be.
So Sam Hammett became the writer Dashiel Hammett and invented Sam Spade (The
Maltese Falcon) as well as Nick Charles (The Thin Man) and set the tone of hard
boiled, hard drinking shamuses that would captivate Americans for half a century.

To celebrate, tell Vilma to park the gum, and tell the skirt on the phone that a partner
is a partner not a prom date. And if a messenger arrives with a newspaper-wrapped
dingus - send it, along with most of whatever else you have, to the I.R.S.

Traders could have used a detective to tell them what was going on yesterday last
week. The markets puzzled about what was the solution to the Greek question and
what was going on in China. That puzzling led to some volatile trading.

Following The Bouncing Buck Continues But Causes Confusion – Stocks began
Friday’s session deep in the hole. Pundits noted another move to tighten by China.
Of nearly equal importance was the noticeable lack of detail on the presumed Greek
“rescue package”. Traders began to wonder if there really was a plan.

Those two developments gave a boost to the dollar. That, in turn, sent gold and oil
sharply lower, matching the opening stock selloff.

Around 10:00, the greenback rally paused. Less threatened, stocks, gold and oil
responded by churning sideways. As noon approached, the dollar index came off the
highs and, in yet one more Pavlovian reaction, stocks, oil and gold cut their losses in
response.

Then, around 1:00, the Dollar Index (DXY) began to move up toward the morning
highs. As if a bell had rung – stocks, oil, and gold headed back down. Shortly after
2:00, the process was reversed again. In the final 45 minutes, they staged a minor
reversal of the previous reversal.

The dominance of the dollar was so evident that I was stunned from time to time to
see brokers getting calls from trading desks inquiring “what turned the market?”
Talk about not seeing the forest for the trees.

The Dow closed two-thirds off the lows. That allowed the first up week in the last
five. Not quite a resounding victory for the bulls, but a welcome respite at least.
The Week Ahead – Based upon published data, the watercooler wizards are
guessing that this week’s calendar may look something like this:
In the abbreviated week, it is likely that initial claims and housing data will get much
attention. If the FOMC minutes are
not too heavily laundered, they might tell us if Hoenig is a lone hawk.
Cocktail Napkin Charting – In Friday’s Comments, we wrote that the napkins suggested support in the S&P was “way
down around 1058/1063”. The sharp opening selloff took the S&P to an intra-day low of 1062.97 before they circled the
wagons. For today, we’ll stick with the 1058/1063 support. Resistance looks like 1083/1088 and then 1093/1097.
China Watch – Over the weekend, there was some speculation that China is so concerned about a lending bubble and
potential inflation that they might allow (cause) their currency to appreciate. If so, authorities must be really concerned.

On another note, Andy Lees passed along a warning from China’s Agriculture University. They claim the over-use of nitrogen fertilizers has so poisoned the soil in South China that nothing will grow in it. The year of food shortages?

Greece And The Euro – The Euro is firming this morning helping gold, oil and stock futures.

The European ministers are meeting amid a growing sense that failure is not an option. Additionally, polls show that a majority of the Greek populace believe austerity measures are necessary and, likely, overdue. That offers some hope of reform without street backlash.

Sunspots Before My Eyes – Sunspot activity perked up markedly last week. In fact, the numbers returned to almost
normal levels. The sunspot numbers for February 4th through the 10th were: 11, 22, 30, 51, 71, 63 and 55. We haven’t
seen a number as large as 71 since spring of 2006.
To keep things in perspective, lets again review the average daily sunspot numbers in prior years. For the period from 1999
through 2009, the average daily sunspot numbers were 136.3; 173; 170.3; 176.6; 109.2; 68.6; 48.9; 26.1; 12.8; 4.7 and 5.
Let’s not put away that sweater just yet.

Consensus – It’s still all about the dollar (DXY). The above noted hopes for some resolution to the Greek crisis have gold, oil and stock futures all doing better. In 17 of the last 20 weeks, we’ve begun with a rally. Follow the bouncing buck.

Stay very, very nimble.

Trivia Corner
Answer - The only letter not used in spelling the names of all 50 states is "Q".
Today’s Question – Two term presidencies are not as common as you think. We’ve only had three back to back two termers once in our history. Who were they?

FX Markets Weekly [JP Morgan]

• FX Outlook: Policy remains too murky – stay long USD
In markets which have become almost entirely policy-driven, this
week’s developments have injected more doubt than confidence. Europe
needs a liquidity fund with conditionality, but EcoFin is unlikely to
deliver one next week. China’s tightening despite weak CPI suggests
that housing remains an unresolved issue. Positions have moved quickly
from short USD to small long, but the policy environment is too murky
to reverse dollar strength. Stay long vs commodity FX and Europe, but
neutral vs JPY.

• FX Derivatives
During the past month, European and JPY cross vols have rallied, while
USD/JPY implieds have declined. Continue to sell longer-dated
USD/JPY vol. AUD/JPY vol curves are at historically steep levels: buy
longer-dated AUD/USD rather than AUD/JPY vol. NZD/USD implied
vol appears as a good buy among shorter-dated tenors, both outright and
on a relative basis versus USD/NOK vol.

• Trade Recommendations
Keep a moderately anti-cyclical portfolio: risks persist but news flow is
random. Stay long USD vs AUD, NZD, NOK (all cash) and SEK (cash
and options). Stay short AUD/CAD (cash). Stay short GBP vs EUR
(cash) and CHF (cash and options), as the sovereign risk spotlight rotates
around the G-4. Stay short EUR vs PLN and SEK, and long NOK vs
NZD. Keep CAD/JPY as a long-term valuation trade.

• Technical Strategy
Despite the hold of key levels, European currencies remain vulnerable to
new lows amid the broader deleveraging process. EUR/USD targets 1.31
and GBP/USD seeks the 1.53 area. The commodity currencies staged a
short term bullish shift over the past week led by AUD and CAD while
suggesting additional outperformance on the crosses. Latam FX finally
shifts into a consolidation phase following the test of critical resistance
levels for USD/BRL and USD/CLP. Stay short EUR/USD, GBP/USD,
NZD/NOK and EUR/MXN. Use corrective retracements in AUD and
CAD to establish long positions on the crosses.

• FX Alpha Strategies

Rate momentum strategies (forward carry) remain long USD across the
board. The strategy is down 0.5% on the week but up 1% YTD.

FULL REPORT HERE