Markets to open down on Bernanke’s comments stating the Fed is still in “Wait and See” approach and the news that strikes in Greece on the 16th and 17th of June may hurt the elections. Fitch downgraded Spain to BBB and Rajoy is looking for a solution to finance the Banks. Macro eyes on the Greek Q1 GDP, German trade balance for April, UK PPI and US trade balance.
With the surprising Chinese rate cuts, the investors focus could help commodities and EM equities. It also signals that the Chinese economic data for May is still weak.
On the Markets
Stocks spent most of the day in the green but saw a mild sell-off during the last ~60 min of the day and finished essentially unchanged (Bernanke’s less-dovish-than-expected tone set the tone for the day). There were several moving pieces and market drivers but most of them occurred before 10amET (China rate cut, Bernanke testimony) and the bulk of the day was very quiet, slow, and largely sideways (other than the last hour). Sentiment is more confused than outright positive or negative for the near-term – people still seem cautious on the broader macro backdrop (b/c of policy paralysis and slowing growth) but there is an intense fear of upside “headline” risk.
DXY finished near its lows of the day (dn. ~0.25%). Gold ended the day near its lows of the session (down ~2% at $1,591.10) following the sell-off on Bernanke’s comments which were not as dovish as expected.
On the Fed
– Characterized current growth as “moderate”—consistent with Vice Chair Yellen’s remarks last night as well as the FOMC’s latest post-meeting statement—and noted “significant downside risks to the outlook”.
– Unlike recent comments from Vice Chair Yellen and New York Fed President Dudley, Chairman Bernanke’s comments did not include a list of possible easing options.
– Labor Data: Bernanke said that some of the slowing “may have been exaggerated by issues related to seasonal adjustment and the unusually warm weather this past winter”.
– Any policy action/signal might come at June 20 FOMC (At the very earliest and depending on market stress) but more likely in July (next ECB meeting July 5).
“Wait-and-see” mode ahead of the “big 4” June catalysts: 1) Greece elections June 17; 2) FOMC meeting June 20; 3) EU Leaders Summit June 28-29; 4) Spain – slew of catalysts coming up, no formal dates for all of them (IMF assessment, bank audit, bank aid package, etc).
Europe’s Banking Union ‘Non-Solution’ | ZeroHedge http://bit.ly/KSN7Bu (3 minutes video).
Europe’s banks: Slouching towards a banking union | The Economist http://econ.st/LcIUp9
Hollande’s first step is a faux pas – FT.com http://on.ft.com/LhBCCq
GS (Wilson) Global Markets Views
Squeezed by Policy
Interesting comment in the first paragraph… the “market focus in June may shift from the data damage towards policy repsonses in both the US and Europe – a process that has already begun over the last couple of days.”
GS (Garzarelli) Global Markets Daily: Euro ‘Vision’
ECB’s Draghi reiterates his call for a policy ‘vision’ of the Euro area’s future.
Concrete policy steps are unlikely any time soon along key dimensions.
But a broader political consensus could nonetheless reduce EMU ‘break-up’ risk.
Front-dated peripheral spreads should tighten, long-term German debt sell off more.
We would view an EFSF loan to Spain to support bank recapitalization as a positive.
US and Australian bonds continue to rank as very expensive on our metrics.
MS (Antonucci) European Football and the Financial Crisis
Spain in the Spotlight
MS hopes it will be Spain that will win. ABN has a piece out too hoping France will win and not a non European country. More seriously, this very short piece focuses on the different European solutions for a banking recap directly by the EFSF or the ESM or to the FROB which is just a transfer from private sector leverage to public sector leverage.
The piece also looks at the short term negative factors:
1. deepening recession (gdp contraction)
2. further fall in house prices (an extra 25%)
3. more indebted than you think
and some long term positive factors:
1. improved institutional framework
2. structural reforms and political stability
3. export potential
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– Vopak Initiated at Overweight at Morgan Stanley; PT EU60
– Saint-Gobain Significantly Undervalued Longer Term, Jefferies; Reiterates buy, PT EU50
– Sandvik Set as Top Pick in EU Capital Goods Sector at Bernstein
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– Vertex says Kalydeco showed lung function improvement
– Veolia Environnement Initiated at Overweight at Barclays; PT EU12.5
– Suez Environnement Initiated at Equalweight at Barclays; PT EU10
– Novozymes Cut To Neutral From Buy at Goldman Sachs
– Chr Hansen Cut To Neutral From Buy at Goldman Sachs
– Alcatel has lost market share in Europe
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– Havas Cut to Equalweight from Overweight at Barclays
– Ziggo Initiating at Outperform at Exane; PT at EU29
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– Diageo buys Cabin Fever Maple Flavored Whisky
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– H&M Cut to Sell vs Hold at SocGen, PT SK197
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– Faiveley Transport FY Net EU47.4m vs est. EU57m; FY rev. EU900.5m vs est. EU900.7m.
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– LOGITECH sees restructuring charges of about $35m to cut annual operating costs of about $80m
– Zehnder will replace its deputy chairman group executive committee in H2 2014 with Berchtold