Archive - Jul 23, 2010 - Story

Yesterdays’ activity was befuddling to say the least. Personally, I thought the 1200 strike would act as a magnet going into options expiration, but Wednesdays’ activity said the 1180 strike was going to be an issue. Yesterday turned out to be a total head fake. The market may in fact be beginning to price QE2 as every other market moved in tandem higher. Maybe Gold just got the message late. We are still sticking to our guns that the market is one that shows no reason to buy strength, but are aware that there may be some bigger picture buying beneath the market once again.

• More "fantastic beats" out of Europe: UK GDP for Q2 1.1% q/q 1.6% y/y –
  higher than expected, Germany IFO - Expectations for July 105.5 – 
  higher than expected; flip Risk On switch after bankrupt Cajas rumored to fall off clownmobile
• Jean Claude Trichet: Stimulate no more – it is now time for all to tighten (FT) - funny, because even as Europe tightens fiscally, it lets rip monetarily
• Bernanke offers no silver bullets, which means depressed yields and P/Es amid more dreary, deflation (Barrons)
• For those who care about the circus happening in Europe today, here is Reuters on Europe's "banking credibility" (Reuters)
• Bank Stress Test Success Hinges on Data, Not Failure Count (Bloomberg)
• Several Spanish savings banks fail stress test-El Pais (Reuters)
• Swiss aim to steal EU stress test thunder (FT)
• Beijing Considers Plan To Move Its Currency Further From Dollar (WSJ)
• North Korea threatens "physical response" to U.S. moves (Reuters)
• Japan Says Yen Climb May Hurt Economy, Increasing Policy-Intervention Risk (Bloomberg)
• Australian mining tax is far from settled (SMH)

From S&P: "Discussions with the IMF reportedly concluded July 17, 2010, without a subsequent donor package having been agreed. We understand that the IMF will return to reactivate discussions with the authorities in September 2010. In our view, the likelihood of a new program with the EU and IMF being agreed could be contingent on some amendments by the government of some aspects of specific policy measures such as the temporary financial institutions tax. We believe that without an EU/IMF program to anchor policy, Hungary is likely to face higher and more volatile funding costs, which in our view could weigh on financial sector balance sheets, the public finances, and economic growth."

• Euro weakens versus Dollar, Yen on speculation tests to reveal loan losses.
• 3M net income climbs 43%; raises 2010 EPS view to $5.65-5.80 (prev $5.40-5.60).
• Adidas posts 2Q results 'significantly above' market expectations.
• Akzo Nobel says net profit rose 76% in 2Q thanks to sales growth.
• Amazon's Q2 earnings rose 45% to $207M on a 41% increase in sales of $6.57B.
• AmEx's Q2 profit rose to more than $1B from $337M, and Capital One's increased to $608M from $223M.
• AT&T's Q2 net income jumps 25% to $4.0B; adds 1.6 million wireless accounts.

A New Normal world is likely to
be one with frequent flips between “risk on” and “risk off” days. With
so much profit and loss riding on tail events and so little profit and
loss tied to the cluster of outcomes near ex ante means,
repositioning will likely be more frequent. This is because many
investors lack conviction in their understanding of the true
distribution, so that each passing day provides an opportunity to learn
or unlearn how likely the relevant tail events are. Positioning
for mean reversion will be a less compelling investment theme in a world
where realized returns cluster nearer the tails and away from the
mean. James Carville said twenty years ago that he
wanted to be reincarnated as the bond market because the vigilantes had
so much clout over policymakers. But in the New Normal world, he might
wish to be reincarnated as the Asian equity markets because they are
where traders in Europe and the U.S. look to see if it is a “risk on” or
“risk off” day. With so much money chasing fewer assets with known
return distributions, and with reliable investment rules of thumb
scarce, frequent flips between “risk on” and “risk off” days will likely
be a continuing symptom of the Knightian uncertainty that still, to
some extent, hangs over global financial markets.

- Richard Clarida, Pimco

RANsquawk European Morning Briefing - Stocks, Bonds, FX -- 23/07/10 (Stress Test Special)

RANsquawk European Morning Briefing - Stocks, Bonds, FX etc. – 23/07/10 (Bank Stress Test Special)