Three snapshots for Wednesday
On Friday 283 companies in the S&P 500 had a dividend yield higher than the 10-year Treasury yield, at yesterday’s close this had fallen to 266 but remains very high compared to the last 5-years.
Italian consumer morale plunged to its lowest level on record in May as Italians’ pessimism over the state of the economy plumbed new depths.
Germany set a zero coupon on its new Schatz, the first time it has done so on debt of such maturity. The bid to cover ratio for the new bond at the auction was 1.7, compared with 1.8 at a sale of two-year debt on April 18.
The average yield at the sale was 0.07 percent.
Three snapshots for Tuesday
The euro zone just avoided recession in the first quarter of 2012 but the region’s debt crisis sapped the life out of the French and Italian economies and widened a split with paymaster Germany.
Click here for an interactive map showing which European Union countries are in recession.
The technology sector has been leading the way in the S&P 500 in performance terms so far this year with energy stocks at the bottom of the list. Since the start of this quarter financials have seen the largest reverse in performance.
Three snapshots for Monday
The yield on 10-year U.S. Treasuries, fell to their lowest levels since early October today, breaking decisively below 1.80 percent. That compares to the dividend yield on the S&P 500 of 2.28%.
The European Central Bank kept its government bond-buy programme in hibernation for the ninth week in a row last week. The ECB may come under pressure to act as yields on Spanish 10-year government bonds rose further above 6% today.
Output at factories in the euro zone unexpectedly fell in March, the latest in a series of disappointing numbers signalling that the bloc’s recession may not be as mild as policymakers hope. On an annual basis, factory output dived 2.2 percent in March, the fourth consecutive monthly slide, Eurostat said, and only Germany, Slovenia and Slovakia were able to post growth in the month.
Three snapshots for Tuesday
Equities in the countries most exposed to the euro zone crisis seem to be being hit especially hard this year. The Datastream index of shares in Portugal, Italy, Ireland, Greece and Spain has a total return of -5.3% this year compared to +8.9% for a euro zone index excluding those countries.
U.S. consumers went back to using their credit cards in March to keep spending while student and new-car loans shot up as the value of outstanding consumer credit jumped at the fastest rate since late 2001, data from the Federal Reserve showed on Monday.
Total consumer credit grew by $21.36 billion – more than twice the $9.8 billion rise that Wall Street economists surveyed by Reuters had forecast.
Perhaps some of that credit card spending is finding its way to luxury goods companies – there certainly don’t seem to be too many worries about an economic slowdown coming through in their share price performance:
Three snapshots for Thursday
The European Central Bank kept interest rates on hold on Thursday. President Mario Draghi urged euro zone governments to agree a growth strategy to go hand in hand with fiscal discipline, but as thousands of Spaniards protested in the streets he gave no sign the bank would do more to address people’s fears about the economy
The divergence between Euro zone countries is starting to impact analyst estimates for earnings. As this chart shows earnings forecasts for Spain and Portugal are seeing more downgrades than Germany or France.
The inflation rate in Turkey rose to 11.1% in April, putting pressure on the central bank to raise interest rates:
Three snapshots for Thursday
Weaker than expected economic data has pushed Citigroup’s G10 surprise indicator into negative territory. The indicator has tracked closely with the relative performance of equities vs bonds:
Italian business confidence fell unexpectedly to its lowest level in two and a half years on Thursday. Business confidence has historically given a good lead on GDP growth suggesting further weakness to come.
An update on currency moves against the dollar this year. Hungary tops the list, the EU opened the way to talks with Hungary on financial aid on Wednesday, ending a five-month dispute over the independence of its central bank. The UK pound and the euro remain positive for the year despite the UK falling back into recession and the continued euro zone crisis.
The Currency Performance chart should have included Gold.
Research Radar: “State lite”?
The FOMC’s relatively anodyne conclusions left world markets with little new to chew on Thursday, with some poor European banking results for Q1 probably get more attention. Broadly, world stocks were a touch higher while the dollar and US Treasury yields were slightly lower. European bank stocks fell 2% and dragged down European indices. Euro sovereign yields were slightly higher, with markets eyeing Friday’s Italian bond auction. Volatility gauges were a touch lower and crude oil prices nudged up.
Following is a selection of some of the day’s interesting research snippets:
- Deutsche Bank’s emerging markets strategists John Paul Smith and Mehmet Beceren said they retain their negative bias toward global emerging market equities both in absolute and relative terms, highlighting Argentina’s expropriation of YPF from Repsol as another negative. “We anticipate that so-called state capitalism will continue to be a negative driver, as it has been since mid-2010, since the poor economic backdrop makes the corporate sector a tempting target for governments wishing to boost their popularity or find additional resources to add to the relatively low levels of social protection across most emerging economies.” They added that they remain overweight “state lite” emerging markets such as Taiwan, Mexico and Turkey and underweight Russia, China, Brazil and South Korea.
- Morgan Stanley’s James Lord thinks the rally in Hungary’s markets following Tuesday’s decision by the EU to reopen negotiations on financial assistance is justified but much may now be in the price. He said MS would prefer to wait for some pullback before looking for more bullish trades. On a relative basis, Hungary 5-year CDS is now 60bp wider than Spain’s and MS said that while this gap could close much further it was hard to see how Hungary CDS rates could trade below Spain. “Indeed, if Spain goes into serious financial trouble, it could represent a systemic risk for all Europe, and funding stress would likely increase substantially. Given the strong dependence of Hungary towards the EU, it would be difficult to argue for Hungary to trade through Spain on any sustained basis.”
- Ashmore Investment Management’s Jerome Booth restates his bullish case for emerging markets with 10 points that conclude with the line: “the best way to lose money without really trying is not to invest in emerging markets.” His points include warnings about equating past volatility with risk, passive investing (where he points out that only 12% of emerging debt is represented by available indices) and seeing emerging currency volatility against the dollar as an emerging problem rather than a U.S. one (“It is the dollar which is volatile”.)
- Legal & General Investment Managers’ Ben Bennett argues that central bank money printing will be needed for some time as banks’ bad loans are still way too high for them to be “in a position to drive the money printing presses once again”. Explaining QE as a nationalisation of money printing presses normally operated by the commercial banks, he says the success of either form of money creation can only be judged by the productive nature of use to which that money is put. The pre-crisis lending into the property bubble was negative case in point, and the relative success of QE lending to the banks will be even more complex to judge. “The investment lesson to be learnt is not to follow the money, but to analyse the usefulness of what it is being spent on.”
Three snapshots for Friday
Although the focus has been on Spanish debt auctions this week as this chart shows Italy has much further to go in meeting this year’s funding needs.
German business sentiment rose unexpectedly for the fifth month in a row in March, moving in the opposite direction to the composite PMI:
Greg Harrison points out 82% of S&P 500 companies have beaten their Q1 earnings estimates so far. It is early days but it it continues that would be the highest for at least five years. Is this a sign that the strength in corporate earnings in continuing? The chart below suggests as least part may be due to falling expectations coming into earnings season.
Three snapshots for Friday
JPMorgan profit beats expectations:
In China the annual rate of GDP growth in the first quarter slowed to 8.1 percent from 8.9 percent in the previous three months, the National Bureau of Statistics said on Friday, below the 8.3 percent consensus forecast of economists polled by Reuters.
Italian industrial output was weaker than expected in February, falling 0.7 percent after a revised 2.6 percent fall the month before, data showed on Friday. On a work-day adjusted year-on-year basis, output in February fell 6.8 percent, compared to a revised 4.6 percent decline in January.
Three snapshots for Tuesday
Italy and Spain are back in focus as bond yields and spreads start rising again.
The latest Sentix euro zone investor sentiment index also seemed to confirm the feeling that crisis worries are back falling to -14.7 in April.
U.S. small business confidence dropped in March for the first time in six months:
