Not Much… JPM Asset Allocation. MarkIt on French PMI.

Bonjour,

Europe set for lower start, ahead of exp quiet UK bank holiday session as Asia falls most in 6 months after French elections. EUR falls to 3mo low after French+Greek polls. Fears in Greece this could undermine EUR 130bn EU-IMF bailout deal and push the country towards euro exit.

Today (CET)
• 15:00: France to sell up to EUR4b 84-day bills
• 15:00: France to sell up to EUR1.8b 174-day bills
• 15:00: France to sell up to EUR2.2b 357-day bills

 

CURRENT THEMES
On the US Fiscal Cliff
It’s happening soon (beginning of next year, half a trillion dollars of fiscal tightening) . So if you don’t have all the numbers in mind when you meet potential investors or to make sounder investment choices or just because you want to know… There was a short and detailed piece published by Michael Feroli (JPM) on the 26th of April: Special Report, US: Fiscal cliff notes. It’s 8 pages long and worth keeping.

On the French Elections
Hollande is now the President. Next are the elections for the lower house of the Parliament which should go to the left as well. Which means almost full power to the Socialists.

On the Greek Elections
The parties supporting the €174bn bailout failed to gain sufficient votes to keep the majority as anti austerity groups increased their share of the votes. As the IMF warned it may not release the first quarterly aid payment if Greece doesn’t implement the right reforms.

On the Markets
The sentiment is still bearish with the flow of low European PMI numbers last week, a lower than expected US payrolls and these two elections. The markets cautiousness should linger this week with lots of Chinese data…

On France
(from MarkIt)
The performance of France’s service sector weakened markedly in April. Incoming new business fell at the steepest rate for three years, leading to a substantial reduction in activity. Correspondingly, backlogs of work decreased sharply. Lower workloads did not result in job shedding, however, as employment remained stable on the month. Optimism regarding future activity meanwhile weakened to the lowest since January. Input prices continued to increase at a solid pace, but prices charged fell slightly.

 
STRATEGY

JPM (Loeys) The J.P. Morgan View
Signal versus noise
Asset Allocation
–– Near-term momentum is negative for risk markets, but we find the signal from medium-term drivers more reliable and thus stay with our long risk assets for coming months.
Economics –– Fall in Global All-Industry PMI eliminates upside risks on growth, but is consistent with 2.2% global growth projection we have for Q2. Loss of US job momentum implies Q2 may come in closer to 2%.
Fixed Income –– End of BoE’s QE next week a headwind for gilts.
Equities –– OW US vs. Euro area equities, DAX vs Eurostoxx50 and MSCI EM Asia vs. MSCI EM.
Credit –– Keep the focus on US credit.
Foreign exchange –– Remain risk neutral and focused on earning carry in cyclical currencies with low vol and non-threatening valuations (Scandinavia) while simultaneously selling upside on stretched commodity currencies.
Commodities –– Neutral outlook favours spread trades over next 3 months.

OTHER STUFF
“The Dictator” Congratulates Francois Hollandaise On His Victory | ZeroHedge http://bit.ly/Jhuh62

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