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China anti-trust regulator conducts new raids on Microsoft, Accenture (Reuters
Hedge Funds Betting Against Banco Espírito Santo in Line for Big Gains (WSJ
China's Yuan Rises Beyond PBOC Fixing for First Time Since March (Bloomberg
Fox Rationale for Time Warner Unraveled With Share Drop (Bloomberg
Sprint drops bid to buy T-Mobile after regulatory resistance (Reuters
Firstly, the slew of economic data from Europe this morning is having a negative effect on all risk assets. German factory orders declined 3.2% (+0.9% expecte) and on a quarterly basis Italy's recession worsened. The Italian FTSEMIB (-2.53%) is the worst performing index this morning, risk adjusted or otherwise. Additionally, if the situation in Ukraine continues to escalate, the EUR should continue to come under additional pressure - Russia accounts for 30% of trade to the Eurozone.
Secondly, Poland increased its warning rhetoric this morning, saying that the invasion threat has increased in the last 12 hours. Poland's Prime Minister said that the invasion could be made under the guise of a peacekeeping mission - Russia would not be the first to use such an excuse. This tension seems to be the overriding theme. Similarly, NATO made similar comments this morning, saying that Russia may send troops over the border under a peaceful pretext and warns that the buildup of troops - 45,000 now including and more than 1,000 armored vehicles - is very dangerous. Still, we're a ways off from a full blown shooting war in Ukraine - this remains a regional conflict for the moment.
Thirdly, two major risk arb trades are unraveling overnight, and this will be a very large overhang for risk markets today as these trades will need to be hedged or they will drag down their respective sectors. One is the announcement that Sprint
(S) is withdrawing its bid for T-Mobile
(TMUS) due to regulatory pressure - presumably anti-trust. The other is 21st Century's Fox
(FOX) withdrawal of its bid for Time Warner
(TWX) due to resistance by the company. Instead, it's going to buyback $6bln in stock. Hey, if you can't do M&A, why not corporate engineering?
Interestingly, the Chinese Yuan (CNY) has strengthed beyond the PBOC's fixing for the first time since March. That is a very useful piece of information and underlines how the recent strength in local equities has been driven by outside investment. The 0.66% appreciation in the currency versus the USD comes in spite of
a 2.16% rally in the trade-weighted dollar. The obvious thing to point out is that if US real interest rates begin to rise in the US, in conjuction with this rally in the dollar, it could reverse those flows. On the positive side, I noticed this morning that China is speeding up the creation of a deposit insurance system during the second half of this year.
Lastly, very strong buying flows were reported overnight in US Treasuries. Volume there is running at 183% of the 10-day average.
- Italy 2Q GDP (prelim) QoQ down -0.2% vs 0.1% expected, prior -0.1%
-- YoY down -0.3% vs 0.1% exp, prior -0.4%
- German factory orders MoM (June) down -3.2% vs 0.9% exp, prior -1.6%
- New Zealand 2Q unemployment rate down to 5.6% vs 5.8% exp, prior 5.9%
-- Average hourly earnings QoQ up 0.5% vs 0.6% exp, prior 0.7%
- UK manufacturing production MoM (June) up 0.3% vs 0.6% exp, prior -1.3%
-- industrial production up 0.3% vs 0.6% exp, prior -1.7%
- Swiss CPI YoY (July) unchanged at 0.0% vs 0.0% exp
-- MoM down -0.4% vs -0.4% exp, prior -0.1%
US Economics (Time Zone: EST)
07:00 MBA Mortgage Apps
08:30 Trade Balance (June) - expected -$45B, prior -$44.4B
2:00 Fed's Beige Book
11:00 Fed to purchase $1.4b-$1.7b notes in 4 to 5-year range
Apollo Global Management
Alpha Natural Resources
Starwood Property Trust
Keurig Green Mountain
No positions in stocks mentioned.
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