Headwinds of Change

Unpredictable Market Forces at Work



After a positive week for U.S. equities, market action lacks directional impetus. What will drive equity markets higher? It is clear to us window dressing season is in full effect. Many fund managers and Institutional Investors continue to pile into crowded, growth-oriented, and alpha-seeking equity trades. In addition, many prominent investment bankers sitting in the position of 'Head of Global Equities', at their respective shops, continue to preach 1300 on the SPX by year end. Is this feasible? Sure, but it is not likely.

Much of the current rally in the SPX from August lows of 1015 has been due to a weaker USD across the board. One can argue the impact of illustrious economic data releases on price swings until blue in the face. Yet, since the fear of debt contagion in the Euro-zone abated panic and worry shifted back on the country with the world's largest Gross Domestic Product. Since then, the EUR, CHF, JPY, and AUD have all made substantial advances against the 'Greendback'.


Down Under



Australia continues to benefit from their trade relationships with Asia in that exports of commodities have led to sustainable growth down under. The economy picked up last month creating 29,000 new jobs predominantly in construction and industrial sectors. As long as Chinese demand for iron ore, copper, and aluminum remains consistent, thE AUD Will continue to appreciate against all major pairs.


Efficiency



The 'Swissy' benefits predominantly from the risk-on/risk-off trade. The linguistically diverse country maintains a current account surplus of 8.9% of GDP, inflation hovers around 1% while unemployment is below a comfortable 4%, and 2011 GDP growth forecasts 2% growth. If one wants safety what is not to like? In addition FX traders seem poised to test the patience of the SNB again. Recall when the SNB stepped in with 'unilateral intervention' and sold Swiss Francs to keep the rate above 1.30 EUR/CHF. Will they sell Francs and buy Dollars? No, the Japanese already failed in this endeavor.


Tradition



The Japanese economy, like the U.S., is struggling to maintain growth. Deflation wanes in the balance and export demand is tailing off in large due to a strong currency and shrinking profit margins at the likes of Sony, Toyota, Bridgestone, and Kobe Steel. With a dire economic situation the MOF stubbornly talks up the JPY and the need for intervention. Though, by 'unilaterally intervening' in the FX markets already traders know the MOF has a gun. The question is how many bullets are in the gun, and does the Ministry possess the courage required to fire a full clip? Time will tell on the latter. I doubt we have seen the last of 'unilateral intervention'. Speculators who place bets in JPY strength will not learn until the MOF reverts back to 2004 tactics and dilutes the market with over $1 Trillion of Yen. Whether or not Kan's $55 B stimulus package helps weaken the JPY remains to be seen.

Lastly, I would like to touch on the political issues underpinning the currency. Since Ichiro Ozowa was ousted in his most recent attempt to gain power, Naoto Kan appeased the former's supporters with currency intervention. I trust the exporters mentioned above took note of this and will put pressure on Kan's administration to intervene again. Many have made it resolutely clear; 'we want USD/JPY rate at 95'. If Kan wants to keep his job longer than his predecessors he will intervene again and again until the Yen stops strengthening.


The Little King of Everything



Alas we have but one more pair to discuss, you guessed it, EUR/USD. As mentioned by Dennis Gartman this morning, 'This was the level from which the EUR plunged earlier this year... it marks almost perfectly the 50% retraetment of the EUR's collapse from the highs of 1.5200 last December to the lows of 1.1900 this spring.' 1.3500 will serve as a hard line of resistance over the next trading session. This morning around 10:00 the pair jumped above this level on a large candle to the upside. However, the pair rocketed back down to the 1.3450 levels within the next hour.

Also, ECB buying of sovereign debt is slowing. Last week the ECB bought only 134 M EUR of bonds in comparison to 323 M EUR the week prior. Maybe the ECB feels confident the liquidity in the sovereign debt market is here to stay, only until it dries up again. Another important point to note; many Germans are becoming unhappy with the 'Christian-liberal Coalition', noted in the latest edition of the economist. Any political instability surrounding the Euro-zone's growth engine may cause uncertainty in the single currency. However, I should note that this is pure speculation on my part.

Undoubtedly, the EUR/USD pair is driven by none other than the U.S. FED action. Various traders, analysts, and media alike expect a second round of 'Quantitative Easing' in which the FED once again opens up its balance sheet to buy U.S. Government Debt. Rumors suggest debt purchases of $1-2 Trillion of longer-term U.S. Treasuries. This is nonsense. If the FED wanted to create artificial inflation they already would have done as much. Especially considering the mid-term elections put a choke-hold on any further monetary policy action. I suspect, as a rumor from the WSJ this afternoon put it, 'Rather than announcing massive bond purchases with a finite end, Fed officials are weighing a more open-ended, smaller-scale program that they could adjust as the recovery unfolds.' Cheers. This ought to give the Bond market rally a bit more time run and allow equities to cool after a monster September.


Impetus for Change

Now let us examine a few possible harbinger's for a trend reversal in Dollar weakness. On Friday October first Global PMI data will release staring with CHina and ending with U.S. ISM. Last month trader's took China's moderate August reading of 51.7, up .5% from the month prior, as a reason to buy equities. The SPX rallied nearly 3% and closed up more than 30 points on the session. What would have happened if Chinese PMI came in around say 48 or 47? Equities would be in for a sharp and painful sell-off methinks. Hence, the fear of a global slowdown in consumption/demand would shift to the far east and away from the U.S. Perhaps poor EU PMI might just do the trick if the Chinese index posts 'robust' gains. Either way, I expect this data release to be a harbinger of asset allocation in the coming month.


Trade

We are gearing up for a switch in sentiment with a 'Strong Dollar Story' leading the charge. Specifically we like the the dollar against the CHF, CAD, and JPY. In addition, we see energy as the place to be in the coming months as seasonality changes. Be cautious though, this type of trading environment is dangerous.


Patrick M. Ambrus
Contact: analyzecapital@gmail.com


Sources: The Economist, The Gartman Letter, Financial Times, FT Alphaville, WSJ.com, bloomberg.com

Californication: More Problems in Cali- Part Deux

The California budget project, a think tank, indicates that the states university system remains the largest employer at 38%, however no one wants to make any cuts in that sector because of the powerful teachers union (the largest lobby in the state) that is vehemently opposed to any new measures to raise standards, change probation periods, and alter the ‘laughably easy teacher tests’ which dictate hiring. The State has the largest classrooms with 23.4 students, almost twice the national average, and spending per pupil has dropped 11% in the past two years and is likely to drop even further now that the stimulus package has run out. And, considering that the states 8th graders ranked 46th in the nation last year as well as the fact that the state sends fewer high school graduates to college than all but three other states, there are many arguments for reorganizing the entire education system, however the possibility of that becoming reality remains improbable.

Consequently, the school system is not the only pressing issue of economic consequence. The rich and fertile central valley of California is running out of its most valuable resource, water. Geologically the region was once, thousands of years ago, an inland sea, however now the cumulative abuse of resources and successive droughts since 2006 have severely reduced the natural water supply. Importing water has increased the cost of acquiring the resource for local farmers, which is now accounting to above 30% of their expenditures. Even the use of “micro-sprinklers”, aimed at helping reduce water waste, has had little overall effect. While it is unlikely that farming will disappear entirely from the region, whether it will be as productive as it was in years past remains unclear. In the San Joaquin valley agriculture accounts for 20% of the available jobs, the only other comparable source being the state prison system. And, because of the very poor level of education among the workers in the valley, opportunities would be scare if many are left without work in the fields. The demographic trend of increasing Spanish speaking workers, now reaching close to 6.8 million, who migrate to the valley add to the already pressing problem of few opportunities and increasing water costs.

Much like the problematic issues facing Sacramento and the central valley face, the city of Los Angles also has many enormous budget cuts to deal with in order to decrease its deficits of close to $212 million. Next year Wendy Gruel, the cities chief accountant, estimates that the deficit may increase to $484 million and with the power and water utilities refusing to transfer funds to the city’s general fund LA’s accounts will be overdrawn, leaving little available cash to pay its employees. On top of a state-wide housing bust and complicated property taxes, including proposition 13 which capped property taxes in 1978, the city has few viable resources for generating any necessary funds. In addition, proposition 218 was passed in 1996 requiring explicit voter approval for increasing any of the cities fees, further complicating the city’s fiscal issues. The only option the city now has is cutting the size of its services. And, in the case of the police force which was once lauded for its hard-won success against crime, chief of police Charlie Beck has cut overtime pay and will potentially limit hiring next year. As with the state, the future of Los Angles looks bleak and is due a real miracle if it is resolve its deepening fiscal issues.

Cited form the Economist Magazine, Website & Bloomberg.com

Tom Rodelli
Research Analyst
Analyze Capital LLC
trrodelli@gmail.com

The Golden State- Part 1

There are many reasons to compare the State of California with the small European nation of Greece besides their warm Mediterranean climates. Like Greece, the Golden State has become a symbol of fiscal irresponsibility, in effect spending what it cannot pay for through taxes. And, although there is no serious need to worry about the state defaulting on its debt; rating agencies consider that risk in California to be greater than all the other 49 states.

Even after a decade of passing measures to cut spending, the state is once again considering a new budget, proportionally smaller to what is was a decade ago after taking into account population growth and inflation. And, even then the state still faces a $17.9 budget hole in the current and coming fiscal years. To produce more cash, without raising taxes, California will be forced to cut whole programs including welfare-to-work, subsidized child care, and the cash assistance to poor families with children. Reducing overgenerous state employee pensions costing the state over $6 billion a year remains a priority, as well as initiating an alternative budgetary system proposed by bi-partisan leadership last year that introduces a new value-added tax, simplifies income taxes, and scraps more from corporate and sales taxes. Part of the state’s problematic tax issues revolves around the ineffective proposition 13 of 1978 which fails to raise enough money from property taxes for local municipalities. On top of that, Proposition 98 of 1988 was meant to find new ways of generating funds, but it’s horrendously complex mathematical systems and funding formulas have never produced positive results.

California faces a more general problem as the political structure ensures spending will always outpace revenues. While simple majorities in Sacramento are required to lower taxes, super majorities must agree to increase them. The recent primary elections for the governor’s seat in California have highlighted new ideas on spending reductions in various sectors of the government, however statistics in 2008 indicated that California had 108 state employees for every 10,000 residents, a ratio which remains one of the lowest in the United States, only Florida and Illinois have fewer. Where the incumbent governor can realistically cut jobs remains unclear. Recently, Governor Schwarzenegger has initiated measures to cut the state’s employee pay to minimum wage. Although this may help ease the state’s economic problems it seems rather controversial that a few must suffer the irresponsibility’s of an entire society. There will come a time when the taxes will have to be increased, and presently it seems we are once again prolonging the inevitable for immediate political safety.

Tom Rodelli
Research Analyst
Analyze Capital LLC
trrodelli@gmail.com

Euro Zone GDP Revision-07.07.2010

Euro area1 (EA16) and EU271 GDP both increased by 0.2% during the first quarter of 2010, compared with the previous quarter, according to second estimates from Eurostat, the statistical office of the European Union. In the fourth quarter of 2009, growth rates were +0.1% in the euro area and +0.2% in the EU27.

In comparison with the same quarter of the previous year, seasonally adjusted GDP rose in the first quarter of 2010 by 0.6% in the euro area and by 0.5% in the EU27, after -2.1% and -2.3% respectively in the previous quarter. In the first quarter of 2010, among Member States for which seasonally adjusted GDP data are available, Ireland (+2.7%) recorded the highest growth rate compared with the previous quarter, followed by Sweden (+1.4%) and Portugal (+1.1%).

EuroStat

Always happy to see an upward revision in GDP numbers for the EA 16. What does this data mean other than confirming that statisticians cannot make precise calculations? Nothing. The current problems of growth, liquidity, & solvency in the EA 16 will reveal themselves to us at an unexpected time, with robust data/rumors.

It looks like Dwayne Wade and Chris Bosh will team up in Miami according to ESPN's Chris Broussard. All the more reason for The King to play in the greatest city in the world, NYC!

Related ETFs: iShares MSCI Spain Index Fund (EWP:US), SPDR EURO STOXX 50 ETF (FEZ:US), iShares MSCI EMU Index Fund (EZU:US)


Patrick M. Ambrus
Analyze Capital LLC
Managing Partner
ambrus.anlzgroup@gmail.com

Stimulus Package Tank Reading Empty?

June 24th marked the end of Barack Obama’s economic stimulus package of $700 plus billion. With a weakening economy and an evident global economic downturn, this reality may spell bad news for many large organizations and states that benefited from the stimulus provided by Washington. Presently, the Obama administration is lobbying to inject another $266 billion of stimulus measures to stabilize and counter any possible deflationary pressures that could plague the US economy in the near future, however significant opposition within the federal government and from abroad stand against any possible measure.

The sovereign debt crisis in Europe has demonstrated the political price of any new borrowing to not only their respective governments but also in the United States and its major economic global partners. The recent “American jobs and Closing Tax Loopholes Act” presented by democratic leaders that contained $79 billion for unemployment benefits, health insurance subsidies for the unemployed, and state grants for Medicaid, reflects the negative sentiment of any new spending. The strong republican opposition limited the eventual sum of the bill to $34 billion for fear of the deficit spiraling out of control. And, with the recent primaries indicating strong voter antipathy, especially among republicans, for any increases in spending, deficits, or taxes there appears to be little room for any new measures to be passed this year.

Without any new stimulus the budgets of many American states will suffer dramatic economic deficits and probable budget cuts. California is one example where already appalling education standards, due to a lack of appropriate funding, are set to be cut even further as funding per pupil has dropped over 11% in the state, and that was with the aid of the stimulus program. Michigan is another example where since the collapse of the automakers unemployment has risen to a staggering 30%. Without the continuation of government aid and stimulus there appears to be little hope for the state to fund and promote the creation of new jobs and industries to revitalize their depressed economy.

Virtually every industry has shed jobs during the last 2 years and now that the stimulus money has run out there is a strong sentiment among economists that the American and Global Economy could plunge once again into another full recession, unfortunately proving those double-dip recession advocates correct. Regardless of whether a new stimulus package is passed or not, what remains clear is that something needs to be done to continue aiding state economies revive themselves and prevent more jobs from being lost. Whether it is the federal government injecting more liquidity into the system or creating new tax incentives to help fledging businesses stay profitable and not cut jobs, Barack Obama has many economic questions to ask and more to answer, and on-top of 2 wars and a disaster in the gulf, there seems little room for failure.

Information cited from the Economist Magazine and website.


Tom Rodelli
Research Analyst
Analyze Capital LLC
e-mail: trrodelli@gmail.com

Greece Downgraded to Junk by Moody's

Greece’s credit rating was cut four steps to non-investment grade, or junk, by Moody’s Investors Service, which cited the country’s economic “risks.” The rating was lowered to Ba1 from A3, Moody’s said in a statement today from London. The outlook is stable, it said. Greece is already rated junk by Standard & Poor’s.

Bloomberg.com

It was only a matter of time before this happened. Why do two ratings agencies have so much power? The better question is, will traders and lenders continue to listen? I won't. As far as I'm concerned, Greek debt has been junk since March.

If you want to get short Greece, check out the Claymore/Delta Global Shipping Index ETF (SEA), which allocates 18% of holdings to Greece.

Related ETFs/ETNs: EUFN:US iShares MSCI Europe Financial Sector Index Fund, URR:US Market Vectors Double Long Euro ETN, ULE:US ProShares Ultra Euro


Patrick M. Ambrus
Managing Partner
Analyze Capital LLC
Twitter: AnalyzeCapital

Second Funding Squeeze?

European banks at risk of write-downs from the sovereign debt crisis face a funding squeeze that may depress earnings, curb lending and imperil economic recovery in the region.

Bloomberg.com

As both The U.K. and Germany announced steps to pare spending, it's a signal for these two big European countries to lead another round of fiscal tightening. Germany targeted 19.1 billion Euro cut on the deficit in 2011 and 2012 respectively. If the tightening continues to expand, there is potential for a second crisis.


Liz Liu
Summer Analyst
Analyze Capital LLC

Belgium - The New Greece of the North

In the Financial Times, the headlines: "Inertia complicates Belgian debt fears" were on the first page a few days ago. Albeit the country has budget deficit that is within the limit of the union and has an economy that runs trade surplus, worries over the sovereign debt of Belgium adds another dead weight to the negative sentiment on the recovery of European economy. According to the FT, "Belgium’s debt is currently at 99 per cent of its gross domestic product, the highest in the eurozone after Greece and Italy, and is forecast to exceed GDP by the end of the year." The structure of the country's debt is the source of the problem. 82% of the short term bills is owned by foreigners with a short maturity, which means that the country will have to regularly refinance. In addition to that, Belgium's recovery from the recession has been extremely sluggish, with a GDP of only 0.1%, which is below the euro-zone average.

Besides economical woes, Belgium also faces social instabilities that roots from the division of the country into Dutch -speaking Flemish majority and Francophone minority. The differences in language led to many conflicts, one of each was the division of the coalition government in April that led to early elections that will be held on June 13th. I am in anticipation to see what will be the outcome of the election and whether the new government will be able to patch the wound that has caused so much hemorrhage to the country. Without internal social stability, it would be very hard for Belgium to achieve economical stability, which will ultimately have a negative influence on Europe.



Luong T. Hai
Summer Analyst
Analyze Capital LLC

First Thoughts on Merkel's Address

Via WSJ:

The measure spent much of the session above that level but quickly fell through it as Ms. Merkel defended Germany's €80 billion austerity package for the next four years, saying Wednesday that the time to withdraw stimulus has come and lessons from the debt crisis must be learned.

Investors said Ms. Merkel's comments that the bailout package only buys time for the euro zone spooked the market. Coming from Germany, considered the strongest economy in Europe, the remarks underscore the euro zone's problems.

If this signals the start of austerity for Europe, so much the better, as long as the necessary measures are still taken by politicians should something unexpected happen to the economy. What does this affect the big picture？

• Under macroeconomic theory, a combination of tight fiscal policy and loose monetary policy is likely to depreciate the currency of a country.
• This adds some fun to the game of euro, as we see FX responding immediately; however,
• A depreciating currency is beneficial to economic recovery, and corresponds to recent export-oriented recovery schemes.

If you ask me, I'd say the woman from Germany has got some guts. Politics is one of the rare field where saying something actually has the equal, if not more, weight as doing something. Her defense for the austerity plan changes the tone of the game, and might have the extensive influence of pushing other European countries to follow suit. After all Germany has the healthiest balance sheet of the continent. As Europe adjusts its debt level by adopting a tight fiscal policy, and given that the rest of the world is likely to grow at a higher pace economically, we should be more confident that the euro will becomes weaker in the future.

Yi Gao
SUmmer Analyst
Analyze Capital LLC

Greek Default

Via Bloomberg:

Global investors have little confidence in Europe’s efforts to contain its debt crisis or in European Central Bank President Jean-Claude Trichet, with 73 percent calling a default by Greece likely.

Only 23 percent say they expect the region’s almost $1 trillion rescue package to both keep the European monetary union together and prevent a debt default by a government, according to a quarterly poll of investors and analysts who are Bloomberg subscribers. More than 40 percent say Greece is likely to abandon the euro.

I don't think the sovereign debt panic will affect The United States economic recovery. It is possible, as the survey showed, the crisis will be "a significant step that leads to an eventual breakup of the euro zone."

Liz T. Liu
Summer Analyst
Analyze Capital LLC

Concerns on Hungary's Sovereign Debt

Without much significant data, except for the surprised gain in Germany factory orders, the EUR/USD gained approximately 30 pips from the opening price today. Nevertheless, some worries over the Hungary's sovereign debt market might contribute for weakening of the currency of the euro-zone. Here is a quote from Bloomberg:

Hungary’s domestic politics roiled global markets last week as officials in Prime Minister Viktor Orban’s government compared the country to Greece while claiming the previous administration lied about public finances.

Even though Hungary is not part of the euro-zone countries, their debt issues might very well to follow Greece's path. As a result, fears of possible debt contagion will undoubtedly arise, which will further weaken the EUR and make EUR USD parity very feasible notion. The target for Hungary's fiscal deficit is 3.8% of GDP, however current data suggests that the number might well be above 4.5%. The Hungarian government made the statement that it will do "everything" to adhere to the deficit limit set out by the EU/IMF, however, there are many obstacles that the country will have to overcome, one of which is the battered state of the economy that Hungary is in.


Luong T. Hai
Summer Analyst
Analyze Capital LLC

A weaker euro (or Europe?)

A solid article on the cheaper euro’s economic impact was released by The Economist last week. Titled “A Mixed Blessing”, the article explores the many advantages and disadvantages that a weak euro might have during an economic recovery. It states that “the cheaper euro will be good for some European companies – up to a point.” Today’s blog, I’d like to summarize some of the interesting insights that were offered.

· The euro’s decline….should bolster exports for big manufacturers (particularly in northern Europe) and luxury-goods companies (particularly in Italy and France) while boosting tourism across the continent.

· However, “because most businesses loathe uncertainty….some [didn’t expected the euro to decline, and instead have] locked themselves into hedging arrangements that will prevent them from taking advantage of the lower euro until next year or even the year after”

· On the other hand, as euro becomes weaker, “European companies will find it more expensive to raise capital internationally. They will also have to pay more for commodities such as oil which are priced in dollars,” and

· Since “even Germany does more trade with France than any other country….this means that the huge number of European companies that export mainly within the euro zone are seeing the costs of their raw materials rise without any accompanying benefits. “

The most important insight the article offers, however, points to the fact that structural problems have been created by the single currency. It is not “weak euro versus strong euro”, but whether there should be a single currency for the entire continent at all.

As politics, the euro might have contributions in making alliances among European countries more approachable (open to debates); as a policy, it has not been able to “spark a glorious period of innovation and productivity growth.” Forcefully bonding together a group of vastly different economies may not have been a good idea after all. We might want to wonder if the currency has left the continent less competent intrinsically, and whether Europe actually needs it or not.

Via The Economist:

http://www.economist.com/businessfinance/displaystory.cfm?story_id=16216111


Yi Gao
Research Analyst
Analyze Capital LLC
e-mail:anlyzecapital@gmail.com

Daily Recap: Equities Tumble-06.04.2010

Via Bloomberg:

U.S. stocks sank, with the Standard & Poor’s 500 Index falling to its lowest level in four months, as slower-than-estimated jobs growth spurred concern the economic recovery may not be as robust as forecast.

The S&P 500 Index declined 3.4 percent to 1,064.88 at 4 p.m. in New York, as 497 of its 500 stocks slid. It was the biggest drop on the day of the U.S. Labor Department’s monthly jobs report since at least 1998, according to data compiled by Bespoke Investment Group LLC. The Dow Jones Industrial Average sank 324.06 points, or 3.2 percent, to 9,931.22. All 30 of its components retreated.

Commodities slid and Treasuries rallied as lower-than-forecast American job growth and a widening government debt crisis fueled concern the global economic recovery will slow. Hungary’s currency, equities and bonds plummeted.


Oil fell 4.2 percent to $71.51 a barrel, while tin sank 9.5 percent to lead declines in metals. Ten-year Treasury yields decreased 17 basis points to 3.2 percent. The euro slid below $1.20 for the first time since March 2006 and the yen climbed against all 16 major counterparts. The Forint declined to an almost 15-month low against the dollar on concern Hungary may default.


It's really impressive to see the immediate effect of the jobs report that shakes the stock market.


Liz Liu
Summer Analyst
Analyze Capital LLC
e-mail: analyzecapital@gmail.com

Mr. Trichet Speaks to the Masses- 03.04.2010

"If there's one thing I learned in prison it's that money is not the prime commodity in our lives... time is."
--Gekko, MNS


Highlights from ECB President Jean-Claude Trichet’s Statement

Rates remeain unchanged at 1.00%


Euro Zone Inflation and Growth

•Inflation expectations remain firmly anchored inline with the Governing Council’s aim of keeping inflation rates below, but close to, 2% medium term

•2010 Inflation forecast .8% to 1.6%

•2011 Inflation forecst .9% to 2.1%

•Euro area has continued to benefit from significant macroeconomic stimulus

•2010 GDP growth forecast .4% to 1.2%

•2011 GDP growth forecast .5% to 2.5%

•Loans to non-financial corporations can be expected to remain weak for some time after economic activity has picked up

•We expect price stability to be maintained medium term, supporting the purchasing power of euro area households


Quantitative Easing

•We decided to continue conducting both the main refinancing operations (MROs) and special-term refinancing operations with a maturity of one maintenance period as fixed rate tender procedures as long as necessary

•The Governing Council will continue to implement phasing-out of the extraordinary liquidity measures

•Banks should use improved funding conditions to strengthen their capita; bases and take full advantage of government support for recapitalization


Greece and The PIIGS

•High levels of public deficit and debt place an additional burden on monetary policy and undermine Stability and Growth Pact as a key pillar of Economic and Monetary Union

•All countries will be required to meet their commitments under excessive deficit pressures


Conclusion

•Key challenges in order to reinforce sustainable growth and job creation is to accelerate structural reforms

•Sound balance sheets, effective risk management and transparent, robust business models are key strengthening banks and ensuring access to finance


This commentary is similar to what I read int he Fed's Beige Book yesterday. Economic growth will be slow at best. Inflationary pressures remain subdued. The Central Banks will begin to unwind QE and pull some liquidity from the system.

Patrick M. Ambrus
Managing Partner
Analyze Capital LLC
ambrus.anlzgroup@gmail.com

Morning Updates- 03.04.2010

Good Morning fellow market junkies. Today there is a glut of economic data that should and could potentially give the equity markets some type of direction. Today we will see interest rate decisions from BOE and ECB. I will be looking for any type of details on winding down QE programs. Hence, I want to know when liquidity will start to drain from the system. Also, I want to hear ECB commentary on the sovereign debt problems in Greece and elsewhere. Trichet will probably speak to these issues specifically.

Other Notable Economic Data today:

•05:00 Euro Zone GDP (QoQ)

•08:30 ECB President Jean-Claude Trichet Speaks

•08:30 U.S. Initial Jobless Claims- Forecast (475,000 lost)

•08:30 U.S. Nonfarm Productivity (QoQ)- Forecast 6.2%

•10:00 Canadian Ivey PMI- Forecast 55.00

•10:00 U.S. Pending Home Sales- Forecast 1.7%

•10:30 U.S. EIA Natural Gas Report


BOE Rate Decision

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

Not too much of a surprise here. Minutes will be released on March 17th.


ECB Rate Decision (Update1)

At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 1.00%, 1.75% and 0.25% respectively.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 08.30 EST today.

I am waiting for some clarity from Trichet before I digest.

Update:

link to full Trichet opening comments: http://www.ecb.int/press/pressconf/2010/html/is100304.en.html


Euro Zone GDP

GDP increased by 0.1% in both the euro area1 (EA16) and the EU271 during the fourth quarter of 2009, compared with the previous quarter, according to first estimates released by Eurostat, the statistical office of the European Union. In the third quarter of 2009, growth rates were +0.4% in the euro area and +0.3% in the EU27.

Compared with the fourth quarter of 2008, seasonally adjusted GDP declined by 2.1% in the euro area and by 2.3% in the EU27, after -4.1% and -4.3% respectively for the previous quarter.

GDP was the weakest in Latvia (-3.2%) and Romania (-1.5%). Estonia had the most robust growth (+2.6%).
Full details: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

U.S. Jobless Claims (update 2)

In the week ending Feb. 27, the advance figure for seasonally adjusted initial claims was 469,000, a decrease of 29,000 from the previous week's revised figure of 498,000. The 4-week moving average was 470,750, a decrease of 3,500 from the previous week's revised average of 474,250.

U.S. Non-Farm Productivity (QoQ) (update 4)

Both productivity and costs were revised better than expected for the fourth quarter. Businesses clearly are focusing on cutting labor costs to try to boost profits or cut losses. Nonfarm business productivity was revised up to a sharp 6.9 percent boost from the initial estimate of 6.2 percent. This followed a revised 7.8 percent surge in the third quarter. Today's report includes annual revisions which raised the Q3 figure. The consensus had called for a 6.3 percent revised gain for the latest period. Unit labor costs fell an annualized 5.9 percent in the fourth quarter, compared to an initial estimate of minus 4.4 percent and a revised third quarter plunge of 7.6 percent. The market forecast was for a 4.5 percent drop in costs.

U.S. Pending Home Sales Index (Update5)

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in January, fell 7.6 percent to 90.4 from an upwardly revised 97.8 in December, but remains 12.3 percent higher than January 2009 when it was 80.5.

Lawrence Yun, NAR chief economist, said weather is likely to impact housing data. “January pending sales, though still higher than one year ago, remain much lower than expected given that a large number of potential buyers are eligible for the expanded home buyer tax credit. Moreover, the abnormally severe and prolonged winter weather, which affected large regions of the U.S., hampered shopping activity in February,” he said.

Nat Gas Inventories (Update 7 last one)
Working gas in storage was 1,737 Bcf as of Friday, February 26, 2010, according to EIA estimates. This represents a net decline of 116 Bcf from the previous week. Stocks were 71 Bcf less than last year at this time and 21 Bcf above the 5-year average of 1,716 Bcf. In the East Region, stocks were 9 Bcf below the 5-year average following net withdrawals of 74 Bcf. Stocks in the Producing Region were 24 Bcf below the 5-year average of 604 Bcf after a net withdrawal of 27 Bcf. Stocks in the West Region were 54 Bcf above the 5-year average after a net drawdown of 15 Bcf. At 1,737 Bcf, total working gas is within the 5-year historical range.

Natural Gas sold off after this report was released.


Quotes

Foreign Exchange
-EUR is down -0.2775% against the USD @ $1.3657 as of 9:36 EST.
-EUR is up 0.4666% against the JPY at 121.66.
-USD is strengthening against the JPY by 0.6327% @ 89.0650.
-GBP is up against the USD by 17 basis point at $1.5124.

Commodities
-Gold is down $3.70 sitting at 1139.00/troy ounce
-Silver is off 37 bp @ $17.265/t oz.
-WTI Crude is down $0.56 this morning to $80.31/barrel
-Nat Gas is down @ $4.72/MMbtu

Equities

Asia (closed)
-Nikkei 225- off -1.05% @ 10,145.72
-Topix- down 8.01 points to 897.64
-Hang Sang- off -1.44% to 20,575.78
-S&P/ASX 200- down 14.80 point @ 4750.50
-CSI 300- down 84.51 points to 3250.57

Europe
-FTSE 100- 5521.31 off -.22%
-CAC 40- 3833.06 down -.25%
-DAX 30- negative by 21.40 points @ 5796.48

United States
-Dow Jones- up 25.32 points @ 10,422.08 (as of 09:30 EST)
-NASDAQ- up .14% @ 2283.94
-s&P 500- up 2.9% to 1121.99


Bonds
-UST 10 Y- Price: off .035 to sit at 99 30/32 Yield: 3.63%
-Bunds 10 Y- Price: off .047 to 100.89 Yield: 3.14%
-JGB 10 Y- Price: rallied .044 to 100.57 Yield: 1.34%


I will try and Update this throughout the trading day

Good luck trading


Patrick M. Ambrus
Managing Partner
Analyze Capital LLC
ambrus.anlzgroup.gmail.com

Morning Update- 02/25/10

Foreign Exchange

-Moody's and S&P warn on Greek Debt downgrade.

-EUR is down -.34% against the USD @ 1.3493 as of 6:27 EST.

-EUR is off -1.23% against the JPY at 120.5350.

-USD is strengthening against the JPY -.86% @ 89.3740



Commodities

-Gold is down $5.30 sitting at 1091.90/troy ounce

-Silver is OFF -1.18% at $15.775/t oz.

-WTI Crude is down $0.48 this morning to $79.520/barrel

-Nat Gas continues to sell-off down 1.15% @ $4.803/MMbtu in early hours



Equities



Asia

-Nikkei 225- off -.95% @ 10,101.96

-Topix- down 4.28 points to 891.41

-Hang Sang- off -.33% to 20,399.57

-S&P/ASX 200- down 54.40 point @ 4594.10



Europe

-FTSE 100- 5344.78 up .03%

-CAC 40- 3710.14 down 15 basis points

-DAX 30- Positive by 6.04 points @ 5621.55



U.S. Futures

-DJIA- lagging by -36.00 to 10,319.00

-S&P 500- 1098.70 down -4.90 points



Bonds

-UST 10 Y- Price: rallied .075 to sit at 99 22/34 Yield: 3.66%

-Bunds- Price: rallied .096 to 101.04 Yield: 3.12%

-JGB- Price: rallied .208 to 99.96 Yield: 1.30%



Economic Reports

-German Unemployment is 8.20%

-Durable Goods U.S. @ 8:30 EST

-Initial Jobless Claims U.S. @ 8:30 EST

-Fed Chairman Bernanke continues his testimony @ 9:00 EST

-Japanese Core CPI YoY @ 18:30

-Japanese Industrial Production @ 18:50

- Japanese Retail Sales @ 18:50





Patrick M. Ambrus

Managing Partner

Analyze Capital LLC

ambrus.anlzgrouo@gmail.com

Turkey a Safer Investment than Greece?- 2/19/10

Paul Murphy posted this ratings update from Standard & Poor's on FT Alphaville this morning. I share his sentiments. How can a country like Turkey that is not part of The EU or EMU have a higher investment grade rating than a country within EMU parameters. A blow to the Euro, damn right. I continue to support long-term dollar strength throughout 2010.


Patrick M. Ambrus
Managing Partner
Analyze Capital LLC
ambrus.anlzgroup@gmail.com