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Some very strange (and some would say suspicious) price action yesterday saw the S&P 500 and the Dow Jones spike sharply to close flat, having been under water to the tune of 130+ points earlier in the session.

Despite sluggish sales from McDonalds and news that Apple was cutting the price of its iPhones, traders cited “programme buying” from JP Morgan and UBS for the late rally. After the bell, Texas Instruments increased its 2nd quarter forecasts while self appointed Mr Know ALL Nobel prize winner (and boy has it gone to his head) Paul Krugman opined that the Great Recession will end for the U.S. by September.

Spike In S&P 500 Futures

Today’s Market Moving Stories

  • U.K. RICS house price balance improved 15.8pts to 18 month high of -44.1 (consensus: -52.0) as the U.K. housing market is showing signs of “stabilising”. The number of houses sold also increased for a second month from 10.6 to 11.8, and the number of houses on books declined from 69.4 to 58.4.
  • On the other side of the coin, U.K. BRC same store retail sales fell 0.8% yoy in May, a step back from the sharp 4.6% yoy Easter-related rise in April, and down from a relatively strong May a year earlier.
  • The IMF overnight published its Outlook on Europe. It fears that lack of action in dealing with Eurozone banks could hamper the recovery. It again made a plea for full bank disclosure (and indeed the IMF could more fully disclose its own data and reports… if it were allowed to). Meanwhile the Buba’s Weber, and Mr Stark, had headlines saying the ECB could raise rates quickly if the recovery were to take hold. Yet the more important content of what they said has a different slant…. Weber sees a very slow recovery despite the increasing evidence of a decelerating downturn. Last weekend, the IMF published an instructive note on how a government can go about restructuring its banking system. The IMF now provides a framework for judging the efficiency of sovereign actions. It is imperative that the cost to the taxpayer be reduced, if sovereigns are not to be caught in another maelstrom in 2010-2011.
  • Free His Royal Orangeness Angelo MozilloThe news that S&P downgraded Ireland to AA and more aggressively left it on negative outlook has left the shark-like markets wondering who is next. The Guardian carries a story today that the U.K. and Australia may be next in line to lose their AAA status.
  • From the U.S., the Treasury is set to give approval to ten large US banks to repay at least $50bn in TARP money. So now they can go back to the proper business of banking without the administration looking over their shoulder i.e. paying themselves huge bonuses for dreaming up the bubble to come.
  • And the Supreme Court halted Chrysler’s sale to Fiat, stoking renewed bankruptcy concern.
  • It's T-shirt Tuesday, so Free His Royal Orangeness Angelo Mozillo.

The Latest On Prime Minister Brown’s Departure
In other U.K. news PM Brown curbed rebellion and will stay at the helm of the Labour Party after a closed door meeting with party officials last night. But the FT reports that Labour Party rebels still hope to oust Mr Brown by the autumn, which would jeopardise the Lisbon Treaty. The Independent newspaper has a poll to suggest that Alan Johnson, the popular home secretary and a potential Labour successor to Mr Brown, would be able to deny the Conservatives an overall majority, while Mr Brown might destroy the Labour party if he continues to cling to power. FT Deutschland has an article saying that EU politicians are genuinely concerned about the situation in Britain, and quotes the SPD’s European spokesman as saying that the decision to call a referendum on the Lisbon Treaty would invariably lead to that country’s exit.

Philip Stephens says there is a possibility that Cameron might get in this year, in which case he will hold a referendum on the Lisbon Treaty, which the U.K. electorate is almost certain to reject. This would produce a huge crisis in the EU, and might even trigger the beginning of the end of the U.K.’s membership. In his column he concludes that even Cameron might not want to go that far, and might prefer to be elected after the Lisbon Treaty takes effect.

What U.S. Data To Watch Out For
San Francisco Fed economists have issued another dire forecast on the U.S., suggesting that the jobless rate could reach a peak of 11%, which could then lead onto a jobless recovery. It said the problem is that there haven’t been significant losses of temporary workers, while large numbers of permanent staff have been downgraded to part time work. In other words, the U.S. economy will go through the recovery phase by simply working part-timers more, rather than by taking on net new staff. The San Fran Fed said that would recreate the conditions of 1992, which saw a similar jobless recovery. Looking ahead then, the key stat is going to be the length of the work week in the Nonfarm Payrolls data to gauge where the recovery is.

The Recovery In World Trade Takes A Hit
Korea is the first country to report trade data, which makes a useful but imperfect guide for world trade, as Korea is among the world’s largest exporters. After a recovery in April, exports fell again in May, though not much, though the year-on-year decline is 28%. Taiwan did not do as well as in April, and a slight improvement in May, but yoy it’s still down 31%. These figures suggest that the speed of the decline has slowed down, but they’re disappointing. Earlier this morning fresh figures from Europe’s uber exporter Germany confirmed this worrisome trend with data showing a further plunge of 4.8% in exports and an even larger fall in imports (-5.8%). Those greenshoots may need some more manure by the looks of things.

Equities Today

  • European tech stocks Infineon, CSR and ASML may benefit from the late cheer that Texas Instruments brought after the bell last night.
  • Blackrock are reported to be on the verge of paying $13 billion (in cash and shares) for the bank’s fund business BGI, a 40% premium. The sale could boost Barclays core tier 1 by as much as 1% to 8% and stave off any talk of further government capital injections. The sale of the asset management division would make Barclays earnings more reliant on its investment banking arm and result in a more volatile earnings picture, but this is the trade off management are willing to make to stop any further government investment in the group.
  • Luxury car maker Porsche may get a lift from news that they are mooted to be selling a 25% stake to Qatar.
  • Dairy king Danone is up on an upgrade from Morgan Stanley to overweight.
  • Some talk that AIB may be trying to offload its 70% stake in Zachodni Polish unit to local bank PKO (which is 51% state owned) for €1 – 1.5 billion.

And Finally… Some Career Advice

Disclosures = None

Source: Preview from Europe: A Jobless Recovery?