Americas Equity Morning Summary [Morgan Stanley & Co] $SPY $GS $APPL

Economics Calenda

04/13: Trade Balance Goods and Services, BOP basis (February), forecast: -$38.8 bil

04/14: Retail Sales Ex-Autos (March), forecast: +1.2% / +0.7%

04/14: Consumer Price Index Core (March), forecast: +0.1% / +0.1%

04/15: Industrial Production / Capacity Utilization (March), forecast: +1.0% / 73.3%

04/16: Housing Starts (March), forecast: 565,000

ISM (March)

Stronger-than-expected report. Although some of the upside was attributable to an unusual rise in inventories and a likely unsustainable

jump in vendor deliveries, there were solid gains in the key orders and production categories. In fact, the export orders index soared to a 20-

year high of 61.5. Also, the price index rose to a new 18-month high, on rising quotes for a number of the metals.

Construction Spending (February)

Mixed report. Construction spending held up significantly better than we expected in February (-1.3%) given the severe weather – which

has been the case for just about all the surprisingly resilient February data reported so far – but there were sizable downward revisions to

prior months. These revisions combined with the better February outcome and resulting assumption of a somewhat smaller rebound in

March led us to trim our Q1 GDP forecast marginally to +2.5% from +2.6%, with residential investment looking a bit better but business

investment in structures and government spending weaker.

February 18, 2010 Americas Equity Morning Summary

Companies Featured
ADBE.O, ADI.N, AMAT.O, AMTD.O, AUXL.O, BVN.N, CX.N, DE.N,
ECHO.O, GPC.N, GUID.O, HPQ.N, LIFE.O, NFX.N, NTAP.O, NVDA.O,
PFCB.O, PVH.N, RENA.PA, SRE.N, WAG.N, WSO.N, XEC.N

February 18, 2010 Americas Equity Morning Summary

Economics Calendar

02/18: Producer Price Index/ Core (January), forecast: +0.8 % / +0.1%
02/18: Leading Indicators (January), forecast: +0.3 %
02/19: Consumer Price Index/ Core (January), forecast: +0.3 % / +0.1%
Already Reported –

A solid gain in consumer spending in January as expected, with overall sales up 0.5% and ex autos 0.6%, and minor upward revisions to prior months. With solid gains in various discretionary categories, the key retail control grouping (sales ex auto dealers, building materials stores, and gas stations) surged 0.8%, in line with the strong results from last week's chain store sales reports and matching our forecast. We continue to see Q1 consumption rising 2.5% and GDP 2.8%.

Housing Starts (December)

Mildly stronger-than-expected report. Starts posted a modest gain in January and December was revised higher. Relative to our ownexpectation, the bulk of the upside surprise was in the volatile multi-family category.

FULL REPORT HERE

India: Inflation prints above RBI’s end-March target; nonfood inflation gathers pace

Asia Pacific Economic Research India: Inflation prints above RBI’s end-March target; nonfood inflation gathers pace WPI inflation surged to a 15-month high of 8.56%oya in January – higher than the consensus expectations (8.26%) as well as the RBI’s end-March target of 8.5% – from 7.3% in December. The overall index gained 1.1%m/m, sa from 0.8% in the prior month. However, nonfood primary articles and manufactured products were the key drivers of the WPI rise this month, unlike recent trends wherein higher food prices contributed to the WPI rise. Release of food stocks from the government’s buffer, increased imports along with expectation of a healthy winter crop helped lower the food prices. The increase in our food composite index – including primary and manufactured food articles – was thus limited to 0.2%m/m, sa as compared to the recent peak of 5.6% in November. While food prices moderated, prices of non-food primary articles like fibers, oil seeds and minerals strengthened. Even the energy index gained 2.1%m/m, sa from 1.5% in the prior month. Given that these commodities feed into the manufactured products as industrial inputs, continued high prices of these articles is likely to exert upward pressure on the manufactured products as well. Indeed, the latest print for the Markit manufacturing PMI further augments this risk, as the input price index for January surged to its all-time high since April 2005 (when the index was released). For January, the manufacturing index excluding food products increased 0.9%m/m, sa from 0.6% in the prior month. Directionally, this trend of increasing price pressure on the non-food commodity basket is expected to continue, driven by strengthening industrial activity. From here on, the movement in food prices will be determined by the output of the winter crop. Separately, the November print was revised up to 5.6%oya from the provisional estimate of 4.8%, largely driven by revision in the food price index (18.7%oya; 5.8% m/m, sa). In 1Q10, we expect the headline inflation to peak around 9.0-9.5%, driven by higher commodity prices and a weak base last year. On policy, we do not expect that today’s higher WPI print will prompt the RBI to bring forward the likely tightening. We maintain our expectation of a CRR hike of another 25bp in the April policy meeting along with a 25bp increase in the policy rates. Gunjan Gulati J.P. Morgan India Private Limited