Futures flat this morning on a relatively quiet weekend, despite the G20 meeting, which yielded largely expected results: countries agreed to cut deficits by at least 50% by 2013 and to stabilize debt-to-output ratios by 2016. Regarding new capital rules for banks, they will be phased in by 2012 and more details were deferred to the November G20 meeting in
. For the moment, however, the global bank tax looks to have completely lost momentum. Given the light news and the un-official U.S. vacation season (book-ended around July 4th), investors are looking ahead to this Friday’s jobs number, mid-July European bond offerings and bank stress-test results, and Q2 earnings (July 12th after the bell: AA) for clues as to how the market will break out of its current S&P 1050 to S&P 1110 trading range. In economic news this morning, Personal Spending for May rose slightly more than expected, at +0.2% vs. +0.1%/e. Personal Income for May was slightly lower, at +0.4% vs. +0.5%/e. South Korea
Regarding the G20, in broad terms, Obama seems to have lost another battle of sorts, pushing for more global stimulus rather than increased austerity. Of course, one wonders if the chatter about the need for stimulus (RBS is also out with a call this morning on Helicopter Ben dumping more newly printed dollars on the global economy sooner rather than later: from the Telegraph -- Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke [2002 helicopter speech] text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)". "We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in
Europe) and for the global economy. Think the unthinkable," he said in a note to investors. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7857595/RBS-tells-clients-to-prepare-for-monster-money-printing-by-the-Federal-Reserve.html) from the Obama Administration – when coupled with the dour tone from the most recent FOMC release – indicates that things may be worse than they actually appear? Worth noting that Obama is also beginning to push for a 0.15% U.S. bank tax in order to repay TARP.
In political news, the death of Senator Byrd and the protestations of Senator Scott Brown in
cast some doubt on the FinReg vote scheduled for Tuesday. Worth noting that most pundits seem to be in agreement that the financial sector “dodged a bullet” with regard to financial reform, and that the proposed bill does not address the “too big to fail” issue. Also note the Kagan (Supreme Court) and Petraeus ( Massachusetts ) confirmation hearings are set for the Hill this week. Afghanistan
John Mauldin took a stand on his recession-expectation view in this weekend’s note, as many “forward thinkers” have expressed concern over an almost-certain
tax increase to come. Here are a few quote-worthy paragraphs: U.S.
The uber-Keynesians that are in control of our economic policy clearly do not think that large tax increases matter, or if they do think so they are not speaking out about them. They are conducting an experiment on our economic body without benefit of anesthesia. Here's a prediction about which I can feel confident: if we do slip back into recession, they will blame some factor other than the tax increase and call for massive stimulus. In fact, they will probably say that the lack of stimulus was the problem in the first place.
Unless something changes, we are going to enact the largest tax increase in
history. And that will be matched by equally large tax increases and spending cuts by state and local jurisdictions. And we are going to do it at a time when the above research suggests that growth may be in the 1% range and unemployment will still be in the 9-10% range. Extended unemployment benefits will be long gone for many people. Housing will still be in the doldrums (more on that in next week's Outside the Box) and housing prices are likely to fall from here. US
Growth in the first quarter was revised down (again!) to 2.7%, or about half that of the 4th quarter of last year. Much of what passed for growth was inventory rebuilding and stimulus. The underlying economy may be weaker than the headline number reveals. And by the 4th quarter, there is very little stimulus.
Given the above, I think we have to increase the odds of a 2011 recession to 60%, and those odds will rise and fall based on the economic performance of the next two quarters.
Considering Personal Spending was released this morning, I enjoyed this summary on the retail sector from JPM:
What is Weighing on Investors’ Minds: Retail has underperformed the SP500 by 7% this month as investor concerns in the group have expanded down the income statement to include gross margins, in addition to the existing top-line concerns.
· Higher 2011 Sourcing Costs Becoming Real Concern – China’s announcement on Monday that the Yuan will be revalued higher brought to the forefront an issue that's been brewing for a while but hasn’t received much attention, Spring 2011 sourcing costs are likely to be higher than expected. Sending 2011 sourcing costs higher will be a) Cotton prices up significantly yoy, b)
Labor Costs heading higher and c) greater FX headwinds with the stronger Yuan. This point was further reinforced in investors minds on Wednesday night when NKE provided weaker than expected 2011 GM guidance (said GMs would be down ~100bps vs. St. looking for up 30-40bps) citing rising sourcing costs and FX. China
· Other Margin Concern – Increasingly promotional environment: BBBY’s GMs came in weaker than expected (50bps below the
St. and 110bps below JPM ests) with higher coupon redemption rates weighing. There is concern that the environment is becoming more promotional moving forward which will also negatively impact margins.
· Concerns over the Consumer - While we haven’t heard any direct commentary on June retail sales (BBBY guided Q2 sales inline w/St. ests, which some don’t think they would have done if sales trends had slowed significantly, and retail management teams struck a generally positive tone at sell-side conferences/meeting the last few weeks), investors remain concerns over the pace of June sales. Negative lateral reads on sales trends inc. 1) Restaurant June Sales datapoints – CPKI & SONC both cut Q2 guidance discussing weak May/June sales and DRI declined to comment on June trends on yesterday’s earnings CC and spoke to month-to-month and week-to-week volatility, 2) Consumer Electronics - DELL commented at their analyst meeting yesterday that they were seeing some weakness in Europe and within Consumer and May TV shipment data fell 14% (vs. Apr. +6, Mar. +27%) which bodes poorly for June sales, and 3) PIR said it expects a little bit of pressure on Q2 sales.
· European Exposure Also Being Seen As A Negative – While the European sovereign debt crisis remains in the headlines, investors will likely continue to worry whether those headlines weigh on European consumer confidence and spending.
· Seasonal Weakness – Retail shares historically (‘90-’10) have underperformed the SP500 the most during the months of July-Sept.
· Valuation – Outside of an expectation for stronger than expected sales in June, there’re few arguments to get long retail now outside of valuation (and w/the broader market pullback, that logic applies to most sectors).
· Technicals – Group has broken through 200day MA.
· Trading Flows – Flows can be best characterized as a ‘buyer strike.’ We have seen HFs become increasingly more comfortable getting short retail while there has been orderly selling by vanillas. Strength in most stocks has been met w/more aggressive sell-side orders and there has not been many orders chasing or scrambling to cover. Despite the >20% pullback in retail, we have not seen vanillas defending long positions.
Taking a look around, it appears that what’s behind us is looking more significant than what’s ahead for the first time in a while. In other words, the G20 is past…the yuan revaluation is past… financial regulation is past…the FOMC decision is past… Greek crisis is past… with these major landmark events in the rear-view mirror, the market should have an idea of where it wants to be… the only significant catalysts – as U.S. summer vacation time is upon us – appear to be 1) the jobs numbers on Friday (for which chatter/whispers become more and more grim…perhaps we’ll see a relief rally if this number is not an absolute shocker to the downside?) and 2) earnings season, which starts July 12th. Sure, an unexpected geopolitical event, another potential Gulf hurricane, or increased protesting in France (as austerity measures are delivered to an often uncooperative work force) has the potential to surprise… but more likely than not, it could be a slow and steady next couple of weeks...
Tesla Motors to increase IPO size. STFL takes bank estimates down. SUSQ cuts AMZN, upgrades FINL. iPhone 4 becomes the most popular AAPL release ever. WSJ Heard on the Street cautious on homebuilders. BARD ups EGP. BofAMLCO cuts CEL, PTNR. BP higher on news that the most recent storm will miss the Gulf area.
S&P 500 PreMarket 8:30am (last/% change prior close/volume):
FREDDIE MAC .4799 +5.77% 3600
MEMC ELEC MATER 10.30 -3.38% 1174
FANNIE MAE .400 +3.33% 31600
NOBLE CORP 30.00 +2.46% 7394
MICRON TECH 9.69 +2.43% 86465
LSI CORP 4.81 -2.04% 2900
NEW YORK TIMES-A 9.59 +2.02% 100
Today’s Trivia: Who is the top overall World Cup goal scorer?
Yesterday's Answer: The fastest goal in a World Cup match was byBest Quotes: Good Morning - After last weeks snoozer, I am not expecting a heck of a lot to happen this week. Markets ticking up slightly on the comments out of the G-20. Pledges to stimulate growth, and curb deficits to me sounds like a good idea. I wouldn’t think they need the G-20 to come up with such a grand plan. This week will be stifled by the upcoming Unemployment data, quarter end, and the 4th of July. Democrat Robert Byrd dies at the age of 92. leaving the Dems with only 59 votes in the Senate. Financial reform looks like it is on the brink again. I am not bullish on the market, or the economy, but we could get a bit of a slow grind higher into all these events as sentiment have been pretty low of late. 1079.50 was Fridays high, 1101 is the 200 day moving average. 1062.75 was last weeks low. Have a good day. –BofAMLCO trader note.
Turkey's Hakan Sükür after only 11 seconds against in 2002. South Korea