Equity markets – Asia was mostly lower in overnight trading…the UK is on another long weekend given the wedding (back in on Tuesday) but the rest of Europe is open for trading and indices are currently off of their lows from earlier in the session…domestic futures currently indicate a slightly lower opening.
Economic Release – this morning we’ll get Employment cost index data from the first quarter (expected to be up ½% vs. 0.4% from last quarter)…we’ll also get personal income and spending numbers from March (+0.4% and +0.5% respectively)…higher spending levels likely indicate US consumers going back on the credit card which would back up data that we’ve seen from the banks…we’ll also get additional pricing data from person consumption expenditures along with the purchasing managers indices from Chicago and Milwaukee (expectations here are for lower readings than last month as we got a boost coming out of the worst of the winter in the March numbers).
Earnings – today we’ll get earnings from 3.8% of the S&P 500…so far, 4 of the 19 companies have reported and 3 have exceeded earnings expectations in a continuation of what we’ve come to expect this earnings season
• The EU is investigating whether or not investment banks (notably Goldman and JPMorgan) colluded on pricing in the credit default swap (CDS) market…these antitrust investigations have to be considered skeptically given the EU’s history of whining about speculators driving up the cost of debt for sovereign countries (of course these countries in the end had to seek bailouts)…the big problem with the CDS market (and naturally Dodd/Frank didn’t really address the real problem) is that this is an OTC market…clear everything through CBOT for example and you instantly fix what in many cases worsened the financial crisis situation, namely over-margined counterparties who couldn’t survive a credit downgrade (i.e. reality). Oh well, the more things change…
• The US dollar’s slide continues as monetary stimulus remains in play in the US through the end of the 2nd quarter and there appears to be sufficient stability in the global economy to restrain “safe haven” demand for dollars. There are some signs that global growth could slow as South Korean output climbed at its slowest rate in 6 months and inflation in Europe is beginning to weigh on consumer and business confidence. Until there is some resolution on the debt ceiling/budget deficit question in the US we likely will see little improvement in the dollar without an exogenous event to drive safe haven demand once again. This continues to argue for an overweight allocation to commodities, including precious metals for the time being.
• The Chinese currency reached its highest trading level against the USD in 18 years as the country fights inflation with expectations of additional interest rate hikes to come…
• Having satisfied much of their need for refinancing debt in Q1, companies appear to be pushing away from the debt table as funding for growth purposes appears to be waiting for additional clarity on the overall economic growth situation.
• Spain is attempting to shrink the largest black market economy on the continent in order to raise tax revenue and improve their reported unemployment rate…the plan as it exists is to offer an incentive to employers who have employees working “off the books” before tougher sanctions are imposed in three months. It is widely estimated that the Spanish black/gray market amounts to roughly ¼ of the total GDP of the country.
• True Finn Party, fresh from their stunning election result in Finland appears ready to negotiate after creating a scare that they would block the bailout of Portugal…looks like they want to extract some pledge for additional jobs to Finland in exchange for them going along with the bailout and the formulation of the new ESM future bailout facility…such action, if successful, will create a template for opposition parties throughout the EU.
• MENA – Egypt appears set to break their current deal with Israel to block the Gaza crossing and will now allow border crossings back and forth. This could allow for additional transportation of weapons into Hamas controlled regions but the ordnance has clearly been getting through anyway and the unpopular policy was one of the reasons cited for Mubarak’s overthrow (in other words it’s politically expedient…in other news from the region, the fighting over a key border crossing into Tunisia (Wazin) continues in Libya. The opposition forces currently claim control of Wazin which provides an escape route for refugees into Tunisia. Syrian authorities tell citizens to stay home following calls by the opposition to rally against the Al Assad government…
Phillip Pennell, CFA
Turnberry Capital Management
(203) 861-2708 (Direct)
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