Recap 6-19-12

Main Items:

  • Bank of Spain has asked the four firms conducting the bottom-up audit of the Spanish banks (Deloitte, KPMG, PwC and E&Y) that the deadline for the exercise be extended until September, from 31 July initially
  • US Building Permits increased to 780k in May vs 730k exp. Housing starts declined to 708k vs 722k exp
  • RBA Minutes:
  1. The Board considered whether the recent information warranted a further reduction in the cash rate.
  2. The arguments were finely balanced.
  3. Recent domestic data generally had not suggested a significant weakening in conditions compared with the forecasts a month earlier.
  4. However, there was clear evidence suggesting a softening in global conditions, and uncertainty about the future in Europe had increased significantly
  5. Given this, and with inflation expected to remain in the lower part of the targeting range over the next year or so, members considered that there was scope for monetary policy to be a little more supportive of domestic activity.


  • German Zew Survey of Economic Sentiment dropped to -16.9 in June vs 2.3 exp and 10.8 prev
  • UK CPI declined to 2.8% YoY in May vs 3.0% exp and prev. Core CPI increased to 2.2% vs 2.3% exp and 2.1% prev.

Upcoming Data:

  • Tues: Japan Trade Balance, BoJ minutes
  • Wed: MPC Minutes, UK Claimant Count, FOMC
  • Thurs: EU PMI, UK Retail Sales, US Jobless Claims, Markit US PMI, Philly Fed, EU Consumer Confidence
  • Fri: German IFO, Canada CPI

Commentary & Links:

A small trade idea:
The chart below shows the Dow vs the S&P against an INVERTED US economic surprise index. As you can see, the correlation has been pretty decent. Recently, the relationship has diverged, possibly because of JPM’s ‘tempest.’ (white vertical line) However, it appears that over the past couple weeks JPM has started to outperform vs its peers, so perhaps this headwind is fading. It looks like the data is going to continue to get worse for a bit, so it may make sense to bet on a re-alignment, and go long INDU vs SPX. There’s not a lot of upside or downside on this one, probably +/-2%.