Recap 4-16-12

Main Items:

· US Retail Sales ‘Control’ increased 0.4% in March vs 0.5% exp and prev. The headline figure increased 0.8% vs 0.3% exp and 1.1% prev as a result of Autos sales & building materials.

· Empire Mfg declined to 6.56 in Apr vs 18 exp and 20.21 prev

· NAHB Homebuilder Sentiment dropped to 25 in April vs 28 exp and prev.

· Execs at some of Europe’s top banks said they anticipate ratings cuts of at least 1 notch. Moody’s expects to announce its decision in early May. Moody’s is following rival agencies, which already downgraded many of the banks now under review by Moody’s – WSJ

· Upcoming EU elections (Apr 22 round 1 in France and May 6 in Greece) are getting increased press coverage. Hollande is now ~10pts ahead of Sarkozy ahead of the Apr 22 first round elections.

· Citi earned 95c per share versus $1.02 expected. Revenue was $19.41bn. Revenue includes a debt valuation adjustment of $1.3bn.

Overseas:

• China announced the widening of the currency trading limit to 1% from 0.50%.
• Swiss Producer & import Priced declined to -2.0% YoY in March vs -1.8% exp and -1.9% prev

Upcoming Data:

• Tues: UK CPI, EU CPI, German ZEW, US Housing Starts, BoC
• Wed: BoC Minutes, UK Employment, Japan Trade
• Thurs: US Jobless Claims, Philly Fed, Existing Home Sales, EU Cons Conf
• Fri: German IFO, PPI, Canada CPI,

Commentary:

The building materials surprise in US retail sales is encouraging, but the seasonal effects of warm weather can’t be ruled out yet. The forward looking NAHB index suggests that despite the better trend the past few months, there is likely to be some payback in this segment next month.

Separately, Spanish debt continued to lead EU risky assets lower. Over the past year, Spanish spreads over bunds have tended to widen ahead of Bono maturities. There isn’t much historical data, but if this tendency repeats, we could see EU stress through the next Bono maturity on 4/30.

The broader picture continues to look mixed at the moment, with a fairly high degree of uncertainty around the distribution of possible outcomes. Pertinent questions include:
-How much has the US data been skewed by warm weather effects?
-How will recent EU spread widening affect EU growth given the LTRO?
-How will the EU drama evolve from here? What happens if you solve the liquidity problem but not the solvency problem at the sovereign level?
-How much more can the EUR weaken without additional ECB easing / Fed tightening?
-How much policy easing can we expect out of China? (note that Soybean prices are near all time highs again)
-How much rebalancing is likely to occur, especially given the leadership transition this November? (note that 7 of the 9 politburo members are retiring!)
-Does the widening of the USDCNY band mean anything? How much of recent CNY weakness is due to seasonal & hot money repatriation effects?
-How much investment is likely to be delayed given the uncertainty around future tax policy, and by extension, the US election?
-What does Apple’s 9% decline over the past 5 days say about broader market technicals?
-How will US Treasury yields react as we get closer to the end of Operation Twist?
-How will US equities react as we get closer to the end of Operation Twist?
-How will US earnings guidance evolve?
-How will the SNB act once Hildebrand becomes the official chairman?
-Will the BoJ aggressively increase its QE program at month end? Will it have any effect on growth or the Yen?
-Is the MPC done with QE given the better data?
-What’s the floor for Nat Gas?
-Will we get another drought this summer?
-How will the record increase in US student debt play out?