Dear Ladies & Gentlemen,
Having been accused of 'doom and gloom' by a certain recipient of my last Newsletter - I will attempt to keep the tone of this Newsletter lighter whilst at the same time, keep you abreast of what has been happening around the world this week.
Switzerland's reputation for banking secrecy might have been spoiled after handing thousands of client names to America's IRS, but the country has still managed to replace the United States as the most competitive economy in the world, according to a survey by the World Economic Forum.
The organization, which hosts the annual Davos economic summit and is based in Geneva, Switzerland, says that the United States slipped to second place because of its weaker financial markets and faltering macroeconomic stability, while Switzerland's economy had remained comparatively stable.
Being more competitive than the United States also has little to do with Switzerland's low tax rate and simple tax structure, the WEF insists, although that has been a source of strength for the country's economy. In July for instance, McDonald's announced it would move its European headquarters from London to Geneva, and cited an effort to simplify the ownership of intellectual property rights.
A senior economist at the WEF, said Switzerland's performance has remained "relatively stable, whereas the United States has seen a weakening across a number of areas."
"Although there is an absolute weakening in the assessment of Switzerland's financial markets, and particularly the soundness of the banking sector, this has not been as strong as that in other countries such as the US and the UK," the economist said. "And Switzerland's macroeconomic environment, although weakening somewhat since last year, continues to be assessed as stable compared in particular with the United States and many European neighbors."
The WEF said in its report that Switzerland's economy was characterized by an "excellent capacity for innovation," as well as high spending on research and development.
As for the United States, it said there were concerns among the business community about the American government's ability to keep an arms-length relationship with the private sector, as well as perceptions that the government spent its resources wastefully.
"There is also increasing concern related to the functioning of private institutions, with a measurable weakening of the assessment of auditing and reporting standards... perhaps not unexpected in the context of recent turmoil and scandals within the financial sector in particular," the report said.
America's greatest overall weakness was related to its macroeconomic stability, where it ranked 93rd, down from 66th last year in the WEF survey. "The United States has built up large macroeconomic imbalances over recent years," the report said. "Repeated fiscal deficits have led to burgeoning levels of public indebtedness, which are presently being exacerbated by significant stimulus spending."
Rounding out the top five of the Global Competitiveness ranking were Singapore, Sweden and Denmark, while European economies continue to dominate the top 10, with Finland, Germany and the Netherlands following suit. The United Kingdom, like the United States, suffered from the weakening of financial markets, and moved down one more place this year to 13th.
The survey was the result of a poll of around 13,000 international businessmen and economist and was combined with data from the IMF and UNESCO, among other sources, to come up with the final scores and ranks.
However, Switzerland made more news in the past 24 hours when it announced new tax treaties with the US and Finland - more on that below.
Not a good time to be a big-name tax haven like Switzerland?
The US government squeezed Switzerland hard to get UBS to squeal on Americans suspected of evading taxes. The Obama Administration is cracking down on corporations that shift profits to low-tax jurisdictions like the Cayman Islands. But all of this just might be good news for a string of Malaysian islands called Labuan.
Labuan, 5 miles off Borneo, has been in the offshore game since 1990, but it became a serious player only in 2002, when it ran road shows in China and Hong Kong. Malaysia was then taking a lead role in the issuance of sukuks (sharia-compliant bonds). Labuan went on to become a gateway for Islamic funds investing in Asia.
Then it got lots of business from Western companies.
Last year 6,868 offshore companies from 85 countries registered in Labuan, up from 2,211 companies a decade ago. This spring London's Tax Justice Network, a nonprofit group trying to put tax havens out of business, analyzed the locations of subsidiaries of 195 large publicly traded companies in the US, the UK, the Netherlands and France.
Labuan was home to 104 subsidiaries belonging to the study's multinationals. That meant Labuan had in a few short years leapfrogged Panama (85 subsidiaries) and the Isle of Man (94) and was closing in fast on Guernsey (122) and the Bahamas (143) as a tax-avoidance domicile.
The study incorporated work done by the US Government Accountability Office, which looked at firms such as Kraft and Procter & Gamble.
Labuan does not tax offshore holding companies, and it remains a struggle for nosy authorities from abroad to learn your business there. In April the Organisation for Economic Co-operation & Development branded Malaysia-Labuan an "uncooperative" tax haven. Malaysia instantly agreed to cooperate in the hunting down of criminals and tax cheats and was removed from the OECD bad-boy list.
But not everyone is convinced the changes will make a real dent in Labuan's bank secrecy. The OECD program requires that evidence of wrongdoing be very strong before a customer is ratted out. "The OECD is creating a structure that has no impact whatsoever for practical purposes on the way offshore is working," says the director of Tax Research and author of the Tax Justice study.
Indeed, at the same time Labuan and Malaysia signed their cooperation agreement, they also slyly bolstered Labuan's appeal. Labuan holding companies can now be run from Kuala Lumpur; physical presence in the remote islands is no longer required.
Push down hard on the likes of Switzerland and the Cayman Islands, and postboxes are likely to pop up in havens like Labuan.
At this point, I would like to say that I am not recommending Labuan as an alternative 'safe-haven', but I felt that it is interesting to note that the US and UK in particular are now looking as far afield as halfway round the world to escape heavy tax burdens.
I ask myself, how many people in the US can point to Malaysia on a map, let alone Labuan?
This week in Denmark, we saw the government seize the whole year's winnings from a chap that played Online Poker - being taxed at home now it seems - more on that below.
In other news this week, The Los Angeles Times reports that a oceanfront Malibu home worth $12 million was surrendered to Wells Fargo Bank WFC after the owners lost their fortune to Bernard Madoff.
According to neighbors, a Wells Fargo Senior VP who oversees foreclosures has been hanging out in the house and throwing lavish parties, and a realtor told the Times the bank is refusing to show the place to prospective buyers. Wells Fargo says it's investigating.
Still on the Madoff theme; the SEC said this week that it regrets the missed red flags in the Bernard Madoff scandal. Adding insult to injury, the AP reports Madoff openly mocked regulators in 2005 while coaching a potential witness on how to dupe them.
During a telephone call which was taped, Madoff is heard telling someone from feeder fund Fairfield Greenwich Advisors that he should not to act too knowledgeable when the SEC comes calling. "These guys they work for five years at the commission then they become a compliance manager at a hedge fund now."
Fairfield claims it notified the SEC of the call and answered all of the regulators' questions afterwards "accurately".
If that is true, then the SEC looks even worse.
The US's two richest universities, Harvard and Yale, saw their Beluga-sized endowments drop a combined $18 billion during the last fiscal year, or about 30%. They underperformed most other colleges, proving that a high-priced education doesn't necessarily make you smart.
Finally for this week, Thursday of course was September 11.
Eight years after the September 11th attacks of 2001, around the world we are still pouring all our belongings into plastic bins on folding tables at the airport, then taking off all our clothes.
The experience hasn't gotten appreciably more efficient or convenient despite...eight...years...of thinking about it.
There must be a consultancy business opportunity there surely?
Food for thought as I now go into the more serious, numbers for the week that was: |
| US Markets
How the US did this week ..... |
 US stocks broke their five-day winning streak on Friday, after declining oil prices sapped the energy out of the rally and left investors worried about the long-mooted September pull-back.
Dollar weakness combined with rising oil and gold prices this week helped the market to its highest closing levels since last October. But light trading volume suggested investors were reluctant to commit themselves after analysts had predicted equities would fall after the summer's rally.
After the oil price sunk back below the psychologically significant $70 level, stocks erased their early gains. The S&P 500 closed 0.1% lower at 1,042.73 points after gaining 2.6% this week.
The Nasdaq fell 0.2% to 2,080.90 points but it has still outperformed the other indices in recent sessions and was up 3.1% for the week.
The Dow Jones Industrial Average lost 0.2% to end the session at 9,605.41 and was up this week by 1.7%.
After leading the market higher this week, technology stocks deteriorated throughout the day. Intel, the world's largest chipmaker, lost 1.3% to $19.51 even after an upgrade from Roth Capital.
In spite of posting better first-quarter results than had been expected, National Semiconductor fell 5.9% to $15.03. The chipmaker's shares have risen 30% since the beginning of July after investors bet on a sector recovery.
Garmin, the maker of GPS products, rose 0.3% to $36.18 after a recommendation from Bank of America.
But Cree, a maker of light-emitting diodes, weighed on the sector after it announced on Thursday that it would place 11m shares in a common stock offering. Its shares fell 5.2% to $34.83.
After strong performances in the week, the energy and materials sector also dragged the market down but industrial stocks stayed strong. During the week, General Electric powered the sector after JPMorgan upgraded the stock and Goldman Sachs raised its price target on the company the day after.
Its shares fell back 0.9% to $14.67 but were up 5.8% for the week.
Fedex delivered a further boost to the sector on Friday. The second-largest US package-shipping group, considered a gauge of economic activity, rallied 6.4% to $77.32 after announcing earnings would exceed its forecast.
In the pharmaceuticals sector, Quidel gained 1.7% to $16.99 after the maker of tests for pregnancy and infectious diseases forecast strong profit in its third quarter due to higher demand for flu products.
Healthcare stocks also fell back after a week of volatile trading.
Uncertainty lingered over President Barack Obama's address to Congress on Wednesday evening, during which he appealed for a bipartisan reform of the healthcare system. After clawing back some losses on Thursday, Wellpoint fell 0.3% to $54.03 and Unitedhealth Group also slipped 0.1% to $29.07.
The financial sector, however, was in negative territory from the outset.
American International Group was downgraded by Wells Fargo Securities, which said the company had no tangible book value.
Its shares, which have lost 7.5% this week in spite of the market's rally, fell 0.8% to $37.55. Morgan Stanley was one of the few gainers in the sector. The shares rose 0.6% to $28.82 after it said John Mack, chief executive, would step down and be replaced by James Gorman, head of retail brokerage. |
| European Markets
What has been happening in Europe this week ..... |
 European equity indices made a strong finish to the trading week, with sentiment helped by Commerzbank's announcement on Wednesday that it would begin repaying state guarantees.
The FTSE Eurofirst 300, ended 3.3% higher at 993.91 after a 0.6% gain on Friday.
Most banks' shares were lower on concerns they would be unable to meet the European Central Bank's new capital requirements. But Commerzbank was able to hang on to its 11.9% midweek gain, finishing the week up 17.4% at €8.29.
Among the worst-hit banks was Banco Popular, which fell 4.9% on Thursday after announcing it would need to issue $500m of new shares.
Banco Popular ended the week down 3.9%.
In France, BNP Paribas fell 3.7% over the week to €52.93 while in Germany Deutsche Postbank declined 4.2% closing at €25.10. Towards the end of the week auto producers posted gains on the back of positive news across the industry.
Volkswagen, was among Friday's biggest winners, adding 4.4% after announcing it would expand its Chinese operations and explore opening facilities in Malaysia.
Renault, whose price target was raised by RBS on Wednesday, finished the week up 9.2% at €33.31.
While Fiat initially responded positively to Italy's high industrial figures for August, the carmaker later reversed its gains, closing down 0.2% at €8.78 on Friday.
Lindt led the rally at the beginning of the week benefiting from the flurry surrounding Kraft's failed Cadbury bid. The Swiss chocolatier rose 12.7% for the week to Sf29,300 after a 5.8% gain on Monday.
Telecoms reported a mixed week, holding on to most early week gains.
TF1 fell 3.7% on Friday after being downgraded by Natixis, but managed to still finish up 2% for the week at €12.38.
Shares in French telecom equipment maker Alcatel-Lucent rose 13% to €2.76 after the French company said it had bought back 15% of its January 2011 convertibles.
The week's gains for the region's bourses prompted some analysts to warn of imminent profit taking.
GERMANY
German stocks advanced for a sixth day, with the DAX Index turning in its biggest weekly gain since July, as Goldman Sachs Group Inc.'s higher forecast for steel prices lifted Salzgitter AG and ThyssenKrupp AG. Deutsche Post AG shares also climbed.
The benchmark DAX added 0.5% to 5,624.02, bringing its weekly gain to 4.5%. The gauge has rebounded 53% since March 6 as companies worldwide from Goldman Sachs Group Inc. to Bayer AG reported better- than- projected earnings and economic data signaled the global recession is nearing an end. The broader HDAX also rose 0.5% Friday.
Salzgitter, Germany's second-biggest steelmaker, climbed 5.3% to 70.01 Euros after Goldman Sachs raised its share- price estimate to 98 Euros from 86 Euros. Larger competitor ThyssenKrupp added 3.1% to 24.50 Euros.
Deutsche Post, Europe's biggest mail carrier, surged 3.5% to 12.70 Euros. FedEx Corp., the second- largest US package-shipping company, said its first- quarter profit was higher than it had forecast.
Henkel AG climbed 2.9% to 28.07 Euros after the German maker of Persil detergent had its price projection lifted to 30.50 Euros from 28 Euros at Morgan Stanley.
Merck KGaA rose for a sixth straight day, adding 2.8% to 68.18 Euros. The pharmaceutical and chemical company said new data from an analysis of a two-year study of multiple sclerosis patients given its experimental cladribine drug showed that more than 40% given doses of 3.5 milligrams per kilogram to 5.25 milligrams had an absence of disease activity, compared with just 16% of patients receiving a placebo.
Commerzbank AG, Germany's second-largest bank, gained 1.3% to 8.29 Euros. Allianz SE, Europe's biggest insurer by market value, gained 2.1% to 82.84 Euros.
Metro AG dropped 1.6% to 36.30 Euros. Investor Otto Beisheim-Gruppe has no different strategic ideas for the German retailer and can pursue "active stake management" after the pool cancellation with other shareholders, a spokesman said.
Arcandor added 1.6% to 25 cents. The insolvent German retailer said banks have agreed to continue financing the Quelle mail order unit's factoring.
Dialog Semiconductor jumped 8.6% to 4.29 Euros after the company said it successfully placed shares.
Gerresheimer slid 3.3% to 21 Euros. The German medical-packaging company was cut to "hold" from "buy" at Commerzbank AG, which said "we see no further fundamental triggers that could justify a share price above current levels." The bank lifted its price estimate to 22 Euros from 20 Euros.
Takkt AG surged 2.8% to 8.32 Euros after the German business-to-business mail-order company was raised to "buy" from "neutral" at Bank of America Corp.
FRANCE
France's CAC 40 Index added 29.02, or 0.8%, to 3,734.89, the fifth day of gains in the last six trading sessions. The benchmark gauge rallied 3.8% this week. The SBF 120 Index added 0.7% to 2,724.94.
Air France-KLM Group jumped 70 cents, or 6.5%, to 11.50 Euros after Les Echos reported that the company plans to restructure its cargo activities, lifting tariffs by between 20% and 30%.
Axa SA rose 54.5 cents, or 3.3%, to 17.17 Euros, the highest in almost 11 months, after Bank of America Corp. raised its recommendation on the shares to "buy" from "neutral."
Lafarge gained 91 cents, or 1.5%, to 60.46 Euros, ending a three-day losing sequence. Analysts at Collins Stewart raised their recommendation to 'buy' and lifted their share-price estimate to 72 Euros.
Societe Television Francaise 1 sank 47 cents, or 3.7%, to 12.38 Euros, snapping a six-day winning streak. The stock was cut to 'reduce' from 'buy' by analysts at Natixis SA.
The Bank of France revised upwards its forecast for third quarter growth in its latest survey released on Tuesday, saying it now predicted gross domestic product (GDP) would rise by 0.3%.
The central bank had previously expected GDP to remain unchanged in the period from July to October.
Coming in the wake of other recent positive signals, the move underscores brightening prospects for the Euro zone's second-biggest economy.
Growth re-appeared following four consecutive quarters of contraction between April and June, confounding economists' projections for a 0.3% decline quarter-on-quarter.
Meanwhile, the recent PMI index for France showed that manufacturing activity began to expand again in August, bringing to an end 15 straight months of contraction.
According to the Bank of France, order books in the industrial sector improved further in August, helped by a slight pick-up in new orders.
The monthly barometer of business sentiment in industry rose to 89, from a previous reading of 87, and activity in the sector was seen remaining stable in the short term.
In the services sector, the Bank of France noted an improvement in activity levels, while the business sentiment indicator improved to 82 from 81 in July.
The survey will come as welcome news for French Economy Minister Christine Lagarde, who last week said the government was considering revising up its forecast for a 3.0% contraction in full-year GDP.
Asked about her forecasts for third quarter GDP, Lagarde said she expected the economy to stabilise between July and October, compared with the second quarter, in line with the Bank of France's previous forecast.
BELGIUM
The Bel 20 in Brussels ended the week at 2,458.72, up 0.32% on the day.
The Belgian economy contracted slightly less than previously estimated in the second quarter of 2009, the country's central bank said on Wednesday.
Seasonally adjusted gross domestic product (GDP) fell by 0.3% quarter-on-quarter, compared with the initial figure reported in July of 0.4%.
The contractions in the final three months of 2008 and the first quarter of 2009 were both 1.7%.
On a year-on-year basis, the contraction was 3.7% in the second quarter, against the July estimate of 3.8%.
The bank reported that the contribution to GDP of the manufacturing sector dropped by 0.9% in the second quarter from the first and of services by 0.1%. The contribution of construction rose by 0.1%.
Private-sector components of domestic demand all fell.
Corporate investment and household spending dropped 0.1% and 0.2% respectively.
Exports of goods and services fell 2.4%, while imports went down 2.5%.
The figures were all an improvement on or at least less negative than the first quarter of 2009, with the exception of public spending, which rose 0.4% in the second quarter.
Total employment fell 0.5% in the quarter and by 0.7% from a year earlier, the first year-on-year decline since the fourth quarter of 2002.
THE NETHERLANDS
The AEX in Amsterdam closed out the week up 0.66% Friday at 308.00.
AUSTRIA
Vienna's ATX followed the rest of Europe, up 0.84% for the session at 2,542.39.
Austria's downturn slowed in the second quarter with the economy contracting by 0.5% compared with the first three months of the year, economic research institute WIFO said on Thursday.
A decline in exports slowed in line with the global trend, falling by 2.3% in the second quarter compared to a 7.4% decline in the first, WIFO said.
Private consumption also helped growth, thanks to tax reform and a scheme to scrap older vehicles which boosted new car registrations.
The fate of Austria's economy is tied to larger neighbour Germany. It has relied on emerging European countries for an additional boost to exports in the last few years, when its growth was above the Euro zone average.
Those regions have been hit in the economic downturn, but second-quarter data from Germany showed Europe's largest economy has exited recession despite a huge drop in inventories and restocking by companies.
Most forecasters had expected Austria's economy to decline by around 4% this year but the central bank revised its forecast upwards to a 3.5-3.8% decline earlier this month.
Forecasters expect little or no growth in 2010.
The WIFO flash estimate is for real growth, seasonally adjusted and adjusted for the number of working days. Economists view the WIFO figures, along with that from another research institute, as the best indication of Austrian GDP on a running basis.
SWITZERLAND
The SMI in Zurich closed up 0.4% to finish the week at 6,232.99.
The Swiss Federal Council Friday approved double tax agreements with the US and Finland, the Swiss government said Friday.
It also authorised the Swiss Federal Department of Finance and the Department of Foreign Affairs to sign the two agreements.
The goverment said the parliament has the opportunity to opt for a referendum on the treaties.
SWEDEN
In Stockholm the OMX 30 closed up 0.18% at 918.19.
Swedish economic output returned to growth in the second quarter from the first, ending a four-quarter streak of contraction and suggesting the worst of the recession may be over for the Nordic region's largest country, revised data showed Friday.
Seasonally adjusted gross domestic product in the second quarter rose 0.2% from the first quarter and was down 6% compared with the same period a year earlier, Statistics Sweden said. The figures were revised from a July 31 flash estimate that said GDP was flat on a quarterly basis and down 6.2% from a year ago.
The country's exporting economy had posted quarterly declines for four straight quarters as financial crisis-laden global demand bit into orders for Swedish goods.
In the first quarter of this year, output fell nearly 1% from the previous quarter after a 5% drop in the fourth quarter of last year.
The revised GDP figure coupled with a spate of recent upbeat economic data, including a surprisingly strong 8.3% increase in Swedish industrial orders in July from June, suggest Sweden's economy is on a path of recovery.
DENMARK
Copenhagen's OMX 20 closed in the Red Friday, down 0.56% at 333.43.
Keeping with a 'lighter' tone this week, how about this for taxable income in Denmark.
As reported in the Copenhagen Post, The Supreme Court in Denmark has just seized the entire year's winnings of a man they say made his living playing online poker. The 35-year-old man was forced to fork over the 194,000 kroner (about $28,000) he earned playing online poker to the state.
The decision was made when it was found that the unemployed man has no other means of income and it is illegal for citizens in Denmark to earn one's entire living from online poker or any other form of gambling. However, the court was "nice" enough to eliminate a 5000 kroner fine from the Eastern High Court where he was originally convicted in November as there was disagreement over online poker being covered by the law.
This is the second recent case to return a similar verdict since June when a man was convicted of organizing poker tournaments for a living. However this verdict was overturned, even though the Supreme Court maintains there are laws against poker tournaments.
Prosecutors are insistent that the decision does not mean that online poker is illegal. Which really sounds like they don't know what they are talking about to me. "We will decide on a case by case basis whether someone is playing professionally," said Crown Prosecutor Svend Larsen.
This whole situation begs the question, "Why is it illegal to win money from an online casino, but legal to take money from a guy who got his money from an online casino? Isn't that sort of like money laundering?"
FINLAND
Like Copenhagen, the market in Helsinki was also down; the OMX closed at 6,448.22, a decline of 0.04% on the day.
Thursday, a report by Statistics Finland said the working day adjusted industrial output dropped 24% year-on-year in July, faster than a 19.9% drop in the preceding month.
The electrical and electronics industry showed the largest drop in output of 36.1%, followed by a 32.8% fall in the forest industry and a 32.4% decline in the metal industry.
Month-on-month, the seasonally adjusted industrial output fell 3.1%, after a 1.3% growth in the preceding month.
In the January to July period, output fell 23% from the same period last year.
Friday, the Statistics Finland announced that the building cost index dropped 2.1% year-on-year in August, compared to the 1.9% fall in the previous month.
Prices of materials fell 3.2% on an annual basis in August, while those of other inputs decreased 6.8%.
NORWAY
The OBX in Oslo continued to gain, up 0.37% Friday at 283.10.
Norway's oil production fell to a preliminary 1.91 million barrels per day on average in August from 2.07 million in July, the Norwegian Petroleum Directorate said on Friday.
Production of natural gas liquids (NGL) and condensate rose to a preliminary 350,000 barrels per day in August from 283,000 in July, the directorate said in a statement.
Gas production fell to a preliminary 7.4 billion standard cubic metres in August from 8.1 billion in July, the NPD said.
Non-OPEC producer Norway is the world's sixth biggest oil exporter and western Europe's biggest gas exporter.
Oil companies on the Norwegian shelf are struggling to maintain production against a long-term declining trend at maturing North Sea oilfields, but Norway's gas production continues to grow.
Solar cell products maker China Sunergy said it started legal proceedings against Norwegian solar company Renewable Energy Corp in connection with bank guarantees related to a silicon and wafer supply agreement signed last year. China Sunergy said a court in China has issued a ruling suspending the payment of $50 million in bank guarantees to REC. A court in Norway has also granted an injunction with respect to the payment of $50 million in bank guarantees, China Sunergy said.
REC Sitech AS, with whom the original agreement was signed, was legally dissolved in January 2009, and the Chinese court ruled that the bank guarantees cannot be transferred to another entity, China Sunergy said.
China Sunergy noted that, until very recently, REC continued to claim that REC Wafer Norway was a change of name of REC Sitech AS.
Additionally, China Sunergy said REC had not made any shipments of wafer under the agreement that was signed in June last year, and that REC had unilaterally terminated the agreement.
SPAIN
The IBEX in Madrid closed Friday at 11,452.60, up a healthy 0.99% on the session.
Spain's Banco Popular Español SA on Thursday completed a €500 million ($728 million) capital increase to bolster it against the country's real-estate downturn.
In a regulatory filing, Popular said it had placed 71.4 million new shares with institutional investors at €7 each, 5.5% below its closing stock price Wednesday.
The move increases the number of shares outstanding in Spain's third-largest listed bank by 5.7%. More importantly, it allows Popular to shore up its capital ratios by building a larger cash cushion to cover losses from a fast-expanding pool of problematic loans. It may also give it enough extra cash for a few small acquisitions, analysts said.
Popular's bad-loans ratio jumped to 4.39% of total loans in June from just 1.42% a year earlier. The bank is paying a high price for its big exposure to some high-profile corporate failures in the troubled Spanish real-estate sector.
Popular is also planning to sell between €500 million and €700 million in four-year convertible bonds to retail investors, the bank said late Wednesday. That sales process will begin next week.
Spain's lenders, facing what is expected to be a long and painful economic downturn, have in recent quarters scrambled to boost their solvency levels by selling assets and issuing billions of Euros of preferred stock.
Until now, Banco Santander SA has been the only lender in the country to have raised cash through a share sale. Spain's largest bank by assets raised €7.2 billion in a rights issue late last year. The second-largest lender, Banco Bilbao Vizcaya Argentaria SA, and smaller rival Banco de Sabadell SA also recently announced convertible-bond issues.
Shares in Banco Popular fell 4.9% to close at €7.12 following the issue.
Madrid-based brokerage Banesto Bolsa said it expects many domestically focused Spanish banks to follow Popular's lead and raise new capital.
Bank executives and analysts see next year as particularly difficult for the sector. Until now, profits have held up relatively well, but lending margins and loan volumes are expected to contract in 2010, while banks will have even higher loan-loss obligations than now.
The Organization for Economic Cooperation and Development has warned that unemployment could rise to 20% next year. It expects Spain's gross domestic product to shrink 4.2% this year, and an additional 0.9% next year.
Spanish privately held property company Nozar said on Friday it had filed for administration with debts of about 700 million Euros ($1 billion).
Nozar - owned by the Nozaleda family, which also has stakes in other property companies - had been trying to refinance its debt for months.
"We've finally had to file for administration after failing to reach an agreement with our banks," a spokesman said, commenting on earlier press reports.
Problems at Nozar follow those at peers such as Martinsa Fadesa and unlisted Tremon and Habitat, all of which have been hit by plummeting home sales in Spain after the real estate sector seized up.
PORTUGAL
The PSI General in Lisbon closed up a little over three-quarters of a point at 2,775.87.
Thursday, the Statistics Portugal said consumer prices fell 1.3% year-on-year in August compared to a 1.5% drop in the preceding month. Consumer prices fell for the sixth consecutive month in August.
Excluding energy and unprocessed food, consumer prices rose 0.2% on an annual basis compared to a 0.5% rise in July. On a monthly basis, consumer prices declined 0.3%, after a 0.5% fall in July.
Meanwhile, the harmonized consumer prices fell 1.2% in August compared to a 1.4% drop in the preceding month. Month-on-month, harmonized consumer prices fell 0.2% compared to a 0.4% fall in the previous month.
ITALY
Italy's benchmark FTSE MIB Index advanced 189.48, or 0.8%, to 23,039.35 in Milan, taking its weekly advance to 3.7%. The gauge closed at a 10- month high.
Bulgari, the world's third-largest jeweler, gained 19.5 cents, or 3.8%, to 5.3 Euros, after analysts at Bank of America Corp. raised their recommendation on the stock to "buy" from "underperform," citing "a gradual improvement of trends and an excessively negative sell-side sentiment."
Davide Campari-Milano advanced for a second day, adding 16.5 cents, or 2.8%, to 6.09 Euros. Exane BNP Thursday raised its recommendation on the beverage maker to "outperform" from "neutral."
Digital Bros jumped 35.75 cents, or 16%, to 2.62 Euros. The video game developer and publisher said it will return to profit in the fiscal year ending June 30, 2010 after a 5.4 million-Euro ($7.9 million) loss last year, according to a statement distributed through the Italian exchange late Thursday.
Fiat, Italy's largest carmaker, advanced 40.5 cents, or 4.8%, to 8.8 Euros, the highest close in almost a year. Shares were upgraded to "outperform" from "underperform" at Credit Suisse Group AG, which cited "hidden value" in the Italian company's industrial assets and an improving economy in Brazil.
Credit Suisse also raised its price estimate on Fiat shares to 11 Euros from 6.5 Euros, the brokerage wrote in a report Friday, and added the stock to its "focus list" of preferred equities.
Gabetti Property Solutions soared 25 cents, or 18%, to 1.65 Euros, taking its weekly advance to 79%. The property company said Sept. 8 it received regulatory approval for a 25.6 million-Euro share sale.
Intesa Sanpaolo added 5.75 cents, or 1.9%, to 3.03 Euros. Exor SpA, the Agnelli family investment company, said it's studying Intesa's Banca FidEuram SpA asset management unit as a possible acquisition. Intesa said it has had preliminary contacts on possible disposals of assets, including Banca FidEuram. Exor fell 26 cents, or 2.2%, to 11.86 Euros.
Prysmian said a plan to merge with Draka Holding NV has been terminated because the two companies couldn't agree on the terms of the deal. Prysmian will continue "to consider other possible opportunities," it said in a statement. The cable maker fell 49 cents, or 3.6%, to 13.11 Euros.
Pininfarina advanced 14 cents, or 4.1%, to 3.6 Euros. The designer said in an e-mailed statement late Thursday that it will design Coca-Cola Co.'s new self-service dispensers.
Stefanel increased 0.75 cents, or 2%, to 37.9 cents. The clothing company said it will book a capital gain of 9 million Euros from the sale of its German unit Hallhuber GmbH for 25 million Euros to Blitz 09-450 GmbH, according to a statement distributed through the Italian exchange.
UniCredit, Italy's biggest bank by assets, climbed 3.75 cents, or 1.5%, to 2.59 Euros, after Morgan Stanley lifted its price estimate on the stock to 2.85 Euros from 2.37 Euros and said the bank is its top Italian pick because of its "more diversified franchise," according to a note sent to clients Friday.
Italy's economy contracted by 0.5% in the second quarter, with steep declines in exports, investments and inventories outweighing a rise in government and consumer spending, data showed on Thursday.
National statistics bureau ISTAT's final figures confirmed its preliminary estimate last month, showing a fifth consecutive quarterly decline in gross domestic product after the record 2.7% drop in the first three months.
On a year-on-year basis, GDP in the Euro zone's third largest economy was down 6.0%, also confirming the preliminary estimate, after a drop of the same size in January-March.
With Italy struggling more than its main Euro zone partners to emerge from recession, analysts said there was little to cheer in the GDP breakdown, which showed Italian exports are still failing to capitalise on a pick-up in global demand.
Italy has been in recession since the spring of last year and GDP is widely forecast to shrink by around 5% this year after a 1.0% contraction in 2008 which was already the steepest since 1975.
Italy has not posted two consecutive years of falling gross domestic product in its post-war history.
GREECE
The Athex in .... yes Athens .... closed out the week at 2,527.11, a gain of 0.66% on the Friday trading session.
Greece's largest lender National Bank is looking at launching a large covered bond issue, its chief financial officer said on Friday. "NBG is examining the possibility of issuing a jumbo covered bond in the near future," Anthimos Thomopoulos told Reuters.
"The exact size is to be determined," he said without providing further details.
NBG has in place a 10 billion Euro ($14.6 billion) covered bond programme initiated in November last year, with mortgage loans as the cover pool.
It has already issued 2.0 billion Euros, retained by the bank for repo purposes with the European Central Bank. |
| The UK Market
Did it follow the Global trend ..... |
 Man Group was the runaway riser in the FTSE 100 on Friday as takeover speculation helped the index hit a fresh high for the year.
The hedge fund manager rose 9% to 291p, with traders noting that a block of about 18m shares placed by an institutional seller in recent days had cleared, letting the price recover.
Man Group was also buoyed by bullish comments from senior management predicting the hedge fund industry would see net inflows of client funds by the end of the year.
Renewed talk of a cross- border bid for a blue-chip company had trading floors abuzz, with positive sentiment from Kraft's hostile offer for Cadbury at the start of the week showing no signs of fading.
International Power, the electricity generator with plants across Europe, the Middle East and Asia, rose 4% to 293.9p amid speculation that restrictions on the release of research into the company suggested a deal could be under way.
Smiths & Nephew rose as traders revisited the idea that a larger US rival such as Stryker or Biomed could swoop but then closed down 0.2% to 559p.
BG Group was helped higher by talk a US oil major was taking interest on the back of BG's discovery of an oilfield in the Gulf of Mexico twice as big as BP's so-called "giant" find last week. BG closed up 2.8% to 1136p.
Outside the large caps, Wellstream gained 9.4% to 645p on speculation the oilfield services provider was a target for Saipem, the Italian driller.
The benchmark FTSE 100 reclaimed the 5,000 level, rising 0.48%, or 23.79 points, to 5011.47, a high for the year. The FTSE 250 rose 0.9% to 9207.89.
Miners underpinned the index, helped by firm metals prices.
Fresnillo, the Mexican silver miner, was in demand as spot silver prices rose to the highest level in more than 13 months; its shares gaining 5% to 736p. Lonmin rose 3.2% to 1724p, while Xstrata closed up 2.7% at 925p.
Sports and financial betting company IG Group fell 8.4% to 326p after a board member sold shares in the company for a second session in a row. Jonathan Davie, a non-executive director, sold 100,000 shares, taking his remaining holding down to 800,000.
888 jumped 14.3% to 97½p after the online gaming group announced a deal for US casino operator Harrah Entertainment to use its software in the UK, and said it had further deals in the pipeline. A push from Cazenove sent RPS Group, the environmental consultancy, up 14.4% to 240p.
"We believe that RPS is likely to see a substantial re-rating over the coming few months as confidence returns. The group continues to expand the geographical spread of its operations, both organically and through acquisition," said Cazenove. "With management's strong reputation for making good quality, well-priced purchases and little gearing, we believe shareholders will continue to support that expansion."
Sports Direct International dropped 0.9% to 107.9p as the market continued to digest news it was under investigation by the Serious Fraud Office and Office of Fair Trading over allegations of anti-competitive business practices.
Numis said the market had overreacted to the inquiry but lowered its price target from 145p to 130p. "The fall in the share price is overdone," the broker said. "Precedents from the pub sector would suggest that the chances of prosecution are low, while the building industry has seen companies accept liability in return for a 50% reduction in the fine.
"Moreover, any OFT investigation would be likely to drag on for a number of years, with the chance to appeal likely to lengthen this process".
JJB Sports, which has been granted partial immunity for co-operating, regained some ground, rising 11.5% to 38¾p.
Exploration companies with operations in the Falkland Islands were in focus again on Friday. Shares in Rockhopper Exploration jumped 33.3% to 78p after it announced an agreement to share the costs of developing one of its licences with an unnamed partner.
The news came just a day after Desire Petroleum, up 3.3% to 93p, secured a rig to drill in waters off the Falkland Islands. BPC, another Falklands play, rose 30.4% to 3¾p after the clearance on Thursday of a large stock overhang.
Thorntons, the chocolate maker and retailer, rose 9.2% to 121¼p after chairman John von Spreckelsen acquired 50,000 shares at 110p each. Thorntons said during the week that trade was improving. Workspace, the business space developer, firmed up 1% to 25½p amid talk that it could be a takeover target for Hansteen, the Aim listed property company that raised £200m this year to take advantage of low property prices.
Hansteen rose 1.3% to 94p.
Gulfsands Petroleum put on 3% to 248¾p as takeover rumours did the rounds again. The name in the frame was Sinochem, the Chinese company buying Emerald Energy.
Emerging Metals held firm at 9½p even though dealers pointed out it was trading at a discount to the value of its holding in Kalahari Minerals, up 1% to 201p.
Asos rose 7.4% to 353½p after KBC upgraded it to "buy". Since the online fashion retailer reported results six weeks ago its shares have lost 20%. |
| Asia Pacific Regional Markets
Did they set the tone or follow the lead ..... |
 JAPAN
Tokyo stocks fell Friday as concerns over a stronger Yen and worse-than-expected revised gross domestic product data outweighed overnight gains on Wall Street.
After the Nikkei 225 Stock Average gained more than 200 points Thursday, analysts said investors were squaring positions before the weekend and in the wake of the settlement of September futures and options.
The Nikkei 225 fell 69.34 points, or 0.7%, to 10,444.33 while the Topix index of all the Tokyo Stock Exchange First Section issues fell 8.08 points, or 0.8%, to 950.41. Trading volume was relatively high with nearly 2.8 billion shares changing hands.
Among exporter shares, auto makers were noticeable decliners as the Dollar weakened against the Yen, falling below Y91 at one point. Toyota Motor dropped 1.8% to Y3,840 while Honda Motor sank 2.1% to Y2,865.
Despite the Yen's strength, electronics makers were relatively firm as hopes of a recovery in the US technology sector continued to lend support. Sony ended up 0.6% at Y2,485.
Steel stocks were weak, with Nippon Steel falling 2.2% to Y348, on worries that stricter greenhouse gas emissions expected under Japan's incoming administration may affect the steel industry more than most other industries, said a Japanese brokerage analyst.
Bucking the market's decline, glass makers were higher after comments Thursday from market leader Corning that LCD television demand "continues to be robust." Asahi Glass rose 2.1% to Y780.
Sentiment was also damped after the data released just before the opening bell showed Japan's GDP for the April-June period was revised down to a 0.6% gain from the quarter before, below the preliminary result for 0.9% growth. Economists were largely expecting no change from the preliminary result.
One market analyst at a Japanese brokerage said capital spending, which was revised down to a 4.8% on-quarter fall from the preliminary 4.3% drop, was particularly worrying, as it indicates that the uncertain economic outlook is forcing companies to hold off from investing in future growth.
Market observers say Japanese stocks may fall more in the near-term after the Nikkei rose 2.5% this week.
September Nikkei 225 futures and options settled at 10,541, with the market viewing that level as resistance for the cash index. Meanwhile, December Nikkei futures fell 70 points, or 0.7%, to 10,400 on the Osaka Securities Exchange.
SOUTH KOREA
The South Korean stock market closed with its head above the water after a choppy session Friday, buoyed by continued strong buying from foreign investors.
The Korea Composite Stock Price Index, or Kospi, rose 7.02 points, or 0.4%, to 1651.70 - the highest close since July 1, 2008, when it ended at 1666.46, and the strongest finish so far this year.
Foreigners continued to pick up local stocks after the Wall Street's overnight gains, analysts said.
Foreigners remained on their buying spree for the sixth consecutive session, grabbing a net KRW588.105 billion worth of stocks. But domestic institutions were net sellers of shares worth KRW349 billion while individual investors unloaded a net KRW208 billion.
Financial stocks were mostly higher due to foreign interest on hopes of improved earnings results in the second half of the year amid signs of economic recovery around the world, analysts said.
KB Financial Group rose 4.1% to KRW58,800 and Shinhan Financial Group gained 3.4% to close at KRW46,000. Woori Finance Holdings was up 3.2% at KRW16,300.
Retailers gained because of an improved sales outlook, ahead of the upcoming Korean thanksgiving holidays in October, analysts said.
Among retailers, Lotte Shopping rose 4.2% to KRW308,500 and Shinsegae gained 4.6% to KRW574,000. Hyundai Department Store advanced 8.1% to KRW107,000.
However, technology and automakers mostly remained weak with investors pocketing profits after recent rallies.
LG Electronics declined 4.1% to KRW128,500 and Samsung SDI slipped 1.2% to KRW159,500. Hyundai Motor fell 2.8% to KRW103,000.
HONG KONG
Hong Kong shares rose 0.4% to close at its highest level in more than 12-months on Friday, after a raft of Chinese economic data for August signalled the mainland's economy has stayed the course.
The benchmark Hang Seng Index was up 91.86 points at 21,161.42, it's highest closing level since August 2008.
But the index fell off early highs with investors reluctant to bet on further upside after stock valuations were seen racing ahead of the potential recovery in corporate bottom lines.
The index has piled on more than 1,600 points since last Wednesday.
The China Enterprises Index, which represents top locally listed mainland Chinese stocks, was up 0.4% at 12,268.21.
CHINA
Stronger-than-expected August economic data and the Chinese Premier's vow to continue stimulus polices helped China shares end higher Friday, with heavyweight banks leading gains.
The benchmark Shanghai Composite Index, which tracks both A and B shares, ended up 64.91 points, or 2.2%, at 2989.79. The index gained 4.5% this week, the biggest weekly rise since the beginning of August, but fell short of the psychologically important 3000 level Friday as some investors took profit on the rally.
The Shenzhen Composite Index rose 15.88 points, or 1.6%, to 1016.51.
Analysts said they are optimistic the stock market will remain strong in the short term, because the latest economic data issued Friday showed continued economic recovery in China.
Data showed industrial production grew 12.3% on year in August, accelerating from July's 10.8% gain, while CNY410 billion of new RMB loans were issued, well above market expectations for CNY320 billion.
To reassure investors after the Shanghai index lost 22% last month, the securities regulator has been hastening the launch of mutual funds and slowing the pace of new listing approvals.
Also, the banking regulator has delayed the implementation of stricter capital requirements for banks, and the foreign-exchange authority has proposed raising quotas under the Qualified Foreign Institutional Investor program, the only way foreign investors can buy RMB-denominated A shares.
Chinese government officials have repeatedly pledged to keep policy stable. Speaking at the World Economic Forum in Dalian on Thursday, Premier Wen Jiabao reiterated that his government will maintain its stimulus efforts.
Banks, the proxy for China's economy, were among the day's biggest gainers. ICBC rose 3.5% to CNY5.07, Bank of China gained 3.3% to CNY4.08, and China Construction Bank jumped 4.5% to CNY6.02.
TAIWAN
Taiwan stocks inched up 0.07% to a fresh 14-month closing high on Friday, with TSMC dragging tech shares lower after its weak August sales, but financials kept losses in check.
The main TAIEX share index finished 5.06 points higher at 7.337.14, chalking up a fresh 14-month closing high and recording a 2.56% weekly gain.
The technology sector was the session's top loser, falling 0.43%, with tech heavyweights TSMC and Hon Hai slipping 1.73% and 1.59%, respectively.
The technology sector has gained more than 8% over the past two weeks.
TSMC, the world's top contract chip maker, reported a 7% fall in August sales on Thursday, hitting the firm's shares on Friday.
Turnover was light at T$97 billion ($3 billion), compared with Thursday's T$162 billion.
The optoelectronics sub-index also pressured the market, with LCD makers AU Optronics and Chi Mei Optoelectronics falling 1.94% and 1.81%, respectively.
The falls came after a local newspaper reported that Taiwan flat panel makers could expect a slip in sales as their bigger South Korean peers cut panel prices.
Helping balance losses in the tech sector were financial shares, which gained 0.77%, with Chinatrust Financial up 2.5%.
Mega Financial climbed 3.45% to its best finish in over a year on news that it was the first among Taiwan banks to obtain approval from the Chinese government to set up a representative office in China in six years.
Analysts said Taiwan stocks could be due for a correction next week after recording gains of about 7% in the past two weeks.
THE PHILIPPINES
Philippine share prices on Friday advanced, soaring to a near two-week high, an indication that the local bourse's rally may resume.
The main 30-company Philippine Stock Exchange index surged 34.92 points or 1.2314% to 2,87083, the bellwether index's best finish since its 2,884.18 close on August 28.
Meanwhile, the broader all shares leaped 15.73 points or 0.8704% to 1,822.94.
Market breadth was positive with 65 gainers against 47 losers and 52 stocks which closed unchanged.
Except for industrial, which retreated 0.2968%, all other five sectoral indices were in the green. Property registered the biggest gain with a 3.5482-percent rise, followed by holding firms' 1.9952-percent climb.
Personal care giant Splash Corp., the day's most active stock, gained P0.25 or 6.9444% at P3.85.
Developer Megaworld Corp. jumped P0.04 or 2.6316% to P1.56 while rivals Filinvest Land Inc. soared P0.07 or 7.0707% to P1.06 and Ayala Land Inc. climbed P0.50 or 4.6512% to P11.25.
Ayala Corp., the country's largest business group, surged P12.50 or 4.065% to P320.
SINGAPORE
Singapore shares closed flat Friday with investors reluctant to take risks in the absence of fresh leads, dealers said.
The Straits Times Index edged 0.99 points, or 0.04%, lower to 2,681.03. Volume totalled 2.05 billion shares worth 1.57 billion Singapore Dollars (1.1 billion US) and there were 246 rising issues, 276 losers while 725 were even.
Among the winners was Keppel Corp which closed 28 cents higher at 8.19 Dollars while Singapore Airlines put on 48 cents to 13.46 and Singapore Telecommunications was two cents higher at 3.20.
For the banks, DBS rose six cents to 13.10, Oversea-Chinese Banking Corp eased five cents to 7.83 and United Overseas Bank dropped 28 cents to 16.86.
THAILAND
The Stock Exchange of Thailand (SET) composite index moved up 4.72 points, or 0.67% to close at 707.81 points on Friday.
Some 5.66 billion shares worth 26.49 billion baht (about 788.49 million US Dollars) changed hands.
MALAYSIA
Share prices on Bursa Malaysia ended mixed Friday amid improved investors' sentiment as firm buying on CIMB Group, British American Tobacco and Tanjong kept the main index in the positive territory, dealers said.
However, the broader market was relatively thin as profit-taking emerged following recent sharp gains.
At close, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose 0.6% or 7.0 points to 1,208.28.
It had opened 1.15 points higher at 1,202.43, trading as high as 1,210.36 and low at 1,201.28 Friday.
The FBMEmas climbed 34.70 points to 8,122.77, the FBM Top 100 went up 40.12 points to 7,914.50 and the FBM70 advanced 17.78 points to 7,982.34 but the FBM Ace Index dropped 39.82 points to 4,079.74.
The Finance Index surged 147.67 points to 9,849.89, the Industrial Index gained 5.29 points to 2,639.67 and the Plantation Index was 1.86 points higher at 5,954.38.
Decliners led advancers 365 to 283 while 255 counters were unchanged and 350 others untraded.
Total volume was lower at 516.916 million shares worth RM925.929 million compared with Thursday's 649.288 million shares worth RM1.252 billion.
"The FBM KLCI, which bounced to a 14-month high, mid-week, prompted some profit taking in the broad market. However, overall sentiment remained generally positive," one dealer said.
The bullish sentiment was buoyed by better-than-expected industrial production index for July which suggested the economy was recovering.
Positive gains in regional stock markets and the steadier overnight close on Wall Street also lent support to the local bourse, he added.
Topping the list of active counters was KNM Group which shed half-a-sen to 72 sen with 23.519 million shares transacted.
Of other actives, Talam Corporation slipped half a-sen to 8.5 sen, Genting Singapore (C) lost 4.5 sen to 32.5 sen, SAAG Consolidated was unchanged at 24.5 sen and CIMB Group climbed 42 sen to RM10.94.
British American Tobacco was the biggest gainer, surging RM1.00 to RM46.00, and Yeo Hiap Seng was the biggest loser, coming off 21 sen to RM1.22.
Among heavyweights, Tanjong increased 30 sen to RM15.92, Public Bank rose 16 sen to RM10.30 and DiGi rose six sen to RM21.40.
Main board turnover declined to 447.072 million shares worth RM906.902 million compared with 544.075 million shares valued at RM1.218 billion on Thursday.
The ACE market volume was reduced at 37.157 million shares worth RM8.816 million versus 52.614 million shares worth RM14.696 million transacted on Thursday.
Trade in warrants dropped to 37.157 million shares worth RM8.816 million from 40.970 million shares valued at RM13.483 million previously.
INDONESIA
Up 0.17%. The Jakarta Composite Index added 4.08 points to 2,415.94.
Coal miner Bumi Resources advanced 4.1% to 3,150 rupiah, while rival Bukit Asam climbed 3.0% to 13,650.
Bank Central Asia shed 1.7% to 4,425 rupiah due to profit-taking.
INDIA
Indian shares extended gains for a sixth consecutive session Friday, but trade was choppy as wary investors booked profits in the absence of any significant triggers.
The Bombay Stock Exchange's Sensitive Index ended up 47.44 points, or 0.3%, at 16,264.30. It traded between 16,130.32 and 16,337.98 in the session.
The 30-stock Sensex, which gained about 3.7% this week, has more than doubled from its March 6 low of 8,047.17.
Dow Jones technical analysis tips the Sensex to trade in a 15,600-16,750 range next week.
On the National Stock Exchange, the 50-stock S&P CNX Nifty closed at 4,829.55, up 10.15 points, or 0.2%.
Total traded volume on the Bombay Stock Exchange was INR56.96 billion, down from INR67.02 billion Thursday. Losers outnumbered gainers 1,713 to 1,074, while 81 stocks were unchanged.
Gains on the Sensex were led by banks and technology companies, encouraged by signs of an economic recovery, and aluminum maker Hindalco Industries - which jumped 6.0% to INR124.15 on buying by domestic funds.
ICICI Bank - the country's largest private lender by assets - rose 2.5% to INR835.7, State Bank of India added 2.1% to INR1,918.80 while HDFC Bank closed up 0.5% at INR1,491.0.
Financial advisor Ramachandran said banks may benefit from a likely fall in bond yields, which are peaking now.
The benchmark 10-year bond yield has risen about 200 basis points so far this year.
Wipro - India's third-largest software exporter by revenue - climbed 1.5% to INR552.45, while Infosys was up 1.4% at INR2,266.0 and Tata Consultancy Services rose 0.6% to INR559.65.
Among the losers, Sterlite Industries dropped 2.7% to INR745.90, on fears that parent Vedanta Resources' higher bid for Asarco was likely overpriced and that its bidding battle with Grupo Mexico to buy Asarco may not end soon.
Vedanta and Asarco's parent Grupo Mexico have been in a tussle to acquire the assets of Asarco, a copper mining company which has been in bankruptcy since August 2005. Vedanta is now offering $2.56 billion for Asarco, a tad higher than Grupo Mexico's offer of $2.47 billion.
Auto stocks also slipped with Tata Motors losing 2.3% to close at INR550.95 and motorcycle maker Hero Honda down 1.5% at INR1,563.55.
Reliance Industries, India's most valued company, lost 0.4% to close at INR2140.95, after gaining about 11.5% over the past one week.
AUSTRALIA
The Australian share market hit a fresh 11-month high on Friday, with financials, materials and telecommunications driving the market up as Wall Street rose for a sixth-consecutive day and economic data from China impressed the market.
The benchmark S&P/ASX 200 index rose 25.3 points or 0.6% to 4596.1 on good share trading volume after hitting 4608.6, its highest level since October 2008.
Despite expectations of a pullback this month, the index is on track for its seventh straight monthly gain.
The S&P/ASX 200 is up 2.6% since August and is also up 47% from it March low and 24% from it July low.
On Wall Street, the S&P 500 rose 1.0% after a smaller-than-expected fall in jobless claims.
In Asia, China's Shanghai Composite was up 2.5% after industrial production in China rose 12.3% in August versus expectations of a 12.0% rise and China's new RMB loans rose CNY410.4 billion in August versus expectations of CNY320.0 billion.
Also helping sentiment, China's crude steel output rose 22% on year to a monthly record 52.33 million metric tons.
Department store chain Myer Group on Friday reported full year net profit rose 14.8% and said it would lodge an IPO prospectus on Sep. 28. Analysts estimate Myer's IPO could raise up to A$2.5 billion, making it the biggest IPO since Telstra.
Despite broad-based gains Friday, strength was concentrated in materials, banks and telcos.
Standouts included BHP Billiton, up 0.8% at A$38.30, ANZ, up 1.7% at A$22.68 and Telstra, up 1.5% at A$3.32.
In the consumer discretionary sector, Consolidated Media fell 9.0% to A$3.02 after Seven Network promised not to buy any more shares for 12 months, while News Corp., owner of this news wire, jumped 4.3% to A$15.91.
NEW ZEALAND
New Zealand's share market ascended Friday to a one-month high and was just shy of a one-year high thanks to tailwinds from Wall Street and its retail sector.
Forsyth Barr broker Ken Lister said that as long as the positive tone holds in major markets, he expects the local market to push to new highs.
The NZX-50 Index rose 0.3%, or 10.50 points, to 3137.18, its highest level since Aug. 17. The index is up 1.3% for the week.
The main local influence was the full-year earnings report of bellwether retail company The Warehouse. The stock gained 5.2% to NZ$4.25 after the company reported an improvement in core earnings in the year to Aug. 2.
Fellow general goods retailer Briscoe Group rose 2.6% to NZ$1.18.
Some of the shine also rubbed off on whiteware manufacturer Fisher & Paykel Appliances, which rose 4.0% to NZ$0.78 on the view that improving consumer sentiment will see more big ticket items purchased.
A number of currency sensitive stocks were hurt by the New Zealand Dollar's rise.
Among those to suffer were chip maker Rakon, which fell 2.2% to NZ$1.35, fishing company Sanford, down 1.2% at NZ$5.00 and healthcare products manufacturer Fisher & Paykel Healthcare, off 0.9% at NZ$3.37. |
| Global Commodities
'Food for thought' or 'a Grain of truth' ..... |
 Gold reached $1,000 a troy ounce this week for only the third time, finding support from Dollar weakness and concerns about inflationary pressures.
The break above $1,000 caught many investors by surprise as jewellery demand has weakened sharply and inflows into exchange traded funds have slowed as the worst tensions of the financial crisis have abated.
Gold hit $1,011.55 a troy ounce on Friday, just 1.9% below its record $1,030.80 reached in March 2008 when the Federal Reserve was forced to take emergency action to stabilise financial markets after the demise of Bear Stearns.
Gold slipped to $1,006 late on Friday, up 7.8% this week, and on course for its highest finish at the end of trading in New York.
The billions of Dollars spent by central banks to rescue the global economy from a slump have fuelled fears that inflation could rise sharply.
Nick Moore, of the Royal Bank of Scotland, warned that bond market investors might "come to rue the day they ignored the move in gold, that most classic of inflation hedges".
Gold outpaced the other precious metals. Silver hit $16.97 a troy ounce, up 4.8% this week while platinum added 4.9% at $1,314. Palladium was flat over the week at $290, after rising 25% since mid-July.
In energy markets, Nymex October West Texas Intermediate oillost $2.65 at $69.29 a barrel on Friday, up 1.9% this week. ICE October Brent fell $2.17 to $67.69 a barrel, up 1.3% this week. Opec's decision to keep its production quota unchanged was widely anticipated and had little impact. Record US corn and soyabean crops will be harvested by US farmers this year. Updated production projections from the US Department of Agriculture, released on Friday, broadly matched the optimistic forecasts circulating in the market.
Over the week, CBOT September corn rose 0.5% to $3.02¼ a bushel. CBOT September soyabeans added 1.2% to $9.73 a bushel. CBOT September wheat 4 lost% at $4.26 a bushel. |
| Global Currencies
In for a Penny, in for a Pound ..... |
The Dollar this week put in its worst performance for four months as currency traders returned to their desks after the summer break.
After trading in a relatively narrow range since the start of July, the greenback broke sharply lower, hitting a one-year trough on a trade-weighted basis and dropping to its weakest level against the Euro since the start of the year.
Over the week, the Dollar index, which tracks its value against a basket of six major currencies, fell 1.9% to 76.69, its lowest point since September 2008.
Analysts said increasing investor confidence was one of the main driving forces behind the Dollar's fall. Haven demand for the Dollar was dented after last weekend's G20 meeting of finance ministers, who pledged to continue with policies aimed at supporting the global economy.
This, along with continued signs that the global economy was recovering, boosted risk appetite and equity markets, prompting investors to go in search of higher-yielding assets.
Over the week, the Dollar fell 2% to $1.4591 against the Euro and lost 1.9% to $1.6695 against the Pound.
But whereas recent rises in risk appetite have also weighed on other low-yielding currencies, such as the Yen and the Swiss franc, both the Japanese and Swiss currencies advanced against the Dollar.
Over the week, the Dollar fell 2.5% to a seven-month low of Y90.65 against the Yen and dropped 2.2% to SFr1.0366 against the Swiss Franc.
Analysts said this indicated that Dollar weakness was not solely related to improved risk appetite. Some pointed to concerns over the Dollar's reserve status, which were rekindled by an agency of the United Nations.
In its annual report, the UN Conference on Trade and Development urged the creation of a new world reserve system using several currencies rather than just the Dollar, and called for tough controls on cross-border financial flows.
The Dollar lost ground against commodity-linked currencies, hitting one-year lows against the Australian Dollar, the New Zealand Dollar and the Norwegian Krone.
Over the week, the Dollar fell 1.5% to $0.8642 against the Australian Dollar, lost 2.6% to $0.7068 against the New Zealand Dollar, dropped 1.5% to NKr5.9101 against the Norwegian krone and fell 1.1% to C$1.0748 against the Canadian Dollar.
The Rand rose against the Dollar, reversing earlier declines for the best performance among emerging-market currencies, as stocks jumped and gold headed for a fourth weekly advance, trading at more than $1,000 an ounce.
The currency appreciated as much as 1.7% to 7.4361 per Dollar and was 1.6% stronger at 7.4466 by 4:27 p.m. in Johannesburg, bringing its weekly gain to 2.1%.
The Rand earlier fell as much as 0.7% to 7.6164 after central bank Governor Tito Mboweni Thursday said it's in "misalignment" and an International Monetary Fund report said the currency may be too strong.
As always, closing currencies with the RMB here in China. On the over-the-counter market, the Dollar closed at CNY6.8290, down from Thursday's close of CNY6.8294. It traded between CNY6.8273 and CNY6.8297. |
| China
Key news eminating from China this week ..... |
 China's economy showed new signs on Friday that its recovery is gathering pace with the announcement that investment, industrial output and credit all expanded more rapidly in August.
The increases in output and investment were both ahead of analysts' forecasts and followed a series of figures in July that suggested the recovery might be weakening. The one exception was on the trade front, where the decline in exports and imports compared to the year before was sharper than expected.
The robust August numbers will intensify the debate about when China should begin withdrawing some of the massive fiscal and monetary stimulus it has injected into the economy since the end of last year.
Speaking on Thursday at the meeting of the World Economic Forum in Dalian, Chinese Premier Wen Jiabao ruled out any early change of course.
"China's economic rebound is unstable, unbalanced and not yet solid," he said. "We cannot and will not change the direction of our policies when the conditions aren't appropriate."
However, the dramatic increases in new lending and money supply this year, combined with rising property and equity markets, have raised fears that government policies are creating a series of bubbles in the economy.
Bank loans rose by Rmb410.4bn in August after increasing by Rmb355.9bn the month before, and by Rmb271.5bn in the same month last year, while the M2 measure of money supply increased by 28.5%.
Industrial output expanded by a 12-month high of 12.3% in August from a year earlier after a 10.8% increase in July, although production in August last year was held back by Olympics-related factory closures. Fixed asset investment inched up to a rate of increase of 33% over August last year, after expanding by 32.9% in July.
Deflationary pressures eased, with consumer price inflation falling 1.2% in August. But the rate of decline was less than the 1.6% seen in July and economists warned that inflationary pressures would pick up as the economy recovers. The producer price index was down 7.9% from the same period in 2008.
However. in spite of forecasts that exports might start to rebound on the back of restocking in developed economies, the rate of decline in exports increased to 23.4% in August compared to the same month last year, after dropping 23% in July. Imports fell by 17% after declining 14.9% in July. This led the monthly trade surplus to increase again to $15.7bn after recording a $10.6bn surplus in July.
Retail sales grew 15.4% from a year earlier as domestic demand remained robust. Sales of motor vehicles were strong, up 34.8%, as a result of government subsidies and tax cuts.
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Employment levels in China began to recover over the past three months in the latest evidence of the rapid rebound in the economy from the international financial crisis as a result of heavy public investment.
Yin Weimin, China's labour minister, said there had been a modest increase in the number of jobs in the economy during June, July and August, reversing the sharp slump in employment which began last October.
Mr Yin warned that the employment situation remained "grave" and said that the "global financial crisis has not bottomed out yet". However, with most developed countries still witnessing increases in unemployment, the figures underline the resilience that the Chinese economy has shown in recent months.
The improvement in new jobs could encourage Chinese policymakers to begin withdrawing some of the monetary and fiscal stimulus they have pumped into the economy since the fourth quarter of last year. Chinese leaders have consistently said that they do not want to tighten policy too soon, for fear of prompting a "double-dip" slowdown, however there are concerns that the explosion in new bank loans is leading to potential bubbles in property and equity markets and causing parts of the economy to overheat.
If the trend in rising employment continues, it could help underpin consumption levels.
The news about the rebound in new jobs follows a number of anecdotal reports in recent weeks that factories in China's main export-producing regions, such as Guangdong in the south and Zhejiang in the east, are finding it hard to recruit workers.
Mr Yin said these stories about labour shortages demonstrated the "economy's trend of recovery" although he said they were likely to be only isolated instances. Many economists expect to see a modest recovery in China's exports in the coming months, although this could be down to restocking by customers in the US and Europe rather than a rebound in underlying demand.
Despite the improving trend, the devastating impact on China's labour market from the financial crisis was underlined by a report from a government think-tank released on Tuesday. Researchers at the Chinese Academy of Social Sciences said that 41m Chinese workers lost their jobs as a result of the crisis and that about 23m of those still remained out of work.
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Beijing will finally start allowing foreign companies to list in China, reflecting its ambitions to open up the country's financial sector and transform Shanghai into an international financial centre.
"I think some time early next year we will have one or two foreign companies listed on the Shanghai Stock Exchange," Fang Xinghai, director-general of the Shanghai government's Financial Services Office, told the Financial Times.
"Very likely, the Shanghai Stock Exchange will get an international board, and [foreign companies] would be subject to a different set of listing rules, which would suit foreign companies and which would also make sure that there will be adequate information for Chinese investors."
The plans follow an announcement by the finance ministry this week that the country would sell Rmb6bn ($878m) of bonds in Hong Kong this month to "improve the international status" of its currency.
Some multinational companies have also signalled that they would be interested in issuing shares in mainland China.
Mr Fang said foreign listings would start with a pilot phase, an approach China has often taken in the past 30 years to test market reforms before adopting them more broadly.
"There will not be dozens and dozens of foreign companies in the short term, but things will be done in a gradual fashion."
Mr Fang added that the establishment of a separate board was designed to circumvent the problem foreign companies tend to have with China's strict disclosure rules.
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China will issue sovereign bonds denominated in its own currency to offshore investors for the first time this month - a crucial step towards making the RMB a global currency.
The country's finance ministry said it would issue Rmb6bn ($879m) of bonds in Hong Kong on September 28, in a move to "improve the international status" of the currency and to help mainland companies raise funds in the offshore bond market.
Beijing has taken a number of steps in the past year to encourage greater use of the RMB in international transactions, beginning a process to decrease its dependence on the US Dollar. Senior government officials, including Premier Wen Jiabao, have expressed concern that the value of the Dollar will decline, which would erode China's $2,100bn in foreign exchange reserves, mostly held in US government bonds.
Beijing has signed deals since December with Malaysia, South Korea, Belarus, Indonesia and Argentina that allow it to receive RMB instead of Dollars for its exports to those countries.
In July, China began a pilot programme that expanded RMB settlement agreements between Hong Kong and five major trading cities on the mainland, including Guangzhou and Shanghai.
But developing an offshore bond market will be crucial if the RMB is to become a truly global currency, as it would provide foreign institutions with an attractive means with which to hold the RMB.
Five state-owned Chinese banks, including Bank of China and China Construction Bank, have issued RMB bonds in Hong Kong since 2007, when the government started to allow the deals. Earlier this year, HSBC became the first foreign bank to issue RMB bonds in the territory. |
| Summary
The coming week looks like ..... |
The Dollar's broad slide is pushing the tolerance limits of both authorities in developed countries, such as Switzerland and Australia, as well as in some Asian emerging markets.
Interest in the international reserve currency debate has been revived by an UNCTAD report and China's move to use RMB to buy IMF-issued SDR bonds.
But that debate is a slow-burning one and FX traders' willingness to cite such factors as a reason to sell Dollars suggests a sentiment shift could be underway.
Given Dollars bought during any intervention have to be parked somewhere, seeing foreign central banks scooping up significant chunks of US paper at auction won't necessarily scare bears - me for one.
You are aware just how 'bearish' I have been and still am on the Dollar and at the moment, I think it is a seminal time for Emerging Market currencies.
So apart from the obvious, Gold, which other sectors benefit from a weaker Dollar? Industrials, basic materials, and energy are the three foremost that spring to mind.
I will cover more on these sectors over the coming weeks.
While market prices are implying that US interest rates will rise before Japanese ones, it seems that the crossover in the three-month Dollar and Yen Libor rates which occurred late last month has prompted many to see the Dollar as the currency of choice when funding carry trades.
More generally, the plentiful supply of central bank liquidity is prompting cheap short-term funds to be invested further out along the curve, squeezing the spread between overnight and one-year Libor rates.
This is as much the case for funding in Euros as in other currencies - and that is even without taking into account the European Central Bank's next one-year refinancing operation scheduled for the end of the month.
The Swiss National Bank and the Bank of Japan policy meetings next week are unlikely to do anything other than reaffirm the G20 message on keeping policy accommodative.
Differences will be more evident in their stance on exchange rates, with the SNB likely to show it will continue to resist appreciation of the Swiss Franc, which has the year's highs against a broadly weaker Dollar - more than reversing the post-intervention gains made earlier this year - and is drifting toward the bottom of recent months trading ranges against the Swiss franc.
While Japan has stayed mum so far, official tolerance may be tested by any move to 90 and below given the risks that the move could accelerate thereafter.
Some upward shift in longer-term inflation expectations is being signaled by 10-year Euro zone breakeven rates rising to their highest in a year - a move which came in the same week that gold rallied above the key $1,000 level to an 18-month high and government bond yield curves steepened sharply.
While the swathe of price data out next week is unlikely to give any reason for short-term concern and there is plenty of spare capacity in most major economies, demand at inflation-linked bond auctions, such as the one France will hold next week, will be closely watched for an indication of investor demand for inflation protection.
Equity markets have managed to extend their rally thanks to G20 assurances on stimulus, mergers and acquisitions activity and further corporate earnings upgrades.
Oracle earnings next week will shed some light on the outlook for capex spending, and therefore the outlook for economic recovery.
In the meantime, emerging markets have already scaled levels last seen before Lehman collapsed around this time last year.
With that anniversary firmly in the market's minds, there will be interest in how the expected drop in one-year realized volatility affects value-at-risk (VaR) and therefore risk appetite.
A slew of data will greet foreign exchange investors next week but investors may pay particular attention to consumer inflation data for clues on when the US Federal Reserve may end quantitative easing.
After cutting their domestic interest rates, central banks around the world effectively printed money to support their economies by among other actions, buying their own government governments' notes, a process known as quantitative easing.
The consumer price index for August will be released on Wednesday and is forecast to rise 0.3% in the overall number and up 0.1% excluding food and energy.
Other upcoming US data releases include the producer price index for August on Tuesday, which is expected to rise 0.8% from the prior month in the headline number and 0.1% excluding food and energy.
The same data will see the release of August retail sales data which is forecast to rise 1.9% overall and 0.3% excluding automobile sales.
As well as the CPI report, a report on the current account for the second quarter slated for release on Wednesday is expected to show a deficit of $92.0 billion.
Late the same day a report on Treasury International Capital flows (TICS) for July will be released, followed by a separate report on Industrial output for August. Industrial output is expected to rise 0.6% month over month.
Thursday will conclude the first-tier data releases for the week with housing starts for August, weekly initial jobless claims and the Philadelphia Fed index for September.
Housing starts are forecast to post at 600,000 for the month on an annualized basis and the Philadelphia Fed index to post at 8.0.
The US government's guarantee for money-market mutual funds that was set up during the credit crunch will close as scheduled Friday of next week. The program was launched after assets of a big money-market fund, the Primary Fund, fell to less than $1 for every Dollar invested by a customer, an event known as "breaking the buck." The collapse of Lehman Brothers triggered the loss.
Next week's inflation data from the Euro zone, Britain and the United States is expected to show benign inflation, a factor underlining expectations for low interest rates.
Long-term Euro zone inflation expectations as measured by French 10-year breakeven rates hit their highest in almost a year on Thursday as concerns over the implications of loose central bank monetary policy.
The 10-year breakeven rate, which measures the difference between the yield on conventional 10-year French government bonds and that on comparable inflation-linked bonds, rose to 2.09%, according to Reuters charts.
Another 'interesting' week I'm sure and I for one feel that Gold should, at long last, be allowed to remain above the $1,000 mark and the US Dollar will continue to decline.
I hope that this 'lighter-toned' Newsletter did not drive you to despair; although please be aware that I remain adamant that a correction is coming .... soon .... maybe .... possibly ....
No seriously, it is only a matter of time! |
As always, I will keep you posted with major developments as/when they occur in the week ahead.
In the meantime, I wish you all a very pleasant weekend.
Market Newsletter Written By
Adrian Page
Managing Director
Financial Page International | |
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