Archive - Jul 12, 2010

Stocks are once again doing their own thing, detached not only from credit, but also from FX. The early ramps in stocks on little volume which is the HFT Monday morning pattern we have all grown to love and expect, saw no validation in either bond spreads or the carry trade. In fact, stocks have decoupled from the AUDJPY by as much as 8 points early on. As usual, there is nothing in the factual arena to validate this kind of move. Incidentally, there is now scientific evidence that validates the fact that HFTs distort markets. We will post on it shortly, although anyone who have been trading stocks over the past year is more than aware of this.

With the imminent launch of the Q2 earnings season, below is a summary of consensus for year-over-year top and bottom line performance. In summary, the outlook is for a 12% pick up in top line YoY (ex fins), and pretty much staying flat at that level of outperformance for the next 2 quarters, and for a 41% rise in EPS compared to Q2 of 2009 per Bloomberg consensus estimates. For those looking for further granularity, David Rosenberg presents a detailed break down sector by sector, and warns of the risks to betting it all on the earnings parade, even as analysts are once again at near all time record bullishness on stocks.As a reminder, the consensus view is for a 2010 absolute EPS of 82, and for a simply ridiculous all time record 96 in 2011, higher than the 88 seen all the all time high three years ago, when the economy had the benefit of a multi-trillion shadow credit system. Who knows, maybe the Fed can take over that full responsibility as well.

Gold gained some ground Friday, opening at 1198.5 and closing at 1209.8, its highest close of the week. The trend seems to be reversing this morning however, as it is down slightly this morning. Also, Part 3 of the Gold/ Comex Arb - The EFP and Pot-Odds

• Kan election loss may impede effort to cut debt (Bloomberg)
• Chinese Dagong credit rater gives China higher credit rating (AA+, stable) than US (AA, neg outlook) (BusinessWeek)
• Staring into the abyss (Economist)
• Bank profits depend on debt-writedown abomination (Bloomberg)
• Niall Ferguson: "A US debt crisis is on its way" (TechTicker)
• If BP asset purchase rumors are true, Apache is about to incur a whole lot of extra debt (Bloomberg, WSJ)
• Housing gets sick on Keynesian rollercoaster (Bloomberg)

The overt-optimism in deficit forecasting and the wishful extrapolation of growing GDP may score a few points with voters in the near term, but you tend to pay for it in spades in the end. We gave explicit warnings concerning the optimism in the British forecasts, and those warnings have proven to be quite prescient.

Don't panic - the fact that capesize operators are on the verge of losing money on charters and facing bankruptcy is irrelevant: China just announced the biggest export balance with the US on record. And that very credible number must surely mean all is good, and trade by Pacific Ocean rail is surging. In the meantime, the BDIY dropped 3.3% to 1840 from 1902, a 32nd sequential decline and a the longest drop in 9 years.

• Australian home-loan approvals climbed in May, first gain in eight months
• Bank of Korea raises country's 2010 growth forecast to 5.9%.
• Big election losses could hinder Japan ruling party attempts to revive economy.
• China shares rise led by banks and property developers.
• Euro falls below $1.26 in morning European trading; pound also lower.
• Frankfurt airport passenger numbers up 7 percent on year in June, 1.4 percent in 1st half.
• French President Sarkozy to go on national television amid scandal involving L'Oreal cosmetics.
• Taiwan Central Bank seeks to curb housing speculation as prices surge 20%
• Oil falls to near $75 in Asia.
• Yen weakens against Euro on Japan elections; Asian exporter stocks advance.

Two more European auctions have closed at terms that show continued deterioration in sovereign demand conditions. Earlier, Italy auctioned off €7.5 billion in one year BOT (bills) at a yield of 1.399% and a 1.659 bid to cover. This compares to the precious auction that closed at 1.377% and a 2.359 BTC. Elsewhere, the German government had to retain 15%, or €807 million, of a €5 billion 6 month bubill issue to "sell" as much as had been hoped for. The issue came at a 1.9 bid to cover, excluding the government retention, compared to 2.2 previously, and had to double the yield on the issue from 0.1923% to 0.4226%. Of the €2.153 billion in non-competitive bids were obviously accepted 100%, it is the non-competitive ones that were problematic. It was the 5.765 of competitives that were an issue: just 2 billion of the competitive bids were found to be "acceptable" to the government, meaning €2.8 billion offered rates far too high to be accepted. Is the German curve starting to bear flatten as well?

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 12/07/10

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