Recap 10-22-12

Commentary:

Something is happening in China. The recent rally in CNY spot, the improvement in relative Hang Seng performance (it hit a 52w high today) and in particular the HKD intervention all point to substantial capital inflows.

This is interesting. A one month improvement in the data is hardly reason to get optimistic after several quarters of downgrades. Global Tech, Mining, Construction Equipment companies have all missed earnings. The A share market also remains not far off the lows. And the China leadership transition is still occurring, with little clarity in terms of additional stimulus in the near future. If history is a guide, the transition actually takes several years to occur; oftentimes the previous leader holds onto various posts until well after he has retired from the Politburo.

During Caterpillar’s earnings call, the CEO said that many of their contacts inside China believe the leadership transition will be a watershed event. There are expectations of a substantial improvement by Chinese New Year. CAT’s CEO said that while these were all anecdotal, this was the first positive change in attitude in some time. Finally, CAT closed UP on the day, despite missing estimates and guiding lower. Is this really the start of a bigger pro-China move?

Notable:

  • Caterpillar sees 2012 EPS of $9.00-$9.25, down from their prior estimate of $9.60 and below the street at $9.42. Revenue was $16.4bn, missing the street at $16.74bn
  • Hong Kong Buys $603 Million in First Peg Intervention Since Dec 2009
  • JPM: 60% of the US HY market trades above its call price, which increasingly limits further price appreciation.

Upcoming Data:

  • Mon: Japan Trade Bal
  • Tues: BoC, Canada Retail Sales, AU CPI
  • Wed: EU PMI, German IFO, USMarkit PMI, US New Home Sales, FOMC
  • Thu: US DGO, Jobless Claims, Pending Home Sales,
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