S&P 500 In Third Straight Drop, J.C. Penney Off Late (16May)

- STI: +0.44% to 2876.7

- MSCI Far East ex-Japan: -0.06% to 466.6

- Euro Stoxx 50: -1.06% to 2178.7

- S&P500: -0.57% to 1330.7

The Eurozone narrowly avoided a recession as 1q12 GDP stagnated at 0% (-0.2% consensus), buoyed by Germany's export charged GDP clocking 0.5%q-q growth, 5x ahead of expectations. Contrast this with 0%q-q growth for France, Italy -0.8%q-q, and Spain -0.3%q-q. We expect the Eurozone to be in recession this year followed by renewed risk in 2013 as the New Fiscal Compact kicks in.

US retail sales expanded 0.1%m-m following 0.7% previous month expansion. We continue to focus on the income side to gauge sustainability of consumption, so far real incomes do not suggest a +2.2% recovery, our expectation is 1.9% this year.

China’s FDI fell for a sixth straight month in April, by 0.7% y-y, compared to a 6.1% drop in March, indicating worsened investment environment due to weak domestic expansion and the crisis in Europe. As reported earlier, the nation’s April Industrial output growth slowed to 9.3% y-y, worsened than the growth rate of 11.9% y-y in March, while inflation pressure eased from 3.6% in March to 3.4% in April. The dropping FDI and the slowdown in industrial output signaled the growth might not have reached the bottom yet. But given the eased inflation pressure, we expect greater room for monetary policy loosening.

Singapore’s March real retail sales rose by 7.2% y-y, lower compared to the 18.2% gain in Feb, but still outperforming the market expectation. The gain is supported by an expanding tourism and also an increase in car sales boosted by prices of car permits.

South Korea’s April Export price index rose by 2.0% y-y, compared to 0.0% in March. On m-m term, the export price increased by 0.6%, improving slightly from the 0.5% m-m increase in March. Import price index growth slowed down to 1.7% y-y, the lowest rate in over 8 months, compared to the 3.5% gain in March. On m-m basis, the import price fell by 1.0%, after a 1.7% m-m gain in March. The weak growth in export and import price growth reflect weak domestic and global demand.

Greece's President's attempt to form a technocratic government has failed, thus the nation goes to the polls on June 10th. As this general election is really a vote about whether to stay in the Euro or not, the electorate may reconsider their vote given that polls indicate that 80% want to remain in the Euro. Yet thinking about it, the real poll question should be: "Do you rank being in the Euro as more important than rejecting austerity?" If Greeks rank rejecting austerity higher than being in the Euro, the vote outcome may not be for the Euro so to speak, even if the vast majority want it. The event of an exit even if "managed", would be a sell first see later scenario for markets, as contagion risk is heightened with Spanish yields above 6% and Italian yields fast approaching.

At present, equity markets are still bearish. The STI, SETI and JCI managed some decent looking candlesticks yesterday off support levels, but chances of a follow thru are slim given the overall backdrop is uncertainty in Europe coupled with slowing economies globally. Asset price signals corroborate the economic outlook of weak growth lower inflation: commodities continue their bear trend with renewed vigor as crude oil is hammered, US treasuries are now trading below 1.8%, US dollar is rallying. Equity indices everywhere are biased to the downside, though most are close to support levels. Looking beyond this sell-off, by June or July we could also see some major policy actions as central banks mitigate the growth risks with policy loosening, as inflation is coming off fairly convincingly to allow for policy room.

(Our general guidance in our morning notes has been, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. /// Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

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S&P 500 Down For 4th Day of Five, Groupon Up Late (15May)

- STI: -0.67% to 2864.1

- MSCI Far East ex-Japan: -0.93% to 466.9

- Euro Stoxx 50:  - 2.33% to 2201.95

- S&P500: -1.11% to 1338.4

New Zealand’s 1Q12 retail sales fell by the most in 3 years. Real retail sales fell by 1.5% q-q, compared to the 1.8% gain in 4q11. This fall is due to a surge in 2H11 fueled by tourism tied to the Rugby World Cup. The weak consumer spending was also associated with the disappointing 6.7% unemployment rate, and underscored central bank Governor Alan Bollard’s decision to keep the official cash rate at 2.5 percent since March 2011, and may also motivate a further cut.

Japan’s April export price index fell for a sixth time in 7 months, by 2.8% y-y, compared to the 0.1% gain in March. Export prices for chemicals and electronics dropped the most, by 4.5% and 6.1% respectively. April import price index increased by 1.6%, marking the slowest increase in over 7 months. The drops of export and import prices reflected the weak global demand due to European debt crisis and China’s slower expansion.

India’s April inflation measured by WPI growth rose to 7.23%, after the government’s bold action to cut its repo rates and reverse repo by 50 bp to 8.0% and 7.0% respectively on 17 April, despite previously suffering inflation as high as 6.69%. Our bet that the April 17 cut was the last rate cut the government seems to be more certain. The sub price index for food articles rose by 10.49% y-y in April, compared to the 9.94% increase in March. The sub index for non-food manufactured products rose by 4.77% y-y, compared to the 4.68% growth in March.

Unfortunately, the latest effort to form a ruling government in Greece came to an impasse as the Democratic Left's condition that it join Pasok and New Democracy to form a coalition, only if anti-bailout party Syriza joined as well, was rejected by Syriza. European markets now join the US and Asia in a tailspin on the fear of the unknown if Greece were to exit the EZ. Latest talk now is that the Greek President will attempt to form a technocratic government to govern. Contagion risk is heightened with Spanish yields above 6% and Italian yields fast approaching.

Asset price signals corroborate the economic outlook of weak growth lower inflation: commodities continue their bear trend with renewed vigor as oil is hammered, US treasuries are now trading at 1.76%, US dollar is rallying. Equity indices everywhere are biased to the downside, though most are close to support levels. Looking beyond this sell-off, by June or July we could also see some major policy actions as central banks mitigate the growth risks with policy loosening, as inflation is coming off fairly convincingly to allow for policy room.

(Our general guidance in our morning notes, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

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Stocks Face Choppy Seas of Bank Woes, Uncertainty (14May)

- STI: -0.70% to 2883.4

- MSCI Far East ex-Japan: -1.20% to 471.3

- Euro Stoxx 50: +0.32% to 2254.5

- S&P500: -0.34% to 1353.4

China’s latest output data continues to signal a fairly broad slowdown and declining inflation. April inflation eased to 3.4% y-y, compared to 3.6% y-y in March. Food price slowed to 7% y-y. April PPI fell by 0.7% y-y, compared to the 0.3% drop in March. April new yuan loan was 681.8 bn, lower than the market estimated 780 bn, after a surge in March to 1010.0 bn. Industrial output growth slowed to 9.3%, lower than market estimated 12.2%, after a growth of 11.9% in March.  Fixed Asset Investment increased by 20.2% y-y, compared to the 20.9% growth in March. 

April retail sales rose by 14.1% from a year earlier, slower than the 15.2% gain in March. Among all sub-categories, the sale for petroleum slowed the most to 15.9%, compared to 23.7% in March. As slowdown was apparent in all fronts, the government announced a reserve requirement cut by 50 bp, to 20%, on 18 May onwards. This measure would release additional liquidity of around 40 bn rmb to the market. With the uncertainty of Europe debt crisis haunting over the nation's export, this cut would not be the end and we expect more policy loosening in the future.

Hong Kong’s 1q12 real GDP rose by only 0.4% y-y, marking the slowest pace since global financial crisis, compared to the 3.0% y-y growth in rq11 as the uncertainty in Europe undermined export demand and confidence. Growth in household spending slowed down for a fourth quarter at 5.6% y-y, compared to the 6.6% growth rate in 4q11. Government spending increased 2.5% y-y, compared to the 2.2% y-y growth in 4q11. Investment growth accelerated to 12.2% y-y, improving from 9.8% y-y growth in 4q11. Goods export and goods import dropped by 5.7% y-y and 2.7% y-y respectively, compared to 2.0% and 3.9% gain in 4q11. Service export and service import rose by 3.6% y-y and 2.5% y-y respectively, slower than the 5.3% and 2.8% growth in 4q11.

With the exception of Europe, markets in the US and Asia still have an immediate bias to the downside, with even our Overweight markets Thailand and Indonesia having short term bearish divergences - most are however entering support regions/levels, so expect a reaction soon. The STI has a major support line at 2800.

Yes you read right, funnily enough, despite all the talk over a managed Greek exit, European equity markets - the Stoxx 50 - has actually put in bullish divergence. Germany has already dared Greece to leave, evidently officials are confident that exposure to Greece has been reduced such that the Euro will survive. Secondly, Greece may yet form a unity government if New Democracy and Pasok get an ally in the Democratic Left. If they fail, a second election will amount to a referendum on Greece staying in or out of the Euro - an overwhelming 80% polled to stay and want parties to compromise so that Greece can stay. Chances GE2 will produce a favourable outcome are high then. Either of the latter 2 outcomes would be positive for markets, an exit would raise too many questions.

Looking beyond this sell-off, by June or July we could also see some major policy actions as central banks mitigate the growth risks with policy loosening, as inflation is coming off fairly convincingly to allow for policy room.

(Our general guidance in our morning notes, as we weren't confident that econ/earnings data could outperform to drive markets, some combination of policy safety nets needs to occur (to reverse consolidation/correction) to push markets higher - QE3 revival, ECB intervention, further loosening by central banks to err on the side of growth as inflation recedes (India, Brazil, China, Australia already doing it), a China fiscal policy announcement. /// Longer term, we are still giving the heads up that post 6th November 12 USA presidential elections, markets could again be challenging going into 2013 - the US and EZ are under current law obliged to undertake tremendous fiscal tightening)

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