Earnings and Economic Data Help Europe to Rally

“European stocks rose, extending a near five-year high, as financial companies from HSBC Holdings Plc (HSBA) to Allianz SE reported results that topped analysts’ estimates. U.S. index futures were little changed, while Asian shares rose.

HSBC, Europe’s biggest lender, Societe Generale SA (GLE), France’s second-largest bank, and Germany’s Commerzbank AG all climbed at least 1.9 percent after posting results. Allianz SE, Europe’s largest insurer, gained 2.5 percent after reporting a jump in profit. Alstom SA (ALO) (ALO) sank 9.1 percent after the power- equipment maker cut its profit forecast.

The Stoxx Europe 600 Index (SXXP) rose 0.3 percent to 301.96 at 1:02 p.m. in London, as trading resumed in the U.K., Ireland and Greece after yesterday’s public holiday. The gauge has climbed 8 percent this year to its highest level since June 2008 as central banks maintained stimulus measures.

“I am overweight financials,” said Kevin Lilley, a fund manager at Old Mutual Asset Managers U.K. in London, which oversees about $6.1 billion. “It’s been a mixed bag on the earnings front, but surprises are coming through on the financials. I see the market continuing to grind higher.”

Futures on the Standard & Poor’s 500 Index gained 0.1 percent today, while the MSCI Asia Pacific Index rallied 1.2 percent as the Reserve Bank of Australia cut its benchmark interest rate to a record low.

The RBA unexpectedly reduced the overnight cash-rate target by a quarter percentage point to 2.75 percent. Eight of 29 economists predicted the seventh cut in the past 19 months, while money markets had seen about a 50-50 chance.

Five-Year High

Europe’s Stoxx 600 (SXXP) closed little changed near a five-year high yesterday as services and manufacturing output shrank for a 15th month, while European Central Bank President Mario Draghi said policy makers are ready to cut interest rates if needed….”

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“The yuan strengthened the most this year as Premier Li Keqiang pledged to come up with a plan this year that would allow investment capital to move more freely in and out of China.

The proposal, part of the government efforts to loosen control over the currency and interest rates, will include a mechanism enabling individuals to invest overseas, the nation’s Cabinet said yesterday. People’s Bank of China Deputy Governor Yi Gang said last month the yuan’s trading band will be widened “in the near future.” The central bank raised the daily reference rate0.05 percent to 6.2083 per dollar, shy of the record 6.2082 on May 2. The currency is allowed to diverge a maximum 1 percent from the fixing.

“China is moving forward with exchange-rate reform and making the yuan more globally used,” said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd. “There have been bets the trading band will be widened, giving more room for appreciation. Yet, it’s unlikely to happen soon as that might fuel speculation and worsen inflation.”

The yuan rose 0.2 percent, this year’s largest one-day gain, to close at 6.1541 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It dropped 0.18 percent yesterday, the most since December, as China intensified scrutiny of cash transfers from abroad. The currency has gained 1.2 percent this year and touched a 19-year high of 6.1521 on May 6.

Offshore Market

In Hong Kong, the yuan gained 0.28 percent, the most in four months, to 6.1585 per dollar, according to data compiled by Bloomberg. It dropped 0.35 percent yesterday, the biggest loss since March 2012, after the currency regulator said it would step up efforts to ensure companies and banks are not bringing in cash for speculative purposes….”

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“The Topix Index (TPX) climbed the most in a month, erasing losses from the 2008 collapse of Lehman Brothers Holdings Inc., as Japanese markets reopened from a holiday during which the yen slid and U.S. jobs data beat estimates.

Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, rose 6.4 percent. Toyota Motor Corp. (7203) added 4.9 percent after the Nikkei newspaper reported the carmaker will beat profit estimates when it posts results tomorrow. Japan Steel Works Ltd., which forges reactor containment vessels, surged 16 percent after Japan won its first nuclear plant order since the Fukushima meltdowns.

The Topix rose 3.1 percent to close in Tokyo at 1,188.57, a level not seen since before Lehman filed for bankruptcy protection on Sept. 15, 2008. Japan’s broadest gauge of equities has rallied 65 percent since mid-November, making it the world’s best-performing major stock index, as the yen weakened amid optimism a change in government and central bank leadership will pull Japan out of deflation.

“We saw solid U.S. jobs data even though the market was nervous about downside risks, and that’s boosting stock buying,” said Isao Kubo, a Tokyo-based equity strategist at Nissay Asset Management Corp., which oversees about 5 trillion yen ($50.5 billion.) “As the yen has weakened, corporate forecasts suggest profits are going to improve a lot this year. The market likes that.”

After a record earthquake and tsunami, nuclear meltdowns and a surge in the yen, Japan is the last of the five biggest equity markets to recover to pre-crisis levels. Topix industry groupstracking consumer lenders and real estate companies led the recovery from the March 2009 bottom following Lehman’s collapse, almost quadrupling.

Nikkei 225

The Nikkei 225 Stock Average (NKY) today climbed 3.6 percent to 14,180.24, closing above 14,000 for the first time since June 2008. The exporter-heavy gauge recouped its losses from the Lehman shock on March 9….”

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“The Reserve Bank of Australia cut its benchmark interest rate to a record low, driving down a currency that has damaged manufacturing and boosted unemployment.

Governor Glenn Stevens reduced the overnight cash-rate target by a quarter percentage point to 2.75 percent, saying in a statement that the Aussie’s record strength “is unusual given the decline in export prices and interest rates.” Eight of 29 economists predicted the seventh cut in the past 19 months, while money markets had seen about a 50-50 chance.

“The board has previously noted that the inflation outlook would afford scope to ease further,” Stevens said. “At today’s meeting the board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy.”

He joins global counterparts in embracing record-low rates in an economy where inflation is contained, mining spending is predicted to crest, and credit growth remains subdued. Stevens is aiming to rebalance growth as mining regions in the north and west thrive and manufacturers in the south and east struggle.

“It’s a seminal decision to put a 2 in front of a decimal point for interest rates, and the RBA has decided to maintain its easing bias,” said Joshua Williamson, a senior economist at Citigroup Inc. in Sydney who predicted today’s decision. “The currency has been the thorn in their side and the inflation data was the catalyst to act on the exchange rate concern.”

Currency Reaction

The Australian dollar fell to $1.0199 at 5:19 p.m. in Sydney, from $1.0238 before the decision. Three-year government bond yields dropped to as low as 2.47 percent, the least since Oct. 16. The benchmark S&P/ASX 200 Index (AS51) pared a loss of as much as 0.7 percent to close 0.2 percent lower….”

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

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U.S. equities traded in its narrowest range today for the year. Essentially it was a samich day. The DOW transports did hit new highs after Friday’s big gains…so some happiness there full the bulls.

Defensive stocks, drugs, and food companies lagged while bank stocks led the way.

Market update 

 

[youtube://http://www.youtube.com/watch?v=X0B41tBTTko 450 300]

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“The Financial Times reports exclusively the Commodities Futures and Exchange Commission is studying whether Bitcoin would fall under their purview.

CFTC head Bart Chilton told the paper Bitcoin “is for sure something we need to explore,” adding, “It’s not monopoly money.”

Another anonymous source said that the regulator is “seriously” examining the issue….”

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“David  Rosenberg the veteran Wall Street economist and bearish strategist at Gluskin Sheff, gave an intense presentation on Friday at John Mauldin’s Strategic Investment Conference.

Titled “Bernanke: The Wizard Of Potemkin,” this presentation offers a sobering look at the anemic U.S. economy, the labor market mess, and the Federal Reserve’s controversial efforts to get everything back on track.

Before you can even think about getting bullish, you must consider the eye-opening charts from Rosenberg’s presentation.

Thanks to Gluskin Sheff for giving us permission to feature this presentation…..

Full presentation & article

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“David Kostin, Goldman Sachs‘ chief U.S. equity strategist, sees almost no upside to the S&P 500 from now through the end of the year.

However, within the market he sees no shortage of stocks and sectors expected to outperform.

In his new U.S. Monthly Chartbook, Kostin provided an updated list of stocks with the most upside potential today.

This time around, the list is dominated by oil and gas firms including drillers or refiners.  The rest are ringers across a broad range of industries, from tires to telecom.

According to Goldman’s analysts, the 40 stocks on this list offer 23% to 57% upside relative to their recent prices.

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“Dr. Ron Paul

Last week at its regular policy-setting meeting, the Federal Reserve announced it would double down on the policies that have failed to produce anything but a stagnant economy. It was a disappointing, but not surprising, move.

The Fed affirmed that it is prepared to increase its monthly purchases of Treasuries and mortgage-backed securities if things don’t start looking up. But actually the Fed has already been buying more than the announced $85 billion per month. Between February and March, the Fed’s securities holdings increased $95 billion. From March to April, they increased $100 billion. In all, the Fed has pumped more than a half trillion dollars into the economy since announcing its latest round of “quantitative easing” (QE3) in September 2012.

Although many were up in arms when the Fed said it would buy $600 billion in government debt outright for the previous round, QE2, all seems quiet about the magnitude of QE3 because it doesn’t come with huge up-front total price tag. But by year’s end the Fed’s balance sheet could hit $4 trillion.

With no recovery in sight, where’s all this money going? It is creating bubbles. Bubbles in the housing sector, the stock market, and government debt. The national debt is fast approaching $17 trillion, with the Fed monetizing most of the newly issued debt. The stock market has been hitting record highs for the past two months as investors seek to capitalize on the Fed’s easy money. After all, as long as the Fed keeps the spigot open, nominal profits are there for the taking. But this is a house of cards. Eventually, just like in 2008-2009, the market will discipline the bad actions of the Fed and seek to find the real normal….”

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“What is “obvious” to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum.

Longtime readers know my analytic perspective is based on what psychiatrist/author R.D. Laing called the Politics of Experience.

Survival+ 6: The Politics of Experience (April 2, 2009)

Survival+ 7: Simulacrum and the Politics of Experience (April 3, 2009)

In his prescient 1972 lecture, The Obvious, Laing explained the inherent difficulty of understanding “the obvious” when a systemic madness is taken as “normal”:

To a considerable extent what follows is an essay in stating what I take to be obvious. It is obvious that the social world situation is endangering the future of all life on this planet. To state the obvious is to share with you what (in your view) my misconceptions might be. The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them.

We can summarize one aspect of this analysis by asking: what is “obvious” to those inside a system and what is “obvious” to those outside the system? Our experience of what is “obvious” says a lot about our cultural context and assumptions: the manufacture of our “news” and consensus, the mystification of our experience via propaganda and simulacra, what we perceive as “normal” relationships, work, goals, etc.

What is “obvious” to most participants is that the stock rally is fueled by central bank liquidity and quantitative easing, and since there is no limit in sight to these policies, there is also no limit to the stock market running higher.

It is also “obvious” that betting against this trend is an excellent way to lose money, so the number of people shorting the market dwindles with each push higher.

Equally “obvious” is the incentive to borrow money via margin to invest in the rising market: the higher it goes, the more you can borrow, and the more you borrow and plow into the market, the more you make. It is a wonderful self-reinforcing feedback loop.

Thus record-high margin debt is not a warning sign but evidence that the music is still playing, so by all means, keep on dancing:

Near-Record NYSE Margin Debt Leads to Caution (Bloomberg)

That the disconnect between the real economy and the stock market is widening is obvious, but there doesn’t seem to be any intrinsic reason why it can’t continue widening. As a result, many analysts are calling for a brief retrace and then another leg up to new highs. Others see a serious decline (10%+) this summer and a new high in Q4 2013 or Q1 2014.

In other words, what might be obvious to those outside the system–that all liquidity-driven bubbles end badly, usually when participants are convinced there is nothing to restrain the trend from going higher–is not at all obvious to participants and those cheering them on (the MSN, the Federal government and the Fed).

What I sense is a near-universal resignation of those attempting to call a top in the market, an acceptance that the trend is up for the foreseeable future and that trying to short this market (i.e. profit from a decline) is a fool’s game.

The number of those willing to short the market, i.e. take the other side of the trade, has dwindled. Every sharp rally like last Friday’s eliminates entire divisions of shorts, leaving the trade even more one-sided.

Yes, the market is manipulated and totally dependent on central bank QE, liquidity and outright buying of stocks and bonds. But the market is not as stable as presumed, and one-sided trades tend to capsize when everyone who feels safe being on one side of the boat least expects it.

Every trader wants to short the market after it becomes obvious the trend has reversed. But since there are so few shorts left, the decline (should one ever be allowed to happen) might not be orderly enough for everyone to pile on board. More likely, the train will leave with few on board and the initial drop will leave everyone who was convinced the uptrend was permanent standing shell-shocked on the platform with margin calls in hand…..”

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“Last month we laid out the reasons why France was On The Brink Of A Secondary Depression—in short, due to a deadly collision of French politics with Frankensteinian monetary union. Unfortunately, subsequent data confirms the bleak trajectory:

The INSEE Business Climate Survey has fallen below 88 (or two sigma below the mean). This indicates France is entering into a recession as nasty as 1993 and perhaps as nasty as 2008-2009. She will enter into this recession with government spending at 57% of GDP, an all-time high, and with a debt-to-GDP ratio close to 90%—and that’s not including the liabilities for civil servant pensions. If they were included, the debt to GDP ratio could double, according to some estimates (see the report on public finances by Michel Pebereau).

Even Francois Hollande is beginning to wake up to just how destructive and anti-business the French agenda is. On Monday, Hollande announced measures designed to encourage the French entrepreneurial spirit – essentially by watering down programs he himself imposed after winning the presidential election last year.

The new agenda includes cuts in capital gains taxes. The effective capital gains tax will now decline by 2 percentage points, to 32.5%. This is better than last year’s outlandish move to effectively bump up the capital gains tax to as high as 62% in some cases. But the president’s reversal is the desperate move of a cornered politician, not a sign that we will see a steady hand on the tiller of reform in coming years.

Take a look at the table above. France is a serious laggard against most of the other major European economies (except Italy) on almost all tax indicators.

• Between 2000/2011, the overall tax to GDP ratio went down about -1.6 percentage points across the European Union: -2.6pp in Germany, -1.4pp in the UK, and -7.2pp in Sweden. In France it contracted by just -0.3pp. France is now poised to overtake Sweden as the most heavily taxed major country among the 27 nations in the European Union, with an overall rate of 44% vs 39% for the EU as a whole.
• French implicit taxes on capital gains rose by 4.3pp in 2000-2011, an increase surpassed only by Italy and sharply at odds with the declining trend in Germany (-5pp), the UK (-9.1pp), Sweden (-16pp) and the Netherlands (-7pp), not to mention euroland as a whole (-2.7pp).
• In absolute terms French implicit taxes on capital are a gigantic outlier at 44.4%, compared to an average of 27.2% among the 17 nations in the euro area.

In this context, Hollande’s reversal on capital taxes reminds me of the guy walking up the steps to be hanged, who slips, falls and says “could have been worse.” France remains one of the deadliest environments for entrepreneurs…..”

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SOURCE
NYSE

NASDAQ

AMEX

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Upgrades – CLF, DG, HBI, HUM, INTC, KNOP, PVTB, THOR, UNH, YRCW,

Downgrades – SAN, BBVA, BSFT, CORT, EGO, EXC, HTWR, MCO, PCAR, PAAS, WFT

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In Play ,

On the Wires 

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“The stock markets closed on Friday at their all-time highs.
However, one of the biggest headscratchers has been the nature of the stock market rally.
Specifically, the more conservative sectors like health care have been outperforming the more volatile cyclical sectors.
If people feel good about the economy, they should hunger for risk and invest in more economically sensitive names.
However, investors have been doing the exact opposite month after month this year.
Morgan Stanley’s Adam Parker talks about this in a new note titled “The Definition Of Insanity”:
Doing something over and over again and expecting a different outcome? Once again, high-beta stocks, cyclicals and smaller stocks underperformed in a strong market during April. In a break from the prior three months, junk narrowly beat quality while value beat growth.
One explanation for this discrepancy could be…”

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“Private-equity firms TPG Capital and Warburg Pincus are exploring a sale or a public offering of Neiman Marcus Group, according to a Bloomberg News report late on Sunday.

The private-equity firms, which bought the Dallas-based retailer in 2005 for $5.1 billion, have interviewed banks and are about to hire Credit Suisse Group to run the dual track process, according to the report, which cited two people familiar with the situation.

A Credit Suisse spokesman declined to comment…..”

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“TRENTON, N.J. (AP) — Men who are bashful about needing help in the bedroom no longer have to go to the drugstore to buy that little blue pill.

In a first for the drug industry, Pfizer Inc. told The Associated Press that the drugmaker will begin selling its popular erectile dysfunction pill Viagra directly to patients on its website.

Men still will need a prescription to buy the blue, diamond-shaped pill on viagra.com, but they no longer have to face a pharmacist to get it filled. And for those who are bothered by Viagra’s steep $25-a-pill price, Pfizer is offering three free pills with the first order and 30 percent off the second one.

Pfizer’s bold move blows up the drug industry’s distribution model. Drugmakers don’t sell medicines directly to patients. Instead, they sell in bulk to wholesalers, who then distribute the drugs to pharmacies, hospitals and doctors’ offices.

But the world’s second-largest drugmaker is trying a new strategy to tackle a problem that plagues the industry. Unscrupulous online pharmacies increasingly offer patients counterfeit versions of Viagra and other brand-name drugs for up to 95 percent off with no prescription needed. Patients don’t realize the drugs are fake or that legitimate pharmacies require a prescription.

Other major drugmakers likely will watch Pfizer’s move closely. If it works, drugmakers could begin selling other medicines that are rampantly counterfeited and sold online, particularly treatments for non-urgent conditions seen as embarrassing. Think: diet drugs, medicines for baldness and birth control pills.

“If it works, everybody will hop on the train,” says Les Funtleyder, a health care strategist at private equity fund Poliwogg who believes Pfizer’s site will attract “fence-sitters” who are nervous about buying online.

The online Viagra sales are Pfizer’s latest effort to combat a problem that has grown with the popularity of the Internet….”

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“May 6 (Reuters) – Tyson Foods Inc, the largest U.S. meat processor, reported a 43 percent fall in quarterly profit as shoppers and restaurants switched to cheaper chicken from beef to save money.

“Our beef segment suffered margin compression as consumers opted for the relative value of chicken,” Chief Executive Donnie Smith said in a statement on Monday….”

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