26th January 2012: Bye Bye “Merkozy” Hello “Merkeron” – Hit Sarkozy Fire An Economic Bazooka Or Hurl A Political Boomerang?

Quote of the Day:

Austerity, as painful as it seems (and as much as the Europeans and the Americans say that “we don’t want austerity” under any measure) worked for Asia – and who are we to say that it won’t work for us?

Stephen Roach – Morgan Stanley Asia CEO

Macro Overview

Will Merkel Offer Cameron An Olive-Branch?

• What’s this? A Bloomberg report indicates that Merkel seems to be taking a step back from their joint stance with France to shun Britain out of the EU treaty debate – specifically on the rift over the Financial Transactions Tax. I was quite scathing about Cameron’s diplomatic approach to those negotiations… but I’ll be the first to admit – hey perhaps I was wrong?
• One thing for sure Sarkozy will be feeling a little abashed by this move by Merkel. Now there is talk of a Sourthern Periphery, a “soft core” and a “hard core” of which France is no longer a part of. Indeed the Sungard macro research team (below) imply that France will likely be an integral part of the next Eurozone crisis.
• Zut alors, Nicolas. Disintegration of your European policy, one of the pillars of the election campaign is not what you need at this moment in time. Sacrebleu!

Roachie Goes Austrian In Switzerland

• Good little Bloomberg interview with one of my favourite economists, Stephen Roach. But this is the first time I’ve heard him sounding so pro-austerity but you cannot get any clearer than this. Notice he also agrees that China will not have a hard-landing inChina. I’m inclined to agree,China just has too many stimulus alternatives to mitigate a down-turn even ifEurope plunges into recession.

Financial Software Company Providing Macro Research

• Well it’s an interesting ploy and I have to admit it makes sense for Sungard to show-off the capabilities of their multi-factor modeling systems by actually broadcasting the results. Hey, at least you know it’s independent and mathematically relatively unbiased. You can listen to the outcomes from their stress-tests here.  Makes for an interesting read, in fact – for example, if we see a segregation of Europe (PIIGS separate from core) then the factor correlations point to a 25% drop in Emerging Markets.

Market Overview

Equity Risk Back On

• Bernanke reassured investors that equities will find a fan in the Fed who will fan the inflationary fire as long as the adjustment process proceeded. Fantastic!
• AAPL came out and simply blew the lid off analyst estimates too… iphone 5? What iphone 5? Add in the falling sovereign spreads in Europe and it seems risk appetite is definitely back.
• One thing I will say… Volatility is beginning to look quite attractive again. VIX could easily go to 15 but I don’t think you can go wrong with beginning to nibble at single-name volatility trades with the VIX at 18. We have not entered a low-volatility paradigm, over the long term, we are still in a vol-spike minefield… possibly for the next 24 months. See Chart of the Day – VIX

Chart of the Day

VIX (Source: Bloomberg)

 

Events

Macro Events:

Update:

• Nothing Significant

Alerts:

• Japan Inflation
• South Korean GDP

 

Corporate Events:

Results:

• Canon [7751 JT], Chevron [CVX], Ford [F], Honeywell [HON], NipponSteel [5401 JT], NTT Docomo [9437 JT], Procter & Gamble [PG]

Dividends:

• Ford [F], Morgan Stanley [MS],Texas Instruments [TXN],

 

Reading, Links:

Nothing Significant