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 Big Six earnings will hinge on creditBarclays Capital analyst John Aiken thinks first quarter results from Canadian banks will hinge on meeting or exceeding credit expectations."As a result of the U.S. banks' earnings season, the bar has been raised on anticipated credit improvements," he said in a note to clients. "The U.S. experience illustrates that pressure on these portfolios is easing."Mr. Aiken believes Canadian banks will see another significant drop in provisions, but cautioned that sentiment will be driven by whether these declines meet rising expectations. He recently upgraded the sector to Postive from Neutral and raised his earnings estimates and target valuations on more confidence that the economic recovery is taking hold.Canada's Big Six banks start reporting second quarter earnings with Bank of Montreal on May 26.
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 Jobless claims, earnings, banks & rating agencies - VialouxU.S. equity index futures are slightly lower this morning. S&P 500 futures are down 2 points in pre-opening trade. Index futures moved slightly lower following release of the weekly jobless claims report. Jobless claims fell 4,000 to 444,000. Consensus was a drop of 9,000.First quarter earnings continue to exceed expectations. Companies that reported higher than expected first quarter earnings overnight included Canadian Tire, Quadra Mining, Cineplex Odeon, Kohl's, Whole Foods and Cisco. However, responses to better than expected first quarter earnings are not always positive. Kohl's eased 2% and Cisco slipped 2% in overnight trading. Cisco also was downgraded from Buy to Neutral by Davenport.Eight money center U.S. banks are under pressure this morning after the New York Attorney General announced an investigation of their relationship with credit rating agencies. Sybase gained 15% after SAP offered to purchase the company in a friendly deal worth $5.8 billion. The exception among money center banks is Morgan Stanley. It added 2% in pre-opening trade after FBR Capital registered an upgrade from Market Perform to Outperform. U.S. Steel gained 2% after Goldman Sachs upgraded the stock from Buy to Conviction Buy.EBay gained 4% after Morgan Stanley upgraded the stock to Outperform. Taseko Mines was upgraded by Raymond James from Market Perform to Outperform. Aurizon Mines was downgraded by Raymond James from Outperform to Market Perform.On Assignment for a stock play on weekly jobless claim day Don Vialoux, chartered market technician, is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange-Traded Funds. For more visit Don Vialoux's Web site
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 Upgrades & Downgrades - May 13, 2010DUNDEE RAISES MAINSTREET EQUITY CORP. TO BUY FROM NEUTRAL BMO CUTS NORTHERN PROPERTY REIT TO MARKET PERFORM FROM OUTPERFORM RBC CUTS QUEBECOR INC. TO SECTOR PERFORM FROM OUTPERFORM RBC RAISES PEYTO ENERGY TRUST TO OUTPERFORM FROM SECTOR PERFORM RAYMOND JAMES RAISES TASEKO MINES LTD. TO OUTPERFORM FROM MARKET PERFORM RAYMOND JAMES CUTS AURIZON MINES LTD. TO MARKET PERFORM FROM OUTPERFORM RAYMOND JAMES RAISES CANYON SERVICES GROUP INC. TO STRONG BUY FROM OUTPERFORM RAYMOND JAMES RAISES EASTERN PLATINUM LTD. TO OUTPERFORM FROM MARKET PERFORM
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 Why U.S. states are different than European sovereignsState governments in the United States may be highly leveraged, but they are not facing a debt crisis, according to RBC Capital Markets.The comparison between the debt-laden European sovereigns and U.S. states has been made many times in recent weeks. States do face some serious budget challenges due to factors such as the cyclical nature of their revenues, poorly funded pension plans and ironically, the balanced budget requirements they operate under."While the decline in state revenues appear to be bottoming out, budgets will remain challenged for the next few fiscal years due to the dependence of state revenues on the level of employment and earnings," Chris Mauro, RBC's U.S. municipal strategist, said in a report. "State finances will not really improve until these two economic indicators also show improvement."The expiration of federal stimulus funding at the end of the 2010 is helping to intensify the fiscal 2011 budget pressures for the states. However, Mr. Mauro argues that none of this is really new.He compared the debt situation of California, New York, New Jersey, Massachusetts and Illinios - the five states with the highest levels of tax-supported debt, to that of Greece, Ireland, Italy, Portugal and Spain - otherwise known as the PIIGS for being the eurozone's weakest economies. Despite the similarities many of these U.S. states and European countries share in terms of size of economy, population, and gross state or domestic product (GSP/GDP), leverage of the states are in most respects lower than those of their EU counterparts. California, despite all of the negative media attention it has received as a result of its budget shortfalls, has a comparably low debt to GSP of 3.8%.Mr. Mauro noted that the central factor supporting state credit quality is probably the flexibility and authority states have in managing their fiscal affairs. The power to tax provides direct control over most components of revenue."This fiscal autonomy, like the ability to issue debt, is only constrained by powers of the legislature, powers of the electorate (through the initiative and referendum process), or requirements for voter approval," he said.States also have almost complete control over their spending as well as the power to create public entities that can levy taxes or fees, collect revenues and issue debt. In order to balance their budgets, states have tools such as asset sales, interfund borrowing, deferrals, and sale-leaseback arrangements."This fiscal flexibility allows for dynamic financial management at the state level and, therefore, is one of the key factors in the almost universally high-grade credit profile of U.S. states." Jonathan Ratner
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 Potash Corp. upgraded to BuyPotash Corp. of Saskatchewan Inc. is poised to rebound, John Redstone, an analyst at Desjardins Securities, says. Mr. Redstone upgraded his rating on Canada's best known fertilizer stocks to Buy from Hold based on share price depreciation.Since December 3, 2009, shares in Potash have fallen to $103.60 from $128.73, providing upside of roughly 20% to his current price target of $127.35. The analyst said potash prices have bottomed. "We would concur with several market observers that potash prices have bottomed," he said. "We forecast demand will outstrip supply in the fertilizer markets through 2011 and prices will increase." David Pett
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 Uranium threatened by political shake-upsIt has been a week of political overhaul in Europe, and one of the victims in the fallout could be the continent's nuclear renaissance.In a note to clients, Raymond James analyst Bart Jaworski pointed out that new political leadership in key European countries could cause them to waver on their nuclear power plans. That in turn could be bad news for the uranium market."In Europe, the road to a nuclear revival [and increased uranium demand] may not be as smoothly paved as it was last week," he wrote. The most visible example is in Britain. Incoming Prime Minister David Cameron appears to support predecessor Gordon Brown's plan for up to 10 new nuclear reactors in the country. But Mr. Cameron was forced to form a coalition government with Nick Clegg's Liberal Democrats, who prefer energy conservation and renewable sources (however, the Liberal Democrats have said they will abstain from voting on the issue)."The influence of the 'Lib Dems' in any coalition could play a critical role in whether the U.K. deviates from the nuclear path," Mr. Jaworski wrote.Mr. Jaworski also pointed to Germany, where Chancellor Angela Merkel's coalition has lost majority control of the country's upper house. She will now need opposition approval for her plan to cancel legislation that would phase out the country's fleet of nuclear reactors. And in Italy, Industry Minister Claudio Scajola was forced to resign over corruption charges. He was working to revive nuclear power in the country, which was abandoned more than 20 years ago.Peter Koven
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 Sprott earnings meet low expectationsThe first-quarter results for Sprott Inc. came in largely in line with analyst expectations Wednesday, not necessarily a good thing as expectations were not very high.Phil Hardie, analyst with Scotia Capital, had forecast earnings per share of 5
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 History favours U.K. stocksA Conservative-led coalition government in the U.K. combined with improving jobs data should bode well for stocks on the London Stock Exchange, Pierre Lapointe, a macro strategist at Brockhouse Cooper says. He maintained his Overweight recommendation on U.K. equities, saying the key benchmark is trading at only 10.5 times 12-month forward earnings, despite profit growth expectations at 28.9%, higher than MSCI expectations of 26.9%. "At first glance, post-election periods in the U.K. are not easy on equities," he said in a note to clients. Since 1964, he said the exchange has fallen 1.3% in the first month following an election, and 2.8% after three months. However, on closer inspection, it is clear that the average was pulled lower by large declines when the Labour party was elected. In comparison, stocks performed much better after a Conservative government took power, he said. Under this scenario, the market has averaged a slight gain of 0.6% in the three month period post election. Contributing to Mr. Lapointe's bullish stance is historical analysis related to the claimant count rate, a key unemployment figure that represents the number of people who claim unemployment benefits, but actively seeking work, as a percentage of the total workforce. Currently 4.7%, it is at the lowest level since May 2009. "Since 1971, there were five major downturns in the claimant count rate. Six months after the claimant count rate started to decline, the U.K. stock market was up by 12.3% on average. It should be noted that all five periods were positive for the stock market," he said. David Pett
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 A positive spin on Canadian banksAs the economy continues to improve, so too do the prospects for Canadian bank stocks, John Aiken, an analyst at Barclay's Capital says. He upgraded the sector to Positive from Neutral and lifted his earnings estimates and target valuations."We are raising our sector view on the Canadian Banks on a greater confidence that the economic recovery is taking hold," he said. "This has some very material implications for our earnings forecasts and ultimately valuations."Mr. Aiken said earnings will be positively impacted by declining loan loss provisions near term and volume growth coupled by wider margins in 2011. He said trading revenue will also no longer be a material drag on earnings. "International focus has shifted to the Canadian banks based on their stability and current earnings strength," he said. "The incremental retention of capital should be viewed positively as premium valuations are still being ascribed to banks with the strongest balance sheets. While we do not believe that dividend growth will occur for some time, investors are still generating an enviable income stream with very little risk of dividend cuts."Mr. Aitken's revised numbers resulted in an upgrade of Bank of Montreal to Overweight and Royal Bank of Canada to Equal Weight. National Bank of Canada, meanwhile, was downgraded to Equal Weight, based on a "moderated relative earnings growth outlook." TD Bank remains an Overweight recommendation, CIBC an Equal Weight and Bank of Nova Scotia is now the lone Underweight in the group. David Pett
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 U.S. futures, gold, Morgan Stanley, Disney, PotashCorp -- VialouxU.S. index futures are higher this morning. S&P 500 futures are up 6 points in pre-opening trade. Index futures slipped slightly after release of the March trade report. Consensus was an increase in the deficit from $39.7 billion to $40.0 billion. Actual was a deficit of $40.4 billion.Canada's trade report for March was slightly disappointing. Consensus was a surplus of $1.6 billion. Actual was a surplus of $300 million.Gold continues to move higher. It gained $18 U.S. per ounce to another all time high. Morgan Stanley fell 5% in pre-opening trade on news that federal prosecutors are investigating the company's methods to market collateral debt obligations. Ivanhoe Mines was downgraded by TD Newcrest from Speculative Buy to Hold. Disney slipped 3% despite reporting higher than consensus first quarter earnings. Traders remain in a "sell on news" mood. Desjardins upgraded Potash Corp from Hold to Buy. Pepsico gained 2% after Goldman Sachs upgraded the stock from Buy to Conviction Buy. Quebecor reported less than consensus first quarter results. Technical Analysis: Seeking a healthy stock for investors - Omega Healthcare Investors (OHI) Don Vialoux, chartered market technician, is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange-Traded Funds. For more visit Don Vialoux's Web site
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 Europe to remain weak link in global recoveryNational Bank Financial has lowered its floor rate for the euro from US$1.25 to US$1.18 over the medium term, citing the eurozone's fundamental problems, the currency's over-valuation and a cyclical divergence in the economic recovery."A mere six months ago, with the budget deficit skyrocketing in the United States, the foreign exchange market looked to the euro as a possible alternative to the U.S. dollar. Today, it is turning its gaze away and shaking its head," said St
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 Time to trim tech exposure?Despite healthy fundamentals, don't be surprised if investors start locking in profits from the rally in information technology stocks this past year, Tobias Levkovich, a strategist at Citigroup Capital Markets says. With markets already nervous about an array of problems, including sovereign debt and rising interest rates, investors may consider reducing exposure to tech-related equities that now appear to reflect the likely recovery for investment in technology products and services. "We recognize that investors are likely to be struck by the notion that fundamentals can remain relatively healthy and stock prices not act in concert but it is crucial to focus on the data that guides stock price direction rather than a reasonable set of assumptions that does not necessarily track what stocks actually do," Mr. Levkovich said in a note to clients. "Indeed, if we are correct in our sense that equity markets may remain challenged through the summer, it is more likely that investors will try to take some profits and tech names have been some of the best performers - as a result, they become vulnerable to investors protecting the gains generated over the past 15 months."Mr. Levkovich said it appears evident that Street revision momentum in the sector is very stretched with upward estimate changes accounting for more than 90% of all analysts' revisions," Mr. Levkovich said. "In the past, an easing from such extreme levels generally has coincided with stock price weakness, he wrote. "Thus, a more cautionary stance seems appropriate even as business fundamentals remain robust (despite potential European risks) and should stay so as employment numbers improve." Given the choice, he said the Tech Hardware & Equipment industry group remains the most attractive based on valuation looks particularly attractive, while valuations related to the Semi Equipment sub-industry group's suggest those stocks are poised to underperform. Meanwhile, the Software & Services group is the most fairly valued. David Pett
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 'Pseudo market makers' sat on sidelines during flash crashThe U.S. equity market has evolved in the past few years to depend heavily on high frequency algorithmic trading entities which behave like "pseudo market makers." These trading entities populate exchanges with limit orders (liquidity) that result in rebates as exchanges pay for participants to provide this liquidity.While this system works well during periods of normal market activity, as firms can execute their models without taking directional market risk, they are not obligated to post bids and offers, according to Barclays Capital analysts Roger Freeman and Matthew Rothman. In other words, they have no responsibility to make markets."In Thursday's volatile market conditions, we believe that much of the liquidity provided by these trading entities disappeared as these traders sat on the sidelines," the analysts said in a report.The market action that day did not begin and end with trading errors and/or exchange technology failures. Nor were quantitative trading strategies primarily responsible for what unfolded as some have suggested, the report said. All of these forces may have contributed to the voracious sell-off, but the analysts suggested that last Thursday's events were more a function of a "perfect storm."The trading day got off to a bad start with markets down 2% to 3% on European sovereign debt worries. By late morning, the percentage of NYSE-listed volume trading on a down-tick at the same time had approached levels not seen since the morning trading resumed after 9/11."In other words, there was already a lot of fundamental selling pressure in the market, and we believe the rising risk aversion of investors did not need much of an acceleration in the sell-off to run for the exits," the analysts said.Whether it a "fat finger" error trade in the S&P futures market or something else triggered the gap down in stock prices, NYSE-listed stocks started to hit little-known circuit breakers called liquidity replenishment points (LRPs) in large numbers. LRPs are triggered by outsized movements in a stock over a short period of time. They shift the market from "fast" to "slow" and allow designated market makers to step in, supplement liquidity and respond to volatility in stocks."There, many trades witnessed execution prices dramatically lower than prior prints, which led to thousands of trades on Nasdaq and NYSE Arca being cancelled, and presumably many thousands more remaining in place, but at levels likely not considered best execution," the analysts said."My sense is that over the next week or two, if not sooner, we're going to be seeing a response from the regulators and the exchanges that will address the issue of why it happened and what they can do to limit the likelihood of it happening in the future," said Thomas Graves, equity analyst at Standard & Poor's in New York. "Part of it will be standardizing these so-called circuit-breakers or safety mechanisms to control volatility."About two-thirds of the trades executed on the Nasdaq and NYSE during Thursday's "flash crash" that the exchanges are canceling involved exchange-traded funds (ETFs) or exchange-traded notes (ETNs), according to IndexUniverse.com."There are so many settlement issues and clearing issues, I don't know how they're going to do it. It's unprecedented, really," Paul Weisbruch, vice president of ETF sales and trading at Street One Financial told the website. "If they take those trades away, it takes away the confidence of the investor.""None of them should be canceled in my opinion," said Larry Berman, chief investment officer at ETF Capital Management. "You should never reverse a trade unless it was fraudulent or there was some error."The main reason for this view is the fact that market participants who had so-called "stink bids" or good-til-cancelled orders filled, may have sold other securities in order to make the purchase. They may have also been trading in and out of the security several times, so cancellation of the initial share purchase would cause a range of complications. Jonathan Ratner
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 FP Trading Desk blog has movedHello readers, Our FP Trading Desk blog has moved to a new home, over here: http://business.financialpost.com/category/trading-desk/There will be no more updates at this location, so please change your bookmarks to the address above.We hope to see you soon!
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 SunLife's new fund family won't impact CI FinancialSun Life Financial Inc.'s new Canadian fund family is not expected to have an impact on CI Financial Corp.., a sub-advisor on several Sun Life insurance and segregated fund products, Stephen Boland, an analyst at GMP Securities Inc. On Thursday, Canada's third largest insurer said it will launch a new mutual fund family that will give Canadian retail investors access to Sun Life's U.S.-based asset manager MFS, which had over US$195-billion of assets under management as of March 31, 2010. Shares in CI Financial Inc., who reported solid first quarter results earlier this week, are down 5% following the news."We do not believe it will have a financial impact to CIX for at least several years," Mr. Boland said in a note to clients. "If their market share of SLF products declines we do not believe it will be a material decline." In 2008 at the height of the financial crisis, Sun Life sold its 37% stake in CI to the Bank of Nova Scotia for $2.3-billion. Since then, Mr. Boland said CI has been able to maintain preferred access to SLF agents to sell mutual funds. He thinks that access will continue given CI's strong brand across Canada. "We do not believe the MFS brand has the same brand recognition so it will take time for that to occur and gain traction even within the SLF channels."SunLife management said it's new line of mutual funds would be offered in addition to CIX products. Mr. Boland estimated that Sun Life represents about 15% of CI gross sales. David Pett
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 Canfor Pulp yield expected to riseCanfor Pulp Fund's current yield of 14.8% looks safe after pulp producers raised prices on northern bleach software kraft (NBSK) pulp. Even better, the company's distributable cash is only going to get bigger, says Daryl Swetlishoff, Raymond James analyst. "Given current pulp markets we not only view [the current] distribution level as sustainable but see upside," he said in a note to clients.Canfor Pulp's current yield of 12
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 Don't worry about M2Worried that slowing growth in U.S. money supply (M2) is a sign of economic trouble? Don't be. Most of the weakness can be traced to retail money market funds.Money market funds generally make up 13% of M2, according to St
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 iPad buyers more committed than iPhone pre-launch There has been no shortage of hype surrounding Apple Inc.'s new iPad. While the reviews have been mixed and there is plenty of room for improvement in future generations of the device, demand and sales is what investors are focused on in the near term.They should be happy to hear that pent-up demand for the device is strong. In fact, interest is at a higher level than it was before the iPhone was launched.A RBC/ChangeWave survey of 3,200 people conducted from February 1-10 showed 13% of respondents are interested in buying an iPad. That compares to the 9% who indicated they might buy an iPhone in an April 2007 pre-launch survey.This data suggest initial iPad uptake will be healthy, RBC Capital Markets analyst Mike Abramsky said in a research note.Only 8% appear unwilling to pay Apple's indicated iPad prices, which is below the 28% who balked at initial iPhone pricing.Mr. Abramsky also noted that interest appears strongest for both the entry-level and tech-savvy iPad buyers, with 19% of those declaring themselves as buyers planning to buy the $499 16GB WiFi only version and 19% indicating they will purchase the $829 64GB 3G version."Preliminary, it appears that the iPad's lack of Flash support, camera, multi-tasking does not appear to deter initial buyer interest," the analyst said. "This data... suggests iPad may have greater potential than expected, to expand Apple's addressable PC, iPod markets and to capture a segment of the home PC market."Of course, better than expected early iPad momentum could serve as a catalyst for Apple's valuation. Jonathan Ratner
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 Case/Shiller, retailers, smartphones, energy stocks - VialouxU.S. equity index futures are lower this morning. S&P 500 futures are down 4 points in pre-opening comments. Index futures were unchanged following release of the December Case/Shiller home price index. Consensus was a year-over-year decline of 3.1% versus a decline of 5.3% in November for the 20 largest U.S. cities. Actual was a decline of 3.1%. Several U.S. retail merchandisers reported higher than expected fourth quarter earnings overnight including Home Depot, Target and Macy's. Home Depot also raised its dividend.Stifel Nicolaus initiated coverage on the Smart Phone sector. Buy recommendations were given to Research in Motion and Nokia. U.S. analysts continue to upgrade U.S. energy stocks. Argus upgraded Occidental Petroleum from Hold to Buy with a target price of $95.Brookfield Asset Management is rumored to be preparing a "white knight" bid for General Growth Properties. Simon Properties bid on the company last week. General Growth Properties technically is in bankruptcy protection. TransCanada reported lower than consensus fourth quarter earnings. Don Vialoux, chartered market technician, is the author of a free daily report on equity markets, sectors, commodities, equities and Exchange-Traded Funds. For more visit Don Vialoux's Web site
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