On JPMorgan, China, Europe. JPMorgan Views.

Bonjour,

 

Europe set for lower start as Syriza leader Tsipras reportedly won’t take part in coalition talks today and elections now expected mid June. CS puts the odds of Greek euro exit at 15% whicle Citigroup suggests 50%. Fitch says in event of Greek exit, Cyprus, France, Ireland, Italy, Portugal, Spain, Slovenia and Belgium would be most at risk of downgrade. Asia was boosted somewhat by China announcing a 50bp cut in banks’ RRR, saying the move is designed to ensure stable growth in money and credit.

 

CURRENT THEMES

 

On China
The PBoC cut its banks’ reserve requirements ratio by 50bp this WE to 20% for large banks and 18% for smaller banks. The move will probably release 450 billion yuan ($71 billion) into the financial system, according to Goldman Sachs Group Inc. Bank of America Corp. and HSBC Holdings Plc put the amount at 400 billion yuan. Further measures can now be expected to boost growth.

On Europe
This is another week full of events in Europe. Mr Hollande will meet with Mrs Merkel tomorrow and there are Eurogroup and G8 meetings.
Several bond auctions will also give us a good indication of market sentiment: Spain (bills) and Italy today, Greece tomorrow and Spain again on Thursday (bonds).

JPMorgan Estimates Immediate Losses From Greek Exit Could Reach 400 Billion: http://bit.ly/JplZv1
Fear grows of Greece leaving Euro. Another article citing some central banks governors (Ireland, Belgium) who believe it is a possibility… http://on.ft.com/JzjLWy
An interesting article in the FT: Investors look to fresh ECB action, ie… the market wants more LTRO… http://on.ft.com/JaJybh

On JPMorgan
Apprently there is more to come on the JPM’s trade…
What happened ar JPMorgan? Q&A: http://on.ft.com/K94bOn
Has JPMorgan Already Unwound Its Losing Trade? | ZeroHedge http://bit.ly/KE8VzA

 

STRATEGY

 

JPM (Loeys) The J.P. Morgan View
Will Europe be able to circle the wagons?
JPM’s Loeys sees more downside in the short term but expects sees better performance in 3-6 months and therefore retains exposure to Equities and Credit and prefers the US market. The Equities position has been cut in half though in the latest GMOS.
Asset Allocation
–– Greater political risk in Europe force us to reduce equity longs, while staying in credit, in our asset allocation portfolio.
Economics –– Weaker data for April delay the expected bounce back in the Chinese economy. Global growth forecasts unchanged from January.
Fixed Income –– We add to Euro area hedges.
Equities –– Stay long US vs. Euro area equities.
Credit –– We continue to favour US credit and hold NEXGEM markets in EM.
Foreign exchange –– Add to USD longs, as adverse Greek news should push the euro down much more than upside created by positive Greek news.
Commodities –– Higher oil prices in H2, but with elevated two-sided risks.

JPM (Matejka) Equity Strategy
What ispriced in? Not there yet – staying cautious.
It’s hard to write a strategy piece every week… The advice here is: “don’t catch falling knives”. But the arguments are below previous weeklies. Matejka remains cautious and especially on Cyclicals and Financials. He brings some screens for stock picking.: Autogrill, British Sky Bcast.Group, Compass Group, Ictl.Htls.Gp., Reed Elsevier (Ams), Whitbread, Ahold Kon., Colruyt, Diageo, Imperial Tobacco Gp., Reckitt Benckiser Group, Tate & Lyle, Bp, Seadrill, Astrazeneca, Glaxosmithkline, Smith & Nephew, Aggreko, Capita, Dsv ‘B’, Experian, G4s, Kuehne+Nagel Intl., Serco Group, Smiths Group, Arm Holdings, Sap (Xet), Fresnillo, Johnson Matthey, Novozymes, Syngenta, Bt Group, Telefonica, Centrica, Severn Trent, Sse.

 

 

 

 

 

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