Archive - Sep 3, 2013 - Story

Whether or not the Nokia-Microsoft deal makes any economic sense is up for analysts to argue but judging by the market's reaction to MSFT this morning, we'd say 'not' as the stocks is down almost 5% (devouring the entire Ballmer-bounce). However, Nokia is up a stunning 41% as investors seem not just relieved at the firm's dumping of the loss-making mobile business (always a greater fool?) for $7.2 billion; but concerned at the massive short-interest in the name. While the absolute number of shares short has dropped in recent weeks, it remains high at 11.9% of float (according to Markit); but in terms of days-to-cover it has never been higher and in fact will take around 15 days at average volume to unwind fund's massive short positions.

While we understand Europe's desperation to telegraph an improvement in its economy, driven by both GDP and such sentiment indicators as PMI data, very much as we saw in early 2011 before the carpet was pulled from beneath Europe and it promptly slid into a double dip, one thing that is unclear is why Europe continues to insist using Spain as the marginal indicator of improvement. After all, for every 50+ PMI print or "just barely positive" GDP there is a total (or youth) unemployment chart rising to fresh highs and confirming there is no consumption, and certainly no loan creation - the two driving forces of Keynesian economic growth. But while those two data dynamics are well-known to most, perhaps the true Ying and Yang indicators of Spain's economy are these two, somewhat less popular, charts.

It seems the hopes and dreams of a Japanese public (and their illustrious leaders) is being dashed on the same rocks as the US worker. Amid surging input prices (thanks to a devalued currency) with consumer prices rising at the fastest rate since 2008, Bloomberg notes that Japanese salaries extended the longest slide since 2010 squeezing the consumer as the failure of demand pull inflation becomes more than real. Despite a stock market that is surging and politicians the world over proclaiming Japan's victory, "companies aren't confident enough on the sustainability of the economic recovery," instead cutting salaries (in an oh-so-American manner) to manage higher input costs. With a sales-tax increase on its way, the consumer faces even more pressure, "if wages don't improve much, it may pose a political risk" to Abe's administration.

Yesterday we presented an amusing propaganda video clip remix of the Syrian S-300 Surface to Air missile. We found it hardly surprising, especially following today's news of a missile test launch by Israel, that there is a matching counterparty propaganda video showcasing Israel's Arro-3 missile interceptor from February of 2013.

More on this morning's unexpected joint Israel-US missile test launch. From Bloomberg:

• Israel missile defense organization, U.S. missile defense agency completed successful flight test of new version of the “sparrow target missile” today, Israeli Defense  Ministry says in e-mailed statement.
• Arrow weapon system’s radar successfully detected, tracked target; all elements performed according to configuration
• Main contractor of arrow weapon system is MLM of IAI, in conjunction with Boeing, according to statement
• ISRAEL DEFENSE MINISTER SAYS MISSILE TEST WAS SUCCESSFUL
• ISRAEL'S YA'ALON SAYS NEW DEFENSE TECHNOLOGIES MUST BE TESTED

• Mediterranean 'Ballistic Targets' Were Part of Israeli Test – Defense Ministry (RIA)
• Microsoft to Buy Nokia’s Devices Unit for $7.2 Billion (BBG)
• Long-Term Jobless Left Out of Recovery (WSJ)
• Swiss banks apologize for assisting tax cheats (Reuters)
• As Obama pushes to punish Syria, lawmakers fear deep U.S. involvement (Reuters)
• India Looking to Expand Rupee-Payment System (WSJ)
• Citigroup Dialing Back Its 'Alternative' Holdings (WSJ)
• Libya Seeks New Solutions to Oil Crisis (WSJ)
• Lenovo Chief Yang Shares Bonus With Workers a Second Year (BBG)

The equity futures euphoria carryover from this weekend, buoyed by sentiment that the Syrian war is postponed if not cancelled, carried over into Tuesday morning despite news that Israel had launched a missile test, which looked at from almost any angle was an attempt at provoking a response from its adversaries. Also the Chinese boost driven by a solid beat in the country's two manufacturing PMIs persisted despite a drop in the August Non-manufacturing PMI reported last night. So once again we have returned to a state where good news is good news and bad news can be ignored. This, even with the Taper announcement just two weeks away. Of note also is that overnight Nokia shares surged 40% after Microsoft announced that it is to buy Nokia mobile business. In tandem, other EU based related names such as STM and Ericsson also gained ground, trading up 3% and 4.5% respectively. Nokia shares traded sharply higher today after Microsoft said it will pay €3.79bln to purchase substantially all of Nokia's devices & services business and will also pay €1.65bln to license Nokia's patents. A fitting farewell present from Steve Ballmer perhaps. Once again, keep an eye on Syria as the president begins his congressional consultations to take the escalation to the next level, with or without provocations from Israel.

Update from AFP: Mediterranean missile launches were US-Israel drill: Israel media

Moments ago Russian RIA news agency reported that Russia’s Defense Ministry said, citing its ballistic missile early warning system, that the launch of two "ballistic targets" has been detected in the Mediterranean,  "The launch was detected at 10:16 Moscow time (06:16 GMT) by a radar in the southern Russian city of Armavir, a Defense Ministry spokesman said. The targets’ trajectories ran from the central to the eastern Mediterranean, the spokesman said. A diplomatic source in the Syrian capital, Damascus, told RIA Novosti that the targets fell into the sea. The Russian Embassy in Damascus said it did not have any information about the launch, and the streets and residents of the Syrian capital appeared calm, a RIA Novosti correspondent reported. Russia's Defense Minister Sergei Shoigu reported the launch to President Vladimir Putin, the spokesman told Russian journalists. The Defense Ministry's press service was not immediately available for further comment."