Morning Call – 7/7/2010

Stone Street Advisors

ChiBondKing – laszlochi@gmail.com

Morning Focus
Interesting overnight session, particularly in Europe: French trade balance was worse than expected at -5.5b vs. forecast of -3.9B.
Previous was -4.3B. Eurozone quarterly GDP was in line with estimates, +0.2pct, while German factory orders declined by 0.5pct
vs. an expected 0.5 gain – this metric was previously +3.2pct. Baltic Dry index continues its slide, falling over 5pct as I put the
finishing touches on this morning update. Asian markets were a mixed bag ahead of key economic data due out on Thursday from
the region: Australia down 0.5pct to 4254, Nikkei down 0.63pct to 9279, Hang Seng -1.13pct to 19857. The notable exception was
China (Shanghai) which was up 0.49pct to 2421. UK followed the broader Asian market lead – to the downside. Currently the FTSE
is down 0.85pct, DAX down 0.79pct, CAC40 down 1pct and ESTX down 0.86pct. No economic data in the US today, but the Ivey
PMI number in Canada is due out, refer to the economic calendar for details.

Notable Overnight Headlines

Asia
Australian Leading Employment Indicator Rises In July (DJ)
China 5-yr bond sale yield towards bottom of forecast (Reuters)
PBOC Official: China 2010 GDP Growth Likely 9.5%, China GDP Growth To Slow 2H But Double Dip Unlikely (DJ)
Japan Auto Association Head: Very Concerned About Yen Strength (DJ)
China committed to U.S. Treasuries, tepid on gold (Reuters)
Australian July Leading Employment Indicator Minus 0.599 Vs. Minus 0.832 In June: DEEWR
Australia construction sector shrinks in June (Reuters)
Japan's executive-worker pay gap narrows: report (MW)

Europe
Eurozone Q1 GDP Rises 0.6% On Year
Polish cbank chief urges govt to tackle budget gap (Reuters)
Greece June HICP Up 5.2% On Year, Down 0.2% On Month
ECB calls for bids in 7-day dollar lending operation, Overnight deposits at ECB fall (Reuters)
UK gilts boosted by equities slide, stress test concerns (Reuters)
Russia bank lending up 3-4 pct in Q2-cbank (Reuters)
EU lawmakers curb bank bonuses, risk taking (Reuters)
Hungary May Industrial Output Up 13.7% On Year, Consensus 8.2%
Portugal May Industrial New Orders Down 3.2% On Year
German May Factory Orders Fall 0.5% On Month, Consensus 0.3% Rise

US Pre Open
Economic News

OECD: Rich country unemployment may have peaked (AP)

3-Month USD Libor Falls To 0.52988% Vs 0.53113% Tuesday
Mortgage Loan Application Volume Rises 6.7% In Week Ended July 2nd Versus Previous Week – MBA
Moody's sees positives in U.S. states' budgets (Reuters)

Equities

MSFT: Microsoft plans small job cuts – WSJ

FDO: Family Dollar 3Q Sales $1.997B (DJ)
STT: State Street Records Second-Qtr After-Tax Chg Of $251 M, Or $0.50 Per Shr
NYX: NYSE Euronext U.S. share trading volumes decline (MW)
See Important Disclosures on page 4
Interesting Morning Reading

Professor Pinch - At The Precipice: The Choices We Make vs. The Choices We’re Forced To Make:
http://professorpinch.wordpress.com/2010/07/06/at-the-precipice-the-choices-we-make-vs-the-choices-were-forced-to-
make/
Fundamental Trader – Bitumen & Bolts: http://fundamentaltrader.wordpress.com/2010/06/11/bitumen-bolts/
Telegraph –With the US trapped in depression, this really is starting to feel like 1932:
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7871421/With-the-US-trapped-in-depression-
this-really-is-starting-to-feel-like-1932.html
Mish Shedlock on IL Construction Workers - http://globaleconomicanalysis.blogspot.com/2010/07/illinois-construction-
workers-make-50.html

Notable Bond Market/Economic Events

Bond Auctions (1PM ET)
o 4 week bill
Upcoming Bond Auctions (This Week)
o None.
Economic Releases For Today
o None in the US
o 10AM: Canada Ivey PMI, consensus 64.1
o 7:50PM
 Japan Core Machinery Orders
 Japan Bank Lending, yearly
 Japan Current Account, cons. Y1.12T
 Japan M2 Money Supply, yearly – cons. 3.1pct
o 9:30PM
 Australian Employment Change, cons. +15.3k
 Australian Unemployment Rate, cons. 5.2pct

See Important Disclosures on page 4

Market Summary – 8AM

Futures Currencies Fixed Income

Symbol Last Chg Symbol Last Chg Symbol Last Symbol Last
DOW 9666 -16 EURUSD 1.2588 -0.0038 2s5s 114.00 US2Y .61
SP500 1022.25 -2 GBPUSD 1.5124 -0.0025 2s10s 232.00 US5Y 1.75
NSDQ 1732.75 -1.75 EURJPY 109.77 -0.67 2s30s 328.00 US7Y 2.40
ZB 128'02 +0'02 USDCAD 1.0578 0.0037 5s10s 118.00 US10Y 2.93
ZN 122'245 +0'010 USDJPY 87.25 -0.26 5s30s 214.00 US30Y 3.89
ZF 118'217 +0'025 NZDUSD 0.6916 -0.0024 10s30s 96.00 UK5Y 2.04
ZT 109'142 +0'007 UK10Y 3.34
CLN0 72.3 0.32 UK30Y 4.14
Spreads Bps Spreads Bps
UK25 129.00 USUK2 14.00
UK210 259.00 USUK5 29.00
UK230 339.00 USUK7 32.00
UK510 130.00 USUK10 41.00
UK530 210.00 USUK20 70.29
UK1030 80.00 USUK30 25.00

See Important Disclosures on page 4

 Morning Call – 7/7/2010
Stone Street Advisors
ChiBondKing – laszlochi@gmail.com

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