Archive - Jun 3, 2010

Headlines from Reuters. Kim, unlike Donny, is not a pacifist it seems.

Update 2: think tank report making rounds saying SNB cannot keep intervening in CHF.

Update: fresh round of euro weakness due to rumor that the ECB will recommend further unlimited Long-Term Refinancing Operations (liquidity providing) in a major dovish reversal. This is very EUR negative as is just more fuel for the currency debasement game.

Just as the EUR decoupled from risky assets two days ago, with the broader market dropping far more than the EURJPY pair suggested it should, so the opposite is occuring currently. The far too obvious trade, which in this market is apparently the right one, is the buy the EURJPY and sell stocks.

The WSJ issues an amusing hit piece on why gold is nothing but a "Ponzi Scheme", ignoring the fact that by its definition the stock market is precisely the very same. Either way, since we are seeing no let up in the currency debasement department of Central Banks, and gold continuing to trade near record highs, it is a good thing to occasionally have a shake out of the weak hands. After all it will merely provide far better entry prices for countries like Russia, which as we disclosed recently, have been buying up all the IMF has to sell in the open market. At the end of the day - the opinion of Brett Arends or of David Einhorn, David Rosenberg, Jim Rickards, Eric Sprott, and, oh yeah, John Paulson.

If you are wondering where the latest bout of Euro weakness is coming from, look no further than long-forgotten Eastern Europe. From Bloomberg: "Hungary’s forint weakened against the
euro, erasing earlier gains after Napi.hu reported deputy
chairman of the ruling Fidesz party, Lajos Kosa, said that the
country has a “slim chance to avoid the Greek situation” and
that the new government’s primary objective is to avoid a
sovereign default." It is rather amazing how long Eastern Europe has managed to squeek through the cracks. Will Hungary be the first rerouting of the PIIGS crisis into this latest European market. This means that another under the radar player, Austria, is about to get whacked big.

BOTTOM LINE: ADP report weaker-than-expected, showing an increase of 55k in May. Initial claims fall while continuing claims rise from upward revised level. Productivity revised down a bit more than expected, but unit labor costs are still falling. - Goldman Sachs

The recent surge in stocks is setting up a classic “head and shoulders” top. Anything short of the 500,000 blockbuster number some analysts are expecting for Friday’s nonfarm payroll could tank the market. Is the Dow still overvalued by 3,000 points? Watch out when those low interest rates depart for nether regions. Reversion to the mean can be a bitch.

Moody's, as usual, needs someone to take the lead on any controversial call. As expected, nothing insightful contained in the report. "While recognising that BP is the largest operator and producer in the Gulf of Mexico, Moody's will also seek to ascertain how the spill may affect (1) BP's long-term business prospects in the US, particularly in the Gulf of Mexico; (2) future drilling and producing costs in the US and other deepwater provinces around the world; and (3) therefore also BP's business profile and future financial performance."

• As reported yesterday, the ECB liquidity crunch gets even worse: banks's overnight deposits with ECB increased to new record (Bloomberg)
• BP may sell Pruhoe Bay stake as spill costs mount (Bloomberg)
• Greek transport, media in 24 hour strike against austerity plan (Bloomberg)
• Aboard Marmara, skirmish turns deadly (WSJ)
• Confirming the Omen of May's flash crash (Minyanville)
• Jamie Gorelick to head BP legal team (Main Justice, h/t Josh)
• UK hits JPM with record GBP33.3 million fine (Telegraph)

JP Morgan's history of alleged fraud committed against their clients continues today when they were charged with commingling $8.6 billion of client assets with the firm's without their clients' knowledge for 7 years.

Today's activity will continue to be influenced by the "risk-on" crowd. Sell bonds, buy stocks, buy oil, sell gold, rinse repeat. But we see less and less people selling what they buy in the gold market. Sell side activity is more dominated by hot money liquidation than ever before. PIMCO's El Arian said their fund cut its gold holdings in half, citing the liquidation deflation drivers at play. That will not help today's activity either. We can only hope he is right. Our order underneath remains unfilled.

• Asian stocks rise, default risk falls on US home, car sales; Yen weakens.
• China warns US over a decision to slap duties on imports of Chinese steel gratings.
• China plans to subsidize purchases of energy-efficient vehicles to help cut emissions.
• Chinese tech stocks rise most on govt plans to increase investment in these industries.
• European stocks climbed, following positive sessions on Wall Street and in Asia.
• May sales at store open a year or more expected to rise 2-2.5% YoY - ICSC.
• ARM, IBM and allies announce plans for software venture.

The ADP May report missed expectations of a 70k increase in private payrolls, coming in at 55k. The number is also a 19k decline from a revised April number which was increased from to 32k to 65k. None of this worries those in the administration who keep leaking the 700,000+ NPF due out tomorrow, based on practically no new hires.

Value added from the rating agencies. We have to still see a CDS run on the name post the news, but it won't be tighter.

The Atlanta Fed's Dennis Lockhart had prepared remarks before the Atlanta Technical College, in which he said "I continue to support the current
stance of interest rate policy. But the time is approaching when it
will be appropriate to consider recalibrating interest rate policy. I
do not believe that time has yet arrived. The conditions that require a
change of policy are not yet at hand. However, as the economy continues
to improve and financial markets find firmer ground, extraordinarily
low policy rates will not be needed to promote recovery and will become
inconsistent with maintaining price stability. The implication is that the policy rate may have to begin to rise
even while unemployment is considerably higher than before the
recession." We don't believe it, but does it mean that with tomorrow's whisper 100 million in NFP additions on 200 million in birth/death and census, that someone will finally force the fed to put its fiat money where its corrupt mouth is? In the meantime, El-Erian's New Normal means tens of millions of previously happily employed people will likely never work in the US ever again.

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 03/06/10