Bank of America

All you need to read.

After his ignominious departure from Bank of America in September of 2011, many were wondering if everyone's favorite permabull was lost to the world forever (speaking of, where is Jim Caron these days?). Rejoice, for we come bearing great news: last night Deutsche Bank's latest addition, who in conjunction with Joe LaVorgna and Binki Chadha, has formed the terrifying "Trinity of of Perma Bull" issued his first report. And dare we say it, Bianco appears to be almost.... bearish? "We expect a 5-10% dip this summer..." Unpossible: what have you done to the Bianco and his tender 18,000 Hz overtones we all love so dearly. Oh wait, there is a second half to the sentence: "...but a dip that most likely should be bought." Ah, that's more like it.

Today the ECB is expected to do absolutely nothing, although many have their hopes up that at the post announcement press conference Mario Draghi may possibly hint at some more easing (with what collateral we wonder, and with what Germany) to bring some spring into the step of a continent that has milked $1.3 trillion in 3 year repo/discount window borrowings for all their worth and then some. And instead if the ECB cuts its rate below the psychological barrier of 1% today, or at any time over the next several months, it will make Hugh Hendry once again that much richer. Recall as of November: "He’s made bets that he says will deliver a 40-to-1 return if the ECB cuts rates below 1% next year." Below is a full rundown of what to expect, and not to expected, from the former Goldmanite, now head of the central bank for the world's biggest economic region.

European equities are trading higher at the midway point, with modest risk appetite observed ahead of the ECB rate decision and subsequent press conference. A large volume of corporate earnings has helped European stocks from the open, with the large cap names such as SocGen and BMW posting a strong set of results. A smooth set of auctions from both Spain and France have helped tighten the European government 10-yr bond yield spreads against Germany. The French results saw a reduction in borrowing costs and solid demand across all lines, with the Spanish auction selling to the top of the indicative range, albeit with an increase in yields. Elsewhere, Services PMI data from the UK has disappointed to the downside, however the figure still indicates growth in the services sector with the figure coming in at 53.3. A breakdown in the data has shown that clients do remain cautious, but optimism is on an upward trend. Looking ahead in the session, market focus will be on Barcelona as ECB’s Draghi prepares for his press conference at 1330BST/0730CDT.

When we last discussed what now appears certain to be a TBAC announcement tomorrow that Floating Rate Treasurys are about to be launched by the US during the Treasury, we cautioned, using an analysis by the IMF's Singh, that "the US Treasury may be telegraphing to the world that it, or far more importantly, the TBAC, is quietly preparing for a surge in interest rates." We then continued that "What is also obvious is that if the TBAC is quietly shifting the market into preparation mode for "a steady (or rocky) rise in rates from near zero to a "neutral" fed funds rate of 400 bps and a "normal" 5 percent yield on 2 year U.S. Treasuries" as the IMF warns, then all hell is about to break loose in stocks, as by now everyone is aware that without the Fed liquidity, and not just liquidity, but "flow" or constant injection of liquidity, as opposed to merely "stock", VIX will explode, equities will implode, and all hell would break loose. It is not yet certain if the TBAC will proceed with implementing FRNs. Although, since the proposal came from the TBAC, read Goldman and JPM, and what Goldman and JPM want, they get, it is almost certain that in about a month, concurrent with the next quarterly refunding, America will slowly but surely proceed with adopting Floaters." Judging by the amount of press coverage this topic has received in the past week, the advent of FRNs is now a given. What is unclear is why: our take is that this is simply a move to make Treasurys more palatable to investors, simply to avoid capital losses when rates finally resume their inevitable surge higher. The flipside of course, is that the guaranteed coupon payments in a rising rate environment means that more cash will leave the Treasury to cover interest. It is this corollary to increasing demand that has made the "father" of Treasury floaters warn on Bloomberg that now is the worst possible time to being sales of FRN Treasurys.

Looking at your screens and seeing nothing but black? Don't worry, your internet feed did not get cut - it is just that virtually everyone else in the world is taking today off (although judging by recent volumes one could be forgiven to assume that it is "just another day"). Which is not to say that nothing is happening, with a surprising bigger than expected rate cut (50 bps to 3.75%) by the RBA crushing AUD longs overnight, and a Manufacturing ISM on deck which is far shakier now than it was before yesterday's major PMI miss. Compounding the concerns was a UK PMI print just barely above contraction territory at 50.5, below expectations of 51.5, down from 52.1. Finally, expect another record bout of GM channel stuffing which continues to be the only "shining" aspect of the now inflecting US recovery. To summarize with DB's Jim Reid: "Ahead of an important day, it has been a fairly quiet session for markets overnight. Most Asian markets (include Hong Kong, Singapore, Shanghai, and South Korea) are closed for Labour Day. Indeed much of Europe will be closed today. In terms of what's open overnight, the Nikkei is -1.2% but the ASX 200 is up +0.9%. China’s official PMI manufacturing inched a little higher in April to 53.3 from 53.1 in March but slightly below market consensus (53.6). For such a huge economy the Chinese official PMI series does seem to have been remarkably smooth of late as the reading has been gradually on the rise since hitting a recent low of 49.0 in November (50.3 in Dec, 50.5 in Jan, 51.0 in Feb, 53.1 in Mar, 53.3 in April). As we go to print the Reserve Bank of Australia has unexpectedly cut its key benchmark rate by 50bps to 3.75%. Indeed only 2 out of 29 economists polled by Bloomberg saw this coming. The market reacted aggressively post the announcement taking the front end bills 15-18bp lower in yields."

To give you an idea of how bad things are with the cajas, consider that in February 2011 the Spanish Government implemented legislation demanding all Spanish banks have equity equal to 8% of their “risk-weighted assets.” Those banks that failed to meet this requirement had to either merge with larger banks or face partial nationalization. The deadline for meeting this capital request was September 2011. Between February 2011 and September 2011, the number of cajas has in Spain has dropped from 45 to 17.

Relative to their positively exuberant +2.7% GDP growth expectation, Goldman opines on the below consensus print for today's Real GDP growth. The composition of growth was seen as weak, with a larger add from inventories and less momentum in domestic final sales than they had expected. There is a silver-lining though as they suggest the weakness in national defense spending that explained part of the miss will possibly reverse next quarter (or not we hesitate to add). BofA adds that the strength in consumer spending and contribution from motor vehicle output look unlikely to repeat in future quarters. Auto production added more than a percentage point to growth. At least half of that is due to the recovery from Japan supply chains and is not sustainable. Outside of autos, GDP growth would have been just 1.1% - thank goodness for all that channel-stuffing.

Overall, EverBank is showing good current performance, but some of the asset quality factors and trends that I see are of concern for the future.

• Fed Holds Rates Steady, But Outlooks Shift (Hilsenrath)
• Has Obama Stacked the Fed? Not Really (Hilsenrath)
• High Court Skeptical of Obama’s Use of Power as Campaign Starts (Bloomberg)
• Europe Seen Adding Growth Terms to Budget Rules as Focus Shifts (Bloomberg)
• China Reaches Out to Its Adversaries Over Rare Earths (WSJ)
• Iran Says It May Halt Nuclear Program Over Sanctions (Bloomberg)
• Europe Shifts Crisis Focus to Growth as Merkel Backs Draghi Call (Bloomberg)
• Merkel Wants Rules for Raw Material Derivative Trade (Reuters)
• Evercore Profit Falls 62% as Investment Banking Expenses Rise (Bloomberg)

They may have a little more difficulty getting this now public record "purged" from the internets...

All you need to read.

European equities are seen making modest gains at the midpoint of the European session; however underperformance is observed in the FTSE 100, with the UK economy falling back into a technical recession with an advanced Q1 GDP reading of -0.2%. Data from the ONS has shown that the UK’s weak construction sector weighed down upon the relative strength in services and manufacturing, pushing the economy into contraction during the first three months of the year. Following the UK GDP release, GBP/USD spiked lower by around 40 pips and the Gilt moved around 30 ticks higher, with GBP remaining weak as the US comes to market. Elsewhere, the Bundesbank held a technically uncovered 30-yr Bund auction, with the German Debt Agency commenting that the results reflect volatile and uncertain market conditions. Following the results, the Bund printed session lows and remains in negative territory. Looking ahead in the session, participants look forward to the FOMC rate decision, and the Fed’s projections release.

"Please advise us regarding a reliable procedure whereby the appropriate foreclosing party can be situated in the matter such that we can proceed to judgment of sale"

It' quiet out there... Too quiet, as everyone is awaiting the most important earning number of the quarter - that of Apple. Everything else is secondary. Here is how the secondary data is driving the market so far in the trading session.