On the Markets, the USD and Rates. MS on Asian current issues. Why YOU should move to London?

Bonjour,

At least it’s sunny in Paris today. Markets to open down again on Greece failure to form a government. EURUSD is dropping. Richemont very strong… Macro eyes on EU trade balance and CPI, US housing starts, IP and more importantly the FOMC minutes.

AFTER HOURS

JCP: -12% – J.C. Penney said it will discontinue quarterly dividend, to help fund restructuring plan. 1Q Sales $3.15b, Est. $3.43b. 1Q gross margin 37.6%, est. 39.7%. Affirms yr adj. EPS forecast of $2.16, saw adj. EPS of $2.16 on Feb 24

Merkel/Hollande held their first meeting Tues afternoon (Merkel delivered comments to the press during the last 30 min of NY trading).
– Merkel said she and Hollande want Greece to stay in euro but emphasized how Athens must adhere to the troika bailout terms
– Merkel said a new growth pact will be introduced at the June summit to supplement the existing fiscal one
– Merkel added that “we (Germany, France) are aware of our responsibility for Europe” although didn’t provide any more specifics.

Boehner remarks (Tues afternoon) raise worries about another brutal debt ceiling battle
– House Speaker delivered a speech Tues afternoon in which he appeared to set the stage for another brutal battle over the upcoming “fiscal cliff” and debt ceiling
– Boehner (and Ryan) said a full fiscal deal is unlikely in the lame-duck session after the Nov elections

CURRENT THEMES

On the Markets
Tensions are high. As expected, because we’re in no big macro data or earnings period (another 10 days), the markets’ anxiety is high and any political event will have major impact. We’ve had some rather positive data (US Empire, NAHB and Retail sales), but it doesn’t hold the market up.
Bulls are pointing to the R2K outperformance (it closed off 20bp vs. the SP off ~70bp) and builder strength

On the USD
USD (DXY) continued its surge, up 0.85% and at its highs, now up for twelve straight sessions. On the flip side, the EUR rolled over pretty hard. The question for the EUR is if the weakness recently reflects sovereign tensions/uncertainties or the expectation of easier monetary policy? Recall the EUR held in OK last summer during the carnage and really was sold when the ECB decided to ease policy (rate cuts + LTROs).

On rates
This is from Barclays (Laurent Fransolet). Rates markets, especially peripheral bond markets, remain very sensitive to any news, without necessarily much flow to explain the moves. This illiquidity and elevated risk premium are not a temporary factor, though: volatility will likely remain elevated, especially in Spain

STRATEGY

MS (Asia Macro Team) Our Views Across Economics, Equities, Credit and FX
First time I stumble upon this piece. It contains some interesting information and charts. The key regional debates:
Economics: Will domestic demand re-accelerate to offset the weakness in external demand? Answer: China is taking the right steps.
Equity Strategy: Can the equity market re-rate? Answer: yes, they see 27% upside.
Credit Strategy: Are credit spreads too tight now? Answer: Still constructive, but lowered their weights.
FX Strategy: Time to hedge AXJ downside? Yes…
And then some very relevant questions on each Asian country.

OTHER STUFF

3 Reasons Why You Should Expect France’s Wealthy Elite To Move To London – Business Insider http://read.bi/IXxEfY
Is The Pain Over For Bruno Iksil? | ZeroHedge http://bit.ly/JfResK

EUROPEAN EQUITIES

FINANCIALS
– BANCO POPOLARE
1Q net loss EU109m; Core Tier 1 ratio 7.4%
– Greek financial institutions are becoming anxious about their prospects as Greeks pull out cash after the inconclusive May 6 elections, says Bloomberg; depositors withdrew €700 million from local banks on Monday alone, according to the national bank of Greece, reports the WSJ
Some of Europe’s top banks are looking at how to foil the dominance of the three big credit agencies, with a private meeting of finance directors from up to 20 big institutions being held in Frankfurt, according to Bloomberg

INDUSTRIAL/MINERS/SERVICES
– BOUYGUES 1Q sales EU6.69b; 1Q oper. income EU153m; 1Q net EU34m
– ERAMET
says that 1Q operating income will be below that of 2Q 2011 due to exceptional items which have penalised manganese production in Gabon
– Xstrata risks missing a 2016 target to begin extracting about $60 billion of minerals from its project in the Philippines because of opposition from the Catholic Church
– BHP BILLITON says that he expects commodity markets to cool further and that investors had lost confidence in the longer-term health of the global economy, according to Reuters
– Volkswagen’s US CEO says that he sees the pace of US auto industry sales accelerating in May from April
– IAG’s British Airways says that it is upgrading its in-flight service following feedback from 400 passengers
– Lufthansa is interested in buying Portugal’s Transportes Aéreos Portugueses who has strong ties to the fast-growing Latin American market

UTILITIES/OIL/HEALTHCARE/CHEMICALS
– A $80 million national research plan to attack Alzheimer’s will start this year seeking to find new treatments by 2025
– PFIZER
, ASTRAZENECA and SANOFI have shown takeover interest in Amylin Pharmaceuticals, signing confidentiality agreements on the drug maker’s sale process
– EDF’s head has rejected predictions that François Hollande could force it the end its big investment in new nuclear reactors in the UK

RETAIL/CONSUMER/LUXURY
RICHEMONT: Very good numbers this morngin. April sales up 20%. May be interested in Avon…
– The UK needs to impose a ‘fat tax’ of at least 20% on unhealthy foods to have any significant impact on rising levels of obesity, says a report published by the British Medical Journal
– TESCO is to cut the bonuses of their top 5,000 managers, including executive directors, after poor results

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s