Recap 5-24-12

Main Items:

· Initial Jobless Claims were unchanged at 370k last week as exp

· US Durable Goods Orders increased 0.2% MoM in Apr as exp, but the ex Transportation figure declined to -0.6% MoM vs +0.8% exp and -1.1% prev.

· US Capital Goods Orders Nondefense Ex air declined -1.9% MoM in Apr vs +0.8% exp and -0.8% exp. Las month’s figure was revised lower to -2.2%

· Markit’s Flash US PMI declined to 53.9 in May vs 56 in Apr

· EU summit ends with no major breakthroughs as expected. Next one is on June 28-29

· FT: The end of a six-decade passion for equities could lead to a less flexible, more conservative model of corporate financing

· Latest poll shows Syrzia in the lead with 30% of votes.


  • EU PMI in May:
  1. Composite PMI declined to 45.9 vs 46.6 exp and 46.7 prev
  2. Mfg PMI declined to 45 vs 46 exp and 45.9 prev
  3. French Mfg PMI was especially weak, hitting a new post Lehman low, but German Services PMI was unchanged

German IFO Business Climate Index declined to 106.9 vs 109.4 exp and 109.9 prev

China HSBC Flash Mfg PMI declined to 48.7 in May vs 49.3 prev

UK GDP declined -0.1% YoY in 1Q vs 0.0% exp and prev.

Upcoming Data:

  • Thurs: Japan PMI
  • Fri: Italy Hourly Wages, UMichigan Confidence
  • Mon: US Memorial Day, Italy Business Confidence, South Korea Business Survey,


Earlier this week, I expected that market reaction to today’s data is likely to drive the next move in risk assets. It now looks like the market has gotten ahead of the data, and some retracement of the selloff is likely. The EU PMI prints were pretty weak, as was the China HSBC Flash PMI print. The German IFO disappointed. US Capital Good orders were also not particularly good, (although this may be due to the well known 1st month of a quarter effect) and nothing came out of the EU meeting. Despite this, risk assets appear to all be doing well. And intraday price action suggests real money have been getting involved at these prices. Finally, note that the AAII bulls-bears differential hit a bearish extreme last week. As a result, a tactically long risk position looks attractive here, as does being short implied vol vs realized. 1m S&P implied vol is currently 7 vols rich vs 1m realized, and they go off before the Greek elections.

Separately, note that instead of saving money for government expenditures, Greece has decided to pay off a bond issued under UK law and is using much of its remaining cash to recapitalize its banks so that they can regain access to the ECB liquidity window. This, of course, is because the Greek government realizes that it is more important that Greek banks don’t run out of cash than the Greek government running out of cash. To some extent, this is a tacit recognition that it may be a long time before a large enough coalition can be formed to establish a government. It appears that many on both sides now expect that a cessation of additional bailout funds and the resultant halt in Greek government cashflows will be required before some sort of political coalition can be formed.

Finally – note that in November, the General Staff of the Greek Armed Forces were reportedly replaced without warning.