Like a testosterone-fuelled Pamplonean bull, stocks lead by financials charged higher (in very low volume) on the back of the Lara Croft of banking analysts Meredith Whitney’s comments. She changed her mind, saying she’s now bullish in the short run that banks can gain another 15% on the back of account sleights of hand and helpful legislative changes. She recommended buying Goldman Sachs (GS), whose “results” are due today (shame she missed the first 200% of the price move) and even said BoA (BAC) is worth a look (the stock soared 9%). But she remains bearish on equities in the longer run saying that unemployment will reach 13%. The consensus forecast for Goldman’s numbers due at 13.30 today (all times UK) is $3.63. Dow components J&J (JNJ) and Intel (INTC) also report Tuesday. As I said the major caveat to yesterday's move is the anemic volume and note the fact that railway shipments are still down (CSX reported after the bell last night).
Today’s Market Moving Stories
- Singapore GDP rose an annualised 20.4% in the three months to the end of June following four consecutive quarters of contraction. The increase far exceeded the consensus forecast for a 14.1% rise. However, the government cautions that there is “no evidence yet of decisive improvement” in external demand.
- Asian trading markets have been supported overnight by better than expected Q2 GDP in Singapore and an improved earnings outlook from POSCO. This helped resource stocks in particular, with Rio Tinto (RTP) and BHP Billiton (BHP) both higher.
- A survey by Reuters shows that half of large Japanese firms want the BOJ to extend its unconventional measures aimed at easing corporate funding strains when they expire in September. “Banks are very cautious about lending money so we’re worried that funding conditions may worsen further for regional firms” a company in the retail sector said in the survey.
- The US Department of Justice is going to investigate the credit default swap (CDS) market according to Markit Group, one of the biggest providers of data. They are investigating if the owners of Markit, some of Wall Street’s biggest firms, received advantageous information about prices. It’s long been my contention that an unregulated Credit Default Swap market has worsened the financial crisis particularly for Irish government bonds and share prices over the last 2 years.
- In the UK BOE deputy governor, Charles Bean tells the Yorkshire Post newspaper: “The one thing that I would like to stress is that we don’t have to keep on making purchases for quantitative easing to have an effect. It is the total stock of purchases that matters”. He added: “… equally, we won’t want to leave it too long because it may let the inflationary cat out of the bag which would require us to tighten policy excessively thereafter … It’s most plausible to think that the first thing we will do is raise Bank rate and then sell the assets back over an appropriate timescale in light of market circumstances”.
- The BRC said like-for-like sales rose 1.4% y/y in June, more than reversing an 0.8% drop in May. Total sales were up 3.2% on the year, having risen 0.8% in May. BRC Director General Stephen Robertson said: “The heat wave helped food retailers and got customers buying outdoor goods … Given the uncertainty about jobs, customers are still nervous about spending on more expensive non-essentials”.
- The Royal Institution of Chartered Surveyors’ house price balance rose to -18.1 in the three months to June, its best reading since September 2007, from -43.8 in May. The consensus forecast had anticipated a much more modest improvement to -40.0. New buyer inquiries increased for an eighth consecutive month and at their fastest rate since the survey began in 1999.
- The FT has the story that the market for sovereign CDS, in which investors can protect their sovereign bonds against default (or speculate on sovereign default) has risen five-fold since the collapse of Lehman Brothers in September. The rise in this asset class underlines that investors no longer believe in the notion of a risk-free asset, as some are even speculating on the default of US and UK government bonds. The article also says that providers are launching new indexes, through which, for example, you can protect against (or more likely speculate on), the default of euro area sovereign bonds.
- Writing in FT, Mr Black Swan Nassim Taleb and Marc Spitznagel argue that the only way for the world to get out of this crisis is to swap debt for equity. They warn not to repeat the mistakes of the past, through excessively loose monetary and credit policies, and over-reliance on financial models that do not work. They say excessive debt causes financial fragility, while equity is robust. This is also why the bursting of the dotcom bubble had comparatively mild macroeconomic effects.
- This morning in Europe, banking stocks are likely to be bid on the big moves in financials across the pond late yesterday with Deutsche Bank (DB), KBC, Barclays (BCS) and Credit Suisse (CS) thought to be worth watching. BMW may also gain on a report that it's going to increase production in the next 6 months suggesting the car market may be about to turn a corner. J P Morgan has just upgraded Unilever (UL) to overweight.
- To the downside, STMicroelectronics (STM) and Infineon (IFX) may be under some pressure after Dell (DELL) said profitability may suffer in Q3 due to higher costs. Also, Vodafone (VOD) has been downgraded to neutral by UBS.
- Irish food stock Glanbia (OTC:GLAPF) this morning issued its pre-close trading statement and re-iterated guidance of between 30 and 32 cents adjusted EPS for 2009. Management expect the H1 performance to be broadly in line with expectations.
- And more good news for Irish drugmaker Elan (ELN), who yesterday announced phase 1 data of ELND005, demonstrating that the drug achieves desired concentrations in human brain tissue and cerebrospinal fluid when given orally. ELND005 is an orally administered drug candidate for phase 2 trials for the treatment of mild to moderate Alzheimer’s disease, which is being developed in conjunction with Transition Therapeutics. The findings also showed ELND005 to be associated with the preservation of choline acetyltransferase (ChAT), or the nerve cells that are critical to memory function in the brain.
- Readymix (RMX) announced this morning that it expects a H1 loss before tax of approximately €6.9 million. Revenues have declined by 44% versus the same period last year. The group has continued to cut costs as a result of deteriorating market conditions and employee numbers have been reduced by 10% since the beginning of 2009. The group expects the difficult conditions to continue for the remainder of the year in all of its product lines.
- The ever-important German ZEW Survey for July is released at 10:00. The expectations index is expected to rise by 5 points to 49 in July. The current condition index might tick up by 2 points to -87.7.
- The May data for the Euro Area Industrial Production is released at 10:00 too. Aggregation of the May industrial production readings for some of the main euro area countries (already released) points to a rise of 2.2% m/m.
- US Retail and Food Service Sales is released at 13:30. The more bullish are looking for a second straight solid gain in headline retail sales in June. The rise is, however, likely to be driven by a price-related increase in gasoline station receipts. Headline retail sales is forecast to rise by 0.7% (market consensus at +0.4%).
- Few more numbers from the US this afternoon too. US PPI for June is released at 13:30, with the headline figure may have increased by 1.2% as energy prices could have jumped by 6%, due largely to a 16% surge in gasoline prices (adding 1% to the headline figure). Core index is forecast to have increased by 0.1% last month, but I would not be surprised to see a flat reading.
- US Manufacturing and Trade Inventories, is released later, at 15:00. A decline in retail stockpiles of 1.6% would translate into a drop in total business inventories in May of 1.0%.
I can see a few of the Shamrock Rovers lads practising this just in case Ronaldo is defending a throw in next Monday in Tallaght.
And just in case you’re feeling all bulled-up, consider this.