Morning Call – 6/3/2010

Stone Street Advisors

ChiBondKing – laszlochi@gmail.com

Morning Focus
There’s a lot of economic news, particularly in the US, so for those who want to skip ahead: Today’s Economic Calendar: Notable
Bond Market/Economic Events

Asia continued the rally sparked in the US, as people eye what is expected to be a positive non-farm payrolls number tomorrow in
the US. Hong Kong ended up 1.5pct to 19786, ASX 200 up 2.23 pct to 4478.50, Nikkei 225 +3.15pct to 9914.19. Europe is enjoying
a broad rally this morning, CAC up 2.15pct, DAX up 1.85 pct, FTSE up 1.58pct even as mixed economic numbers from the Eurozone
hit the tape this morning. US equity futures pointing to a higher open, while bonds continue to sell off. LIBOR rose to 0.64 vs.
0.637 this morning in early London trading. Bonds overnight saw yields higher in Europe and US as cash shifted out of fixed
income and into the equity markets. The curve is mixed at 7AM with the short end widening a bit vs. the midcurve, while mid to
longs are flat. The 2s30 remains nearly unchanged this morning.

Notable Overnight Headlines

Asia
BOJ warns on public debt as the search for a new PM continues (Reuters)
Australia April trade surplus A$134 mln (Reuters)
Japan Q1 corporate capex -11.5 pct – MOF (Reuters)
Japan Q1 Capital Spending -11.5% On Year (Reuters)
BOE's Posen: Japan debt woes unsustainable
Japan Residents Bought Net Y275.9 Billion In Foreign Stocks, Y1.17 Trillion In Foreign Bonds Last Week
Foreigners Sold Net Y80.6 Billion In Japan Stocks, Bought Net Y62.4 Billion In Japan Bonds Last Week
Australia banks used crisis to hike profit: report (MarketWatch)
China mulling property tax, but no timetable – rumor
Japan Central Bank offered 0.3Tr Yen JGB’s for enhanced liquidity auction
IMF Strauss-Kahn: Global Recovery Underway But Fragile (Dow Jones)
BOJ’s Suda made comments at a meeting of business leaders in Western Japan where he said that he was looking more
at downside risks to the Japanese economy, and the European debt woes, along with unstable markets is causing
nd
uncertainty for JP economic outlook. Suda also said that a pickup in consumption may slow in the 2 half of this year
into March 2011 (Reuters) – JP fiscal year end is around that time [Mar11]
BOJ Suda: Will Patiently Make Efforts To Pull Japan Out Of Deflation (Dow Jones)
Hong Kong May PMI Falls To 53.2 From 55.3 In April (HSBC/Markit)
China May Services PMI Falls To 56.4 From 58.5 In April (HSBC/Markit)
China Composite PMI Stands At 54.2 In May (HSBC/Markit)
SECURITIZATION LIVES - NZ's non-bank NZF Mortgages plans NZ$100 mln RMBS
JGB futures dip, 10-yr/30-yr curve flattens (Reuters)

Europe
EU Considering setting up its own ratings agency (AP)
French 1Q Jobless Rate 9.9% Vs 4Q 9.9% (Dow Jones)
Euro-zone April retail sales fall 1.2% (MarketWatch)
French ILO Mainland Unemployment Rate At 9.5% In Q1, Consensus 9.7%
French Q1 ILO Jobless Rate At 9.9%, Consensus 10.1%
German 2010 new borrowing seen at 70 bln eur-sources (Reuters)
PRU/AIG – Prudential confirms AIG deal is official, with termination fee of 152.6 mln pounds
Greece Fin Min comments: says he won't restructure debt, New head of Greek Statistics Service to be appointed next
week

See Important Disclosures on page 7

 Russia May Services PMI Falls To 55.9 From 56.9 In April (Markit)
Turkey May PPI Up 9.21% On Year Vs. 10.42% In Apr, Consensus 11.7pct
Turkish May CPI +9.10% On Yr, PPI +9.21 (Dow Jones)
Spain May Services PMI 52.3 Vs. 50.9 In April (Markit)
Italy May Services PMI 53.7 Vs. 54.5 In April, Consensus 54.8 (Markit)
France May Markit Composite PMI 60.1 Vs. 59.2 In April (Markit)
Eurozone May final services employment index 50.5 vs 49.8, first jobs growth since June 2008 (Reuters)
Euro-zone May services PMI 56.2 vs. 55.6 in April (MarketWatch)
U.K. May services PMI rises to 55.4 vs. 55.3 Apr (MarketWatch)
UK May CIPS Services PMI 55.4 Vs. 55.3 In April, Consensus 55.7 (Markit)
G-20 Draft: Capital Rules To Be 'Phased In As Financial Conditions Improve And Economic Recovery Is Assured' (Dow
Jones)
BP PLC to hold conf call with market analysts on Friday (Reuters)
U.K. house prices rise 0.5% in May: Nationwide (MarketWatch)
Cyprus May Unemployment Rises 3.2% On Month
Uruguay will issue 500 million bond when “markets are favorable” with a maturity over 20 years (Reuters)

US Pre Open
Economic News

US Auto sales look to be on a rebound, annualized rate from Super Wednesday at 11.6 million
US debt tops 13 trillion dollars for first time (AFP)
MNST – Monster US online employment index for May is highest since Nov. 2008 (Reuters)

Equities

VIX – VIX at 30.17, 10D MA is 35.66 (FlyOnTheWall)

JPM - FSA fines J.P. Morgan Securities GBP33.3M for failing to segregate customer accounts in its F&O subsidiary from
that of the actual firm (MarketWatch)
AAPL/NWS - Murdoch hails Apple's Jobs as top US CEO (AFP)
COST – Opening 5 new warehouses by end of GY10, Same store sales up 7pct in the US 17% international (MarketWatch)
BP – says the firm will pay the US 360M for 6 sections in effort to protect the barrier islands of Louisiana (Reuters) Fitch
cuts BP rating, puts on negative watch amid oil spill (AFP)

Interesting Morning Readings

Krugman: What Everyone In Chicago Knows: http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-

knows/?src=twt&twt=NytimesKrugman
The Three Sides Of Risk: http://mytradingnet.com/blog/2010/05/28/three-sides-of-risk/

Notable Bond Market/Economic Events

Bond Auctions (1PM ET)
o None today! Yippee!
Economic Releases For Today
o 8:15am: ADP Non-Farm Employment Change - Consensus: 68K
o 8:30am: Weekly Unemployment Claims – Consensus 451K, previous 460k, Nonfarm Productivity and
Unit Labor costs also due out
o 10:00a: ISM Non-Manufacturing PMI – Consensus 55.7, prev 55.4, Factory Orders m/m – consensus 1.7
prev -1.1pct
o 10:30am: Natural Gas Storage
See Important Disclosures on page 7
 o 11:00am: Crude Oil Inventories
o 11:15am: Bernanke Speaks!!
o 12:15pm: Fed’s Rosengren speaking
o 1:15pm: Fed’s Hoenig (the Hawk) speaks

Market Summary – 7AM

Futures Currencies Fixed Income

Symbol Last Chg Symbol Last Chg Symbol Last Symbol Last
DOW 10260 28 EURUSD 1.2251 0.0002 2s5s 133 US2Y 0.84
SP500 1099.75 3 GBPUSD 1.4683 0.0029 2s10s 253 US5Y 2.17
NSDQ 1882 3 EURJPY 113.55 0.71 2s30s 341 US7Y 2.84
ZBM0 122'00 -0'10 USDCAD 1.0381 -0.0005 5s10s 120 US10Y 3.37
ZNM0 119'065 -0'110 USDJPY 92.64 0.47 5s30s 208 US30Y 4.25
ZFM0 116'080 -0'072 NZDUSD 0.6861 0.0047 10s30s 88 UK5Y 2.3
ZTM0 108'290 -0'017 UK10Y 3.61
CLN0 73.29 0.43 UK30Y 4.34

See Important Disclosures on page 7

 Morning Call – 6/3/2010
Stone Street Advisors
ChiBondKing – laszlochi@gmail.com

Chartbook Thursday, June 03, 2010

Condensed version of the chartbook this AM, but the next pages show correlation matrices for US Fixed Income and our Selected Equities portfolio. The full
version will return on Monday’s morning call.

See Important Disclosures on page 7

See Important Disclosures on page 7
See Important Disclosures on page 7
 Morning Call – 6/3/2010
Stone Street Advisors
ChiBondKing – laszlochi@gmail.com

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