Dear Adrian,
Markets have been flat/mildly positive this week and it really is starting to look like this mini-bull-rally is starting to run out of steam in a big way.
I hate to harp on about the cost of quantative easing measures that have been instigated globally to bring an end to the 'recession', but there is no way you can ignore the numbers; no way at all.
European governments have approved $5.3 trillion of aid, more than the annual gross domestic product of Germany, to support banks during the credit crunch, according to a European Union document.
The UK pledged 781.2 billion Euros ($1.1 trillion) to restore confidence in its lenders, the most of any of the 27 EU members, according to a May 26 document prepared by officials from the European Commission, the European Central Bank and member states. Denmark, where 13 of the country's 140 banks were bailed out by the central bank or bought by rivals last year, committed 593.9 billion Euros.
The measures, designed to save banks and revive economic growth, surpass Germany's $3.3 trillion economy, the region's biggest. They also helped to widen the Euro area's budget deficit to the most in three years in 2008. The commission, the EU's executive arm, is seeking to create the first EU-wide agencies with rule-making powers to monitor risk in the economy after the crisis led to $460 billion of losses and writedowns across the continent.
EU governments approved about 311.4 billion Euros for capital injections, 2.92 trillion Euros for bank liability guarantees, 33 billion Euros for relief of impaired assets and 505.6 billion Euros for liquidity and bank funding support, a total of 3.77 trillion Euros, the document shows.
The US government and the Federal Reserve had spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, as of March 31.
A majority of new member states including Slovakia, the Czech Republic, Estonia and Lithuania have not taken public measures to support their financial markets, the draft said. Many banks in the region are foreign-owned. More than 80% of bank loans in central and Eastern Europe come from lenders owned by six western European EU countries, according to Moody's Investors Service.
All together, the EU paper said that 18 member states have introduced bank liability guarantees, 15 have approved recapitalization measures, and 11 have given liquidity support.
The programs have "contributed to a stabilization of the extremely tense financial market conditions that were witnessed in the autumn of last year," according to the document. Still, there remain "elevated risk premiums in many parts" of the financial markets and this is "likely to remain challenging."
The document called on European leaders to seek further disclosure on impaired assets and to restore confidence in the industry. New EU guidelines may require banks in receipt of aid to sell branches or units to win approval for restructuring plans, according to the document. These guidelines could be approved as soon as the end of the month.
Banks in Germany received the third-largest amount in aid, the document showed, for a total of 554.2 billion Euros. Commerzbank AG, Germany's second-biggest bank, was told to sell its Eurohypo commercial property unit by the Commission on May 7 to win approval for a second bailout by the German government.
The UK have announced this week that they will almost double their quantative easing measures in the coming weeks, with a further 50 Billion Pounds entering the pot.
Federal Reserve loans under the TALF program rose this week to $25.2 Billion.
But it's not just the US, UK and Europe that seem to be 'lending their way out of trouble'.
Look a little closer to home here in China.
"Fast lending growth in China poses no risk to the country's banks", the head of the China Banking Regulatory Commission (CBRC) said on Friday. "We mainly care about quality now. As long as the quality is good, there should be no problem if the speed is a little bit high," Liu Mingkang, CBRC chairman, said at a financial forum in Beijing.
Chinese banks issued 5.84 trillion RMB of local-currency loans in the first five months of the year, a record amount and already topping what the government had said was its minimum full-year target of 5 trillion RMB.
Stimulus always is good for the economy in the short term but this may come with a cost for long-term prospects of China I feel.
Ladies and Gentlemen, admittedly almost all of this lending has been commercial lending but we are now at a point where banks are starting to loan more freely to retail customers.
As I have said all along, if you insist upon reopening those retail lines of credit open to customers that are already heavily in debt over their heads, you are just delaying the eventual problem.
Unemployment is rising and in tandem more and more people are looking to borrow money to find a solution to their problems.
If global banks feel they have gotten over the worst and start to open their doors to retail lending once more, we'll be back in the same position as we were in October 2007 within a couple of years from now - with far deeper-reaching consequences I feel.
On to the numbers for the week: |
| US Markets
How the US did this week ..... |
 Wall Street stocks erased most of their early losses on Friday, but they failed to break out of the week's narrow trading range on a day when floor trading in 242 companies, including Exxon Mobil and General Electric, was halted because of a computer problem.
Stocks rebounded in late trade as early indications filtered through that Mir Hossein Mousavi, the challenger to President Mahjmoud Ahmedi-Nejad, might be on course to win a majority of the vote.
The broad market had been subdued all week, as surging commodities lifted energy and materials stocks, but squeezed the consumer sector.
Oil peaked at more than $73 a barrel on Thursday, but then fell back again on Friday. Its movement was matched by that of leading energy producers.
Schlumberger rose 8.6% in the first four sessions of the week, but fell 3.1% on Friday to $60.27. ConocoPhillips lost 2.6% to $44.37.
Metal producers also lost some of the week's gains as the boom in prices for their products slowed. Freeport McMoRan, the copper miner, lost 3.2% to $58.51. AK Steel, the steel maker that has surged over 13% this week, fell 5.7% to $19.93.
The benchmark S&P 500 index closed up 0.1% at 946.21, while the Dow Jones Industrial Average rose 0.3% to 8,799.26, pushing the blue chip benchmark into positive territory for the year.
The Nasdaq Composite index gave up 0.2% to 1,858.80 points.
Stocks have now advanced four consecutive weeks. The Dow become the last major US stock gauge to give investors a profit for the year, as confidence increased that the worst recession since World War II is ending.
Bank of America had the biggest gain in the Dow average for the second day in a row, adding 5.9% to $13.73. Stifel Nicolaus & Co. raised its 2010 and 2011 profit forecasts. At least four other Wall Street firms have either upgraded or increased profit or share-price forecasts for Bank of America, the biggest US bank by assets, this week.
Utilities in the S&P 500 added 1.4% as a group, the most among 10 industries. Dynegy rose 3.8% to $2.47, and FirstEnergy advanced 3.6% to $40.48.
Phone companies in the index climbed 0.9%. AT&T increased 0.9% to $25.01. Qwest Communications International Inc. rallied 4.6% to $4.32.
The S&P 500 dropped during the morning after consumer confidence trailed economists' estimates. The Reuters/University of Michigan said its sentiment gauge rose to 69 in June, missing the 69.5 average forecast.
BlackRock finally confirmed its $13.5bn purchase of Barclays Global Investors on Thursday to create the world's largest money manager.
The impending deal had been widely reported during the week, sending BlackRock's shares up 5%.
The final price was a shade over the $13bn that had been reported, however, which sent BlackRock's shares down 3.3% at $176.56.
The company was also hit by a downgrade in its credit rating from S&P following the deal, which will give it an extra $3bn of debt.
Elsewhere in the sector, Hartford Financial, the insurer and financial services company, said it would take $3.4bn in government bail-out money and sell $750m of stock amid what it called a "continued uncertain economic environment". This sent the company's shares down 8% to $12.95.
In the technology sector, National Semiconductor shares fell after it reported a loss.
The microchip maker had better sales than expected, but had to pay $100m in restructuring costs, leading to a worse loss than had been predicted.
Its shares dropped 6.1% to $13.59.
Other microchip companies suffered. Texas Instruments lost 0.2% to $20.79 while market leader Intel gave up 0.2% to $16.31.
Treasury notes rose after Japanese Finance Minister Kaoru Yosano said his nation's confidence in US securities is "unshakable," easing concern a record supply of government debt will damp foreign purchases.
Yields on 30-year bonds touched the lowest level in three days after the US's auction of $11 billion of the securities yesterday attracted the most demand from a group of investors that include central banks since the US resumed selling bonds in 2006. Government securities tumbled earlier in the week after Russia said it may switch some reserves from US debt.
The yield on the 10-year note fell eight basis points, or 0.08 percentage point, to 3.79% at 4:30 p.m. in New York, according to BGCantor Market Data. The 3.125% security due May 2019 rose 19/32, or $5.94 cents per $1,000 face amount, to 94 18/32.
The 30-year bond yield fell five basis points to 4.64%. It yesterday touched 4.8391%, the highest since October 2007.
Ten-year note yields reached 4% yesterday, the highest since October, on concern surging budget deficits and a falling Dollar will prompt investors to reduce holdings of US debt as issuance climbs to a record.
Exxon Mobil Corp., Alcoa Inc. and Freeport-McMoRan Copper & Gold Inc. retreated as crude, aluminum and copper declined.
Exxon, the world's largest oil company, fell 0.4% to $73.78. Alcoa, the largest US aluminum producer, dropped 1.9% to $11.99 for the biggest decline in the Dow average. Freeport-McMoRan, the largest publicly traded copper producer, slipped 3.2% to $58.51. |
| European Markets
What has been happening in Europe this week ..... |
 European stocks fell as declines by commodity producers and concern the three-month surge by the Dow Jones Stoxx 600 Index has outpaced prospects for earnings offset a rally in health-care shares.
BP Plc, Total SA and BHP Billiton Ltd. led raw-material stocks lower after base metals and oil slipped following a record plunge in industrial production in Europe. Vedanta Resources Plc sank 8.5% after India's largest producer of the metal announced the sale of $1 billion in convertible bonds. GlaxoSmithKline Plc jumped 5.4% as the World Health Organization declared the first influenza pandemic since 1968.
The Stoxx 600 slipped 0.2% to 214.35, trimming its fourth straight weekly gain to 1.7%. The gauge has surged 36% since March 9 on speculation the $12.8 trillion pledged by the US government and Federal Reserve will end the first global recession since World War II.
The European index is valued at 25.5 times the profits of its companies, the most expensive level since 2004.
National benchmark indexes fell in 12 of the 18 western European markets. Germany's DAX lost 0.7%, while France's CAC 40 declined 0.3%. The UK's FTSE 100 dropped 0.5%, led lower by mining shares.
GERMANY
German stocks fell, dragging the benchmark DAX Index to a weekly loss. Salzgitter AG, the country' second-largest steelmaker, and Deutsche Boerse AG, Europe's biggest exchange, paced declines.
The DAX Index dropped 0.7% to 5,069.24 today, erasing its gain for this week and posting a weekly decline of 0.2%. The HDAX Index of Germany's biggest companies today declined 0.7%.
The DAX has rebounded 38% since falling to the lowest in four and a half years on March 6 amid speculation the worst of the economic slump may be past. The gains lifted the German benchmark this month to its most expensive in at least three years.
Salzgitter fell 3% to 66.30 Euros, while Deutsche Boerse declined 4.1% to 58.25 Euros.
The DAX fell even as investors bought into businesses whose sales are less affected by an economic slowdown, or so-called defensive stocks. Deutsche Telekom AG, Germany's largest phone company, gained 1.2% to 8.08 Euros, while Fresenius Medical Care AG, the world's biggest provider of kidney dialysis, advanced 1.8% to 31.20 Euros.
Arcandor, the German retail group that filed for insolvency on June 9, rose 6 cents, or 8.6%, to 76 cents. Primondo, Arcandor's mail-order unit, may get bids from several interested parties, Boersen-Zeitung reported, citing unidentified people close to the German government.
Separately, Arcandor's Karstadt department-store chain had an operating profit in the first half of its fiscal year, Financial Times Deutschland reported, without saying where it got the information.
Tognum fell 32 cents, or 3.2%, to 9.84 Euros. The supplier of diesel engines for ships and rail vehicles was given a "reduce" rating in new coverage at Nomura Holdings Inc.
Volkswagen fell 6.7 Euros, or 2.6%, to 247.90 Euros. Europe's largest automaker said "very weak" global car markets aren't yet recovering, even as the company's sales rose in May for the first time in eight months thanks to government incentives.
FRANCE
France's benchmark CAC 40 Index slipped 8.80, or 0.3%, to 3,326.14 in Paris, for a 0.4% loss this week. The SBF 120 Index decreased 0.2% today.
Air Liquide fell 72 cents, or 1.1%, to 66.75 Euros, snapping a two-day gain. Goldman Sachs Group Inc. cut its recommendation on shares of the world's biggest maker of industrial gases to "neutral" from "buy."
Club Mediterranee rose 63 cents, or 6.9%, to 9.81 Euros, erasing yesterday's 4% loss. Gilbert Dupont upgraded Europe's largest resort company to "add" from "reduce."
Saft Groupe dropped for a second day, losing 99 cents, or 3.5%, to 27.49 Euros. The maker of high-tech battery systems for industrial applications was cut to "hold" from "buy" at Societe Generale SA.
Sanofi-Aventis advanced for a second day, adding 1.39 Euros, or 3%, to 47.65. The Paris-based drugmaker said it is committed developing a swine flu vaccine.
Schneider Electric climbed to the highest since April, adding 87 cents, or 1.6%, to 55.89. Nomura International Plc initiated coverage of the world's largest maker of circuit breakers with a "buy" recommendation.
Thomson SA, the unprofitable French maker of television set-top boxes, soared 7 cents, or 10%, to 78 Euro cents, the biggest gain since May 19. Thomson won a few additional weeks to negotiate its debt, La Tribune reported on its Web site, citing unidentified bankers. Negotiations were earlier set to be completed by June 16.
Total SA, Europe's biggest oil refiner, slipped 87 cents, or 2.1%, to 40.67 Euros, retreating for a second day. Oil fell as a record plunge in European industrial production prompted speculation that hopes for an economic recovery are premature. The contract for July delivery slid as much as 2.6% on the New York Mercantile Exchange.
Ubisoft Entertainment climbed to a six-month high, adding 35 cents, or 2.1%, to 17.51 Euros. Natixis Securities increased its price estimate on Europe's largest maker of video games to 19 Euros from 18 Euros and reiterated an "add" recommendation.
BELGIUM
In Brussels the Bel 20 managed to climb 0.51% Friday, finishing the week at 2,070.19.
Belgian-based financial group Fortis said on Monday it faces a legal claim for 362.5 million Euros ($506 million) from a former unit now owned by the Dutch state.
But Fortis countered that the Dutch state is refusing to give it a stake in another nationalised business as compensation for the money, despite a contract to that effect.
Fortis, carved up by the Netherlands and Belgium in October, said the dispute concerned settlement of Class A1 preference shares issued by the unit - Fortis Capital Co Ltd - in 1999 to strengthen the capital of Fortis Bank Nederland, also now owned by Dutch authorities.
The shares have a first call date of June 29, 2009.
Belgian property investment group Cofinimmo said late on Tuesday it had placed 330,000 of its own ordinary shares at a price of 80 Euros ($111) per share, raising 26.4 million Euros.
The company's stock closed at 83.70 Euros per share on Tuesday on the Brussels stock exchange.
It said it would use the funds as part of a broader plan to fund committed capital expenditure and strengthen its balance sheet. Cofinimmo said the share placement reinforced its consolidated shareholders' equity by 1.9%.
The move brought Cofinimmo's outstanding ordinary and preference shares to 13,784,422. Cofinimmo said it still owned 22,374 treasury shares.
The Brussels-based group, which rents out office space to businesses and government institutions, noted the shares were the subject of a 90-day lock-up provision following a bookbuild offering on March 26. The lock up was waived on June 5.
The major Brazilian shareholders of Anheuser-Busch InBev have sold a "very small fraction" of their shares, an AB InBev spokeswoman said Thursday.
The shareholders "have confirmed that this sale doesn't in any way impact their commitments under the AB InBev shareholders agreement," said the spokeswoman.
The move is likely aimed at reducing debt that the Belgian drinks company took on to participate in a rights issue to raise funds for last year's purchase of Anheuser, said ING analyst Gerard Rijk.
THE NETHERLANDS
The AEX in Amsterdam closed down 0.98% at 265.48.
TomTom shares jumped 21.6% in Amsterdam amid speculation that Apple could be interested in buying the personal satellite navigation device firm.
Tuesday, TomTom said that it will provide navigation software for Apple's iPhone.
Dutch Philips Electronics may have to take additional measures in the next months to keep the company healthy, its chief executive told workers in an internal magazine.
A Philips spokesman confirmed the magazine was distributed to Dutch workers. He did not elaborate on the measures but said it can be assumed that they would be in the area of cost cutting.
"It cannot be ruled out that in the coming months, additional measures should be taken to keep Philips healthy and strong enough to grow profitable, when the crisis is over," Philips' Chief Executive Gerard Kleisterlee said in the company's Dutch internal magazine.
He also said it doesn't look like sales would recover during the second quarter.
AUSTRIA
The Vienna ATX traded flat most of the day, rounding out the day Friday up 0.05% at 2,190.24.
Austria's gross domestic product (GDP) shrank by 2.6% over the first quarter, driven down by a decline in exports, but the quarter may mark the nadir of the crisis, researcher WIFO said on Wednesday.
WIFO said that its survey of Austrian companies showed first signs of a stabilisation on a low level, and that the decline would be less dramatic in the coming quarters.
Austria's economy is highly exposed to Germany and its carmakers in particular, and relied on emerging European countries for an additional boost of export growth in the last few years.
But both those regions are among the worst-hit in the economic downturn, and Austrian merchandise exports declined by 9% quarter-on-quarter in the three months to March -- although the decline has slowed slightly in March.
They currently forecast a decline of 2.2-2.7% and are widely expected to revise this downwards after the Austrian central bank cut its 2009 outlook to a 4.2% decline.
Austria accounts for 3% of the Euro zone's total GDP.
SWITZERLAND
The SMI in Zurich fared better still, up 0.69% at 5,521.84.
The rally in global stocks prompted by investor expectations for an economic recovery is leaving Switzerland behind.
The benchmark Swiss Market Index of the country's 20 largest companies has fallen 0.9% this year, the worst among the world's 20 biggest markets in developed nations, according to data compiled by Bloomberg. It's also the most expensive in western Europe, with the SMI trading at an average price of 2 times the assets of its companies.
Switzerland's so-called defensive stocks, which allowed the market to avoid the worst of last year's 42% rout in the MSCI World Index, are holding the country's equities back this year as investors look for companies that benefit the most in a recovering economy. About 57% of the SMI consists of food and health-care stocks, led by Nestle SA, which makes up 22% of the market.
The SMI, which gets 33% of its value from Basel, Switzerland-based drugmakers Novartis AG and Roche Holding AG, rose 0.69% to 5,521.84 today. The gauge has gained 38% in Dollar terms since the MSCI World Index of 23 developed countries began its rebound from a 13-year low on March 9, trailing the global measure's 45% rise.
Every other developed market among the world's 20 largest has advanced in 2009, with Norway's OBX Index posting the biggest gain at 41%. The five largest emerging markets -- China, India, Brazil, South Korea and Taiwan -- have all surged more than 26%.
The only markets worse than Switzerland among 90 indexes tracked by Bloomberg are in developing nations. Ghana's All- Share Index has lost 37%, while the OMX Riga Index has dropped 15% in Latvia, where the government is fighting to stave off a devaluation of the lats.
Companies in Switzerland's SMI trade at 2 times book value, or their assets minus liabilities, the most expensive in western Europe, data compiled by Bloomberg show. The index's price is 1.5 times the combined sales of its companies, also the highest level in the region.
The SMI is valued at 26.6 times the profits of its companies, 29% above the five-year average. Only the DAX and the UK's FTSE 100 are more expensive in Europe, with ratios of 27.3 and 31.9, respectively.
On Friday, Swiss pharma giant Novartis announced it had created an experimental vaccine that has not been tested in people. Novartis' vaccine was made via a cell-based technology that may prove faster than the traditional way of making vaccines, which relies on chicken eggs.
Because more than 95% of flu vaccines are still made in eggs, experts say the Novartis announcement is unlikely to significantly boost the world's pandemic vaccine supply.
But the news pushed up Novartis shares by 4.4% to close at 45 Swiss Francs ($41.84) on the Zurich exchange Friday.
FINLAND
The OMX in Helsinki slipped 1.11% Friday to round out the week at 5,901.86.
Finland's economy shrank more than 7% on an annual basis in the first quarter, a similar rate as during the recession in the early 1990s, the government said Tuesday.
Gross domestic product fell 7.6% in January through March compared to the same period in 2008, Statistics Finland said. It was down 2.7% from the previous quarter.
Exports fell by more than 25% and imports by some 19% on the year, the government agency said. Also, private consumption dropped 3.7% and investments decreased by almost 9%.
Last week, customs officials said foreign trade slumped in March, with the value of exports at Euro3.8 billion ($5.3 billion), down 30% from March 2008.
KONE won an order to supply eight customized high-rise elevators for the new Infinity Tower in Dubai, United Arab Emirates.
Three of the elevators will travel at a speed of 8 m/s across a maximum travel of 271 meters. The installation of the equipment will start in 2010 and is estimated to be completed in 2011.
The Finnish classical music label Ondine has become part of the Naxos group.
Founded in 1985 by managing director Reijo Kiilunen, Helsinki-based Ondine has become indelibly linked to today's vigorous and widely-admired Finnish classical music scene.
Its catalogue regularly champions composers such as Einojuhani Rautavaara, Kaija Saariaho and Magnus Lindberg, while its discs are often conducted by the no less illustrious roster of Finnish performers to have emerged in recent years, including Sakari Oramo, Mikko Franck and Esa-Pekka Salonen, to named just three.
SWEDEN
The OMX Stockholm 30 Index shed 0.77% Friday to finish the week at 799.65.
A restructuring of Saab Automobile AB could involve significant downsizing if it is acquired by Swedish luxury sportscar maker Koenigsegg Automotive AB, analysts say.
Koenigsegg's lack of scale and experience in running and possibly restructuring an automaker with a global presence could prove to be a major obstacle for a viable long-term future, they say.
General Motors has been trying for months to find a buyer for its Swedish Saab unit, and people familiar with the situation Thursday said a deal with Koenigsegg could be reached as early as Friday.
A spokeswoman for Saab was less certain. "I can't comment on whether there's a preferred bidder at this stage, despite the speculation," said Saab's Gunilla Gustavs Friday. "We're still in talks and when we've narrowed it down to one, we'll announce who that is. We're hopeful that the deal will be concluded by early summer."
The Swedish government said Thursday it authorized its National Debt Office to start formal discussions about the state guaranteeing a Eur500 million ($700 million) loan that Saab has sought from the European Investment Bank.
With the industry suffering from significant overcapacities in what has proved to be its most dramatic crisis since the World War II, analysts remain puzzled over Koenigsegg's plan given that Saab's rivals enjoy much larger economies of scale and are backed by relatively cash-strong parent companies. Apart from their Swedish heritage, Koenigsegg and Saab appear to be unlikely bed fellows.
DENMARK
The OMX 20 in Copenhagen saw markets trading flat Friday, closing a little lower by 0.02% at 303.67.
Drug maker Lundbeck said on Monday a US application for its anti-depressant Lu AA21004 would be delayed after Phase III trials showed insignificant effects compared to placebo, knocking its shares.
The Danish group said development of the new drug, which is eyed to fill part of a revenue gap once patents for Lundbeck's blockbuster anti-depressant Cipralex, called Lexapro in the United States, expire in 2012, would be delayed by 18-24 months.
Lexapro revenues were 626 million Danish crowns ($116.3 million) and Cipralex 1.36 billion in the first quarter of 2009, making up 61% of a total revenue of 3.23 billion.
Kromann Reumert has assisted Danish company Finansiel Stabilitet in connection with the sale by auction of Gudme Raaschou Bank's asset and portfolio management activities, including a small loan and deposit portfolio, to Lån & Spar Bank. Finansiel Stabilitet is a Danish company that was established in October 2008 as part of a scheme by the Danish State and financial sector to se-cure financial stability in Denmark.
The remaining activities of Gudme Raaschou Bank, primarily involving mortgages, will be transferred to a new subsidiary of Finansiel Stabilitet.
NORWAY
The OBX in Oslo dropped 1.43% to close at 276.75.
Norwegian papermaker Norske Skog on Friday laid out plans to cut costs, shut capacity, curb investments and slash jobs in its latest move to confront anaemic markets.
The company, one of the world's biggest newsprint producers, will cut 2009 capex by 400-600 million crowns ($63-$95 million) and shed 600 jobs, or about 9% of its workforce.
The plan is seen boosting earnings by 230 million crowns in the second half of 2009 and by 600-700 million in 2010. It will entail a 300 million crown provision in the second quarter for workforce cuts and a writedown of 900 million crowns for shutting a paper machine at a Dutch mill.
The 225,000-tonnes-per-year machine at its Parenco mill in the Netherlands has been "temporarily stopped" since April.
PORTUGAL
The PSI General Index in Lisbon closed down 0.18% at 2,504.73 Friday.
EVS Broadcasting approved the following elements during the postponed Extraordinary General Meeting held this Friday, June 12, 2009:
Renewal of authorizations relating to share buyback.
Cancellation of 250,000 own shares.
Modifications of the statutes of the company relating to the notifications of major holdings.
SPAIN
The Ibex in Madrid managed to eke out gains Friday, albeit just 0.06% to close at 9,714.40.
Spain's economy will shrink 3.6% this year, more than previously forecast, the government said.
The Cabinet also approved a new official forecast that said Spain's central and regional governments together will run a deficit equivalent to 7.9% of gross domestic product in 2010, more than double the 3% target set by the European Union.
As of the end of the first quarter, Spain's unemployment rate stood at 17.4%, the highest in the European Union. Now the government says that by the end of the year it will go up to 17.9% and hit 18.9% next year.
ITALY
Italy's benchmark FTSE MIB Index fell from a five-month high, losing 200.84, or 1%, to 20,384.22 in Milan.
Arnoldo Mondadori Editore, the publisher fell 6.75 cents, or 2.3%, to 2.91 Euros. Advertising spending in Italy declined 18% in the first fourth month of 2009, to 2.86 billion Euros ($4 billion), Nielsen Media said in an e- mail today.
Bulgari rose for a second day this week, adding 26.5 cents, or 6.8%, to 4.16 Euros. The world's third-largest jeweler, was upgraded to "buy" from "sell" at Goldman Sachs Group Inc., which cited its "more balanced financial structure and the high operational gearing."
The brokerage increased its price estimate on the stock to 4.7 Euros from 3.6 Euros.
Eni SpA, Italy's largest oil company, fell 31 cents, or 1.7%, to 18.04 Euros, snapping a three-day gain. Oil fell from a seven-month high after a record plunge in European industrial production prompted speculation that bets on an economic recovery are premature.
Saipem SpA, Europe's largest oil-field services contractor by market value, lost 34 cents, or 1.8%, to 19.09 Euros.
Fondiaria-Sai SpA, Italy's second-largest insurer retreated 25 cents, or 1.9%, to 12.69 Euros. The industry showed "encouraging" signals in the first quarter amid a positive trend in the life business and improving asset quality, said Giancarlo Giannini, head of Italy's insurance regulator. "Should this trend further consolidate over the next few months, a change in our view of the life and non-life segment may follow, with a gradual shift in our view toward life companies," Banca IMI analyst Sergio Ciaramella wrote in a note.
Impregilo SpA rose for a fourth day, adding 10.25 cents, or 4.2%, to 2.56 Euros. Igli's investors, which include the Benetton family, agreed to renew a shareholder agreement through which they control Italy's biggest builder. Igli, which owns about 29.5% of the company, renewed the agreement until June 12, 2010.
The new agreement is stoking speculation the members may further increase their holdings, Banca Akros analyst Francesco Previtera wrote in a note. Under Italian law, investors with more than 30% of a company have to make a takeover bid.
Mariella Burani Fashion Group SpA, the Italian luxury-goods maker founded in 1960, gained 11.25 cents, or 3.2%, to 3.61 Euros. "A positive approach by lenders and the forthcoming renegotiations of debt conditions with banks might enable the group to run its industrial operations more easily," Mediobanca Securities said in a note.
Antichi Pellettieri, the leather-goods unit of Mariella Burani, surged 10, or 9.1%, to 1.2 Euros, the biggest gain in more than a month.
Pirelli & C. SpA advanced 1.15 cents, or 4.2%, to 28.8 cents, after increasing 3.2% yesterday. Europe's third-largest tiremaker was upgraded to "buy" from "hold" at Deutsche Bank AG, which expects an improvement in the tire division from the second quarter to offset a lower contribution from the real estate unit. The brokerage lifted its price estimate to 34 cents from 23 cents.
Pirelli Real Estate sank to a one-month low, losing 32.5 cents, or 6.6%, to 4.58 Euros. The property manager set the price of its 400 million-Euro rights offer at 50 Euro cents. The rights offer will be guaranteed by Pirelli & C. "The terms of the deal are bang in line with expectations, as the 0.5 Euro issue price is the face value and the lowest possible price," Cheuvreux analyst Francesca Ferragina wrote in a note. The brokerage kept a "sell" rating on the stock.
Camfin shares added 0.11 cents, 4.4%, to 26.3 cents.
RGI added 3.7 cents, or 1.9%, to 2 Euros. 21 Partners, the private equity fund set up by Benetton Group SpA Vice Chairman Alessandro Benetton, offered to buy out the Italian maker of software for banks and insurers together with founder Paolo Benini, valuing it at 46.6 million Euros. Today's gains brought the company's market value to 46.4 million Euros.
GREECE
The Athex Composite closed the day out up 0.61% at 2,401.57.
Greece's biggest refiner, Hellenic Petroleum, launched a voluntary retirement scheme for administrative staff to save costs as it plans to add workers in its core refining business, its CEO said on Friday.
The company is cutting operating costs and wants to boost earnings from its core refining and marketing operations, targeting a doubling in operating profit by 2012.
"The plan targets mainly the administrative division," Hellenic Petroleum Chief Executive John Costopoulos told Reuters in an interview. "Our workforce's average age is 47 to 48, we want a younger profile."
Under the scheme, the company will offer early retirement to about 150 employees by late summer. Eligible staff can apply by the end of the second quarter, Costopoulos said.
The group separately plans to hire about 300 new employees in its refining business, where it plans to spend around 1.4 billion Euros ($1.97 billion) by 2012 to upgrade facilities at Aspropyrgos and Elefsina, near Athens, and Thessaloniki.
Coca-Cola Hellenic Bottling Company announced a 20,000 share buy-back Friday. |
| The UK Market
Did it follow the Global trend ..... |
 UK stocks fell, led by mining companies as Vedanta Resources Plc announced a $1.25 billion convertible bond issue and base metals fell.
Vedanta, India's largest copper producer, sank 8.5%. Antofagasta Plc and Xstrata Plc lost more than 3% as investors sold commodities after recent gains. Barclays Plc slid after BlackRock Inc. agreed to buy the lender's investment unit.
The FTSE 100 Index fell 19.92, or 0.5%, to 4,441.95 in London. For the week, the index rose 0.1%. The UK gauge has rebounded 26% since March 3 on optimism the first global recession since World War II is easing.
The FTSE All-Share Index slipped 0.5% today, while Ireland's ISEQ Index added 0.5% in Dublin.
Vedanta fell 8.5% to 1,599 pence after the copper producer said it is offering $1.25 billion of convertible bonds to help fund expansion plans. JPMorgan Cazenove is the sole bookrunner.
Antofagasta, owner of copper mines in Chile, declined 4.3% to 673.5 pence. Copper dropped the most in a week in New York after a strengthening Dollar reduced demand from traders who buy commodities as a hedge against inflation.
Xstrata, the world's fourth-largest copper producer, slipped 1.9% to 760 pence as copper, Nickel, tin, lead and zinc also retreated on the London Metal Exchange.
Barclays lost 4.1% to 292 pence after the bank announced that BlackRock agreed to buy Barclays Global Investors for $13.5 billion to become the world's largest money manager.
The UK lender will hold a 19.9% stake in the combined company. Financing will include $2.8 billion from the sale of equity to institutional investors and as much as $2 billion in loans from Barclays and other banks.
AstraZeneca rallied 112 pence, or 4.5%, to 2,629 as UBS AG added the drugmaker to its "European focus list" and raised its price estimate in the shares by 11% to 3,100 pence.
Berkeley Group Holdings dropped 29 pence, or 3.7%, to 766 after Nomura Holdings Inc. today placed 4.5 million shares of the British Homebuilder at 750 pence.
Earlier this week, Citigroup Inc. and Credit Suisse Group AG sold 144 million Pounds ($237 million) worth of shares that were own by Saudi billionaire Maan al-Sanea's Saad Group.
BT Group Plc rallied 3.8 pence, or 4.1%, to 96.8 after Bank of America Corp. upgraded Britain's largest phone company to "buy" from "neutral," citing a "new era of cost control and pricing discipline."
GlaxoSmithKline increased 57 pence, or 5.4%, to 1,115.5 as the World Health Organization declared the first pandemic since 1968. Glaxo today said it said it started developing an adjuvanted vaccine against the pandemic flu strain known as A(H1N1). |
| Asia Pacific Regional Markets
Did they set the tone or follow the lead ..... |
 JAPAN
The Nikkei 225 Stock Average Friday closed above the key 10,000 line for the first time in more than eight months, as Wall Street's rally and better-than-expected Chinese and Japanese economic data lifted sentiment.
The Nikkei 225 ended up 154.49 points, or 1.6%, at 10,135.82, the highest closing level since Oct. 7 when the index ended at 10,155.90. It rose as high as 10170.82 late in the session.
The Topix index of all the Tokyo Stock Exchange First Section issues rose 9.89 points, or 1.1%, to 950.54, its highest closing level since Oct. 7.
Amid increased optimism about the global economy and plentiful cash in the market due to easy monetary policy worldwide, money headed to a whole range of shares including those of brokerages.
Trade volume was the biggest since Sept. 12, with nearly 4 billion shares changing hands.
September Nikkei 225 futures ended up 120 points, or 1.2%, at 10,140 on the Osaka Securities Exchange. June contracts of Nikkei futures and options settled at 10,147.65.
Sentiment further improved in the afternoon on data showing that Japanese industrial output rose 5.9% from a month earlier in April, better than the government's preliminary reading of a 5.2% on-month climb.
Data from across the Sea of Japan also helped shares, as figures released earlier in the day showed China's industrial production accelerated in May, and consumption also rose.
The Chinese data supported shipping stocks, which were helped too by the overnight rise in industry benchmark Baltic Dry Index for the first time in six days. Nippon Yusen rose 2.2% to Y468.
The stock market's bullishness boosted brokerage stocks. Nomura Holdings surged 5.2% to Y917, while the brokerage sector, which added 4.5%, was the biggest advancer among Topix's 33 subindexes.
Mitsubishi Heavy Industries gained 4.6% to Y409 as the company said it is in talks with an entity affiliated with the Queensland state government in Australia for a coal-fired power plant project with reduced carbon dioxide emissions.
"This is a development worth watching over the long term," an analyst at Nikko Citigroup wrote in a report, adding that with the move the firm "could acquire stable service business on an ongoing basis."
Despite the broader market's rally, oil developers fell on the view that the crude market was technically overheated and downward adjustment could begin any time. "Recent gains in crude futures are not backed by actual demand," said Japanese brokerage strategist. Inpex dropped 1.9% to Y808,000, even though Nymex crude futures rose for 3rd straight day overnight, up 1.9% at $72.68/bbl.
SOUTH KOREA
South Korean shares closed higher Friday following the release of positive economic data from the US and China, but gains were capped by strong profit-taking.
After briefly dipping to 1416.23 on profit-taking during the session, the Korea Composite Stock Price Index, or Kospi, gained 9.20 points, or 0.7%, to end at 1428.59, the highest closing level since May 20 when the index ended at 1435.70.
Foreigners extended their buying spree into a sixth consecutive session Friday after picking up the largest amount of local stocks this year Thursday, according to the Korea Exchange; they bought a net KRW241.4 billion worth of stocks Friday.
But the market is expected to trade in a boxed range for a while due to strong profit-taking demand after the Kospi climbed up to the year's high, said Lee Kyoung-min, an analyst at Woori Investment & Securities.
Steelmakers extended gains on ongoing expectations for a potential increase in export prices of their products after China's largest steelmaker by output, Baoshan Iron & Steel, decided to raise its steel product prices from July, said analysts.
Posco rose 3.2% to KRW432,500, and Hyundai Steel climbed 4.9% to KRW61,900.
LG Electronics rose 2.1% to KRW122,500 on a series of brokerage reports forecasting stellar second-quarter earnings.
But companies with factories in the jointly-run Kaesong industrial estate fell after North Korea on Thursday demanded extra payments from Seoul worth hundreds of millions of Dollars for land rental and salary increases.
Shinwon lost 1.1% to KRW1,385, while Kosdaq-listed Romanson plunged 12.2% to KRW1,685.
HONG KONG
Gains in HSBC and Chinese banks on better-than-expected new RMB loan data for May sent Hong Kong shares slightly higher Friday to a year-to-date closing high.
The blue-chip Hang Seng Index rose 98.65 points, or 0.52%, to 18,889.68 after trading between 18,707.19 and 19,161.97 during the session. The benchmark index had fallen as much as 0.45% earlier in the session on profit-taking in China Mobile.
The Hang Seng Index is up 1.1%, or 211 points, for the week.
Turnover totaled HK$78.98 billion, up slightly from HK$78.39 billion Thursday.
Analysts said there is strong profit-taking pressure in the market as valuations are running ahead of fundamentals. The Hang Seng Index has risen 21% since the start of May and is up 31% since the start of the year.
HSBC rose 3.5% to HK$69.85 after Credit Suisse upgraded the stock to outperform from neutral, saying the bank is better placed than its peers amid liquidity-driven margin pressure.
China Construction Bank rose 2.9% to HK$5.62 and Industrial & Commercial Bank of China was 2.4% higher at HK$5.22 after China's May loans topped forecasts.
Central bank data Friday showed new RMB loans by financial institutions in China rose to CNY664.5 billion in May from CNY591.8 billion in April.
Trading firm Li & Fung gained 6.2% to HK$23.20, rebounding after a four-session 12.6% fall because its major customer, Arcandor, filed for insolvency.
China Mobile fell 1.9% to HK$81.50 after rising 6.1% in the last five sessions.
CHINA
Liquidity concerns resurfaced on expectations that the Chinese government will soon allow initial public offerings to resume, sending the benchmark index lower for the second consecutive session Friday.
The Shanghai Composite Index, which tracks both A and B shares, ended down 1.9% at 2743.76. The index fell 0.4% this week.
The Shenzhen Composite Index dropped 2.1% to 903.74.
Analysts pegged immediate support for the benchmark index at 2700, amid concerns that regulators would announce a lifting of the moratorium on IPOs over the weekend.
The trading volume in Shanghai dropped to CNY126.3 billion Friday from CNY134.8 billion Thursday.
Positive indications from May economic data aren't likely to boost the market because expectations for the data had already been priced in, analysts said.
A quarterly survey by the People's Bank of China showed that China's city dwellers are inclined to save a greater portion of their household budget, indicating weak domestic demand.
Banks led declines after China Banking Regulatory Commission Chairman Liu Mingkang said Friday Chinese banks' nonperforming loans could rise if the economy's recovery falters.
Shanghai Pudong Development Bank fell 2.9% to CNY20.43, and China Merchants Bank dropped 2.7% to CNY19.66.
Steel makers fell on data showing continued oversupply in the steel industry. China's crude steel output in May rose 0.6% from a year earlier to 46.46 million metric tons, the National Bureau of Statistics said Friday.
China's largest steel maker by market capitalization, Baoshan Iron & Steel, dropped 3.2% to CNY6.60. Wuhan Iron & Steel shed 5.2% to CNY7.64.
TAIWAN
Taiwan stocks fell 0.18% on Friday, as DRAM chipmakers such as Powerchip and ProMOS dropped after the island's government said it would buy a 10% stake in Japan's Elpida.
The main TAIEX share index had fallen 11.54 points to 6,555.83 as of 0206 GMT, pulling back from a 1.6% rise the previous session.
DRAM makers dropped after government officials said TMC, the computer chip firm set up by the Taiwanese government to overhaul its struggling DRAM sector, will acquire an about 10% stake in Japan's Elpida.
Shares of Powerchip, the island's top DRAM maker, lost 2%. Smaller rivals Nanya Tech and ProMOS Technologies slipped 4% and 6%, respectively.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC), the world's largest contract chip maker, declined 2.6% after Chairman Morris Chang said late on Thursday he will replace the incumbent CEO Rick Tsai.
Some analysts said they think the move could have a negative impact on TSMC as it will eventually need to seek a successor for the 78-year-old Chang within a few years.
The semiconductor sub-index fell 1.48%, worse than a 0.33% fall of the electronics sub-index.
However, gains in tourism and steel shares helped limit losses on the broader market.
The tourism sub-index jumped 3%, spurred on by continued hopes of more Chinese tourists in coming months.
The executive of a Chinese household goods maker said his company would offer 8,000 workers Taiwan trips in November, bringing in at least T$500 million ($15.2 million) worth of opportunities to local companies, local media reported on Friday. Steel makers also jumped on signs that the industry is gradually recovering from the downturn.
China Steel, Taiwan's largest steelmaker, rose 1.4%, while the steel and iron sub-index advanced 2.12%.
THE PHILIPPINES
Markets in The Philippines were closed Friday.
SINGAPORE
Singapore shares failed to hold on to early gains and ended lower Friday as investors saw little reason to bet on stocks.
Traders said pre-weekend profit-taking, weak cues from the FTSE and some regional bourses aided the fall in the benchmark Straits Times Index.
The STI finished the day down 0.2% or 4.74 points at 2,377.07 with losers dwarfing gainers 324 to 155. Volume remained very thin with only 1.8 billion shares changing hands compared to 2.2 billion Thursday.
Moving ahead, traders said the market will likely remain weak as players will continue to look for a new catalyst to drive it higher, especially regarding the inflationary impact of rising oil prices on the overall economy.
Banks shares continued to weigh on the overall index for the second straight trading session on recent reports that they were overheated and it was time to book profits. DBS, Southeast Asia's largest bank by assets, ended 1.5% lower at S$12.22. OCBC finished the day at S$7.23, down 0.8% and UOB was 1.9% lower at S$15.18.
Shares of transport companies Singapore Airlines and SMRT were also lower on worries that rising crude oil prices were putting pressure on their bottom-lines and making operating costs higher. SIA closed 2.1% lower at S$12.98, while SMRT was down 1.2% at S$1.70.
Rig and ship builders outperformed the market as investors bought into these shares on hopes that the rising oil price will create more demand for them.
Cosco Corp. closed 3.6% higher at S$1.44, and Keppel Corp. finished up 0.3% at S$7.25. Sembcorp Marine ended flat at S$2.93.
Property prices were mixed after a report by Citigroup that said the real estate market had yet to turn around. CapitaLand ended flat at S$3.83, City Development closed 0.1% higher at S$9.48.
Of the 30 STI components, 13 ended in the positive territory, 13 were in red and four shares finished flat.
INDONESIA
Indonesian stocks closed higher on Friday, but the market wavered somewhat as investors refrained from buying in further following the market's recent rally, an analyst said.
The Jakarta Composite Index gained 1.36 points, or 0.06%, to close at 2,090.94. Some 9.57 billion shares worth Rp 3.9 trillion ($386 million) changed hands. Gainers led decliners 119 to 93, with 60 stocks remaining unchanged.
Consumer goods and construction shares rose by 1.1% and 1.2%, respectively, leading the index.
Purwoko Sartono of PT Panin Sekuritas noted that the market fluctuated during Friday's trading, with the index eventually posting a gain as positive regional market results helped support local buyers late in the day.
Among market gainers, PT Gudang Garam rose Rp 300, or 2.7%, to Rp 11,600; while PT Unilever Indonesia gained Rp 200, or 2.4%, to Rp 8,600.
PT Indocement Tunggal Perkasa added Rp 200, or 2.7%, to Rp 7,500; PT Telekomunikasi Indonesia was up Rp 100, or 1.3%, to close at Rp 7,650; and PT Astra International gained Rp 300, or 1.3%, to Rp 23,900.
PT Bumi Resources, the most actively traded stock on Friday, ended flat at Rp 2,225.
On the losing side, PT Bank Mandiri fell Rp 125, or 3.7%, to Rp 3,300; and PT Bank Rakyat Indonesia shed Rp 50, or 0.8%, to Rp 6,300.
The Rupiah, meanwhile, traded at about 10,085 per Dollar late on Friday, a slight advance from Thursday's levels. Its gain was attributed in large part to overseas buying after its rally to a seven-month high prompted some importers to buy Dollars at a cheaper rate.
On the week, however, the Rupiah dropped about 0.8%. After making strong gains last week, the currency hit a technical barrier that indicated to traders that its rally versus the Dollar would reverse, Bloomberg reported.
But despite this week's loss, brokerage PT Mandiri Sekuritas recently issued a report saying that Asia's best-performing currency for 2009 would strengthen a further 3.2% by the end of the year. The bank also raised its end-2010 estimate for the Rupiah to 9,539 from 10,909.
MALAYSIA
Share prices on Bursa Malaysia ended the week higher Friday on continued buying interests with Maybank leading the way following the gains on Wall Street overnight, dealers said.
The benchmark Kuala Lumpur Composite Index rose by 1.19 points to end at 1,090.15, after opening 5.64 points higher at 1,094.6.
The FBMEmas Index increased 21.55 points to 7,357.75, the FBMMesdaq Index rose 68.13 points to 4,372.86 and the FBM2BRD Index surged 71.57 points to 4,986.31.
The FBM30, however, declined by 5.65 points to 6,933.72.
Gainers outnumbered losers by 515 to 237, while 214 counters were unchanged, 264 untraded and 39 others suspended.
Volume increased to 2.178 billion shares valued at RM1.896 billion from Thursday's 2.162 billion shares valued at RM1.996 billion.
Among the active counters, Compugates was unchanged at 7.5 sen, Talam rose half sen to 12 sen, Mulpha International increased five sen to 63 sen and Tebrau Teguh added seven sen to 98 sen.
In heavyweights, Sime Darby eased five sen to RM7.00, Maybank rose 25 sen to RM5.95, Tenaga declined five sen to RM7.85 and Telekom increased two sen to RM2.70.
Volume on the Main Board increased to 1.991 billion shares valued at RM1.841 billion from 1.89 billion shares valued at RM1.899 billion on Thursday.
Turnover on the Second Board declined to 78.766 million units worth RM29.147 million from 145.127 million units worth RM68.833 million yesterday.
Volume on the Mesdaq Market fell to 61.201 million shares valued at RM12.917 million from 89.65 million shares valued at RM17.329 previously.
Warrants fell to 20.813 million units worth RM3.762 million from 21.774 million units worth RM4.409 million on Thursday.
THAILAND
The Stock Exchange of Thailand composite index rose 2.52 points to 627.07, up 0.4% on the day.
Thailand's biggest dry bulk shipper, Precious Shipping, said on Friday it expected a tough market until the end of 2010 due to a global oversupply of ships and despite rising Chinese demand.
Precious, Thailand's biggest shipping firm by market capitalisation, has sold 14 of 25 ageing vessels so far under a replacement programme since last year.
Shares in tourism-related firms like Minor International and Thai Airways International fell on concerns about the impact of the H1N1 flu virus.
INDIA
Better-than-expected industrial output data failed to sustain early gains in Indian shares, which ended lower Friday, as cautious investors booked profit in blue chips on expectations that further gains will likely be limited ahead of the federal budget.
The Bombay Stock Exchange's Sensitive Index fell 1.1% to close at 15,237.94, after rising as much as 15,600.30 in intraday trading.
Positive global markets and India's industrial output data for April failed to cheer sentiment.
Industrial production in April rose 1.4% from a year earlier, defying a forecast of a 0.5% drop in a Dow Jones Newswires poll of 11 economists.
The index rose 0.9% for the week, taking its gains in June to 4.2%. It has rallied more than 50% in the previous two months.
The federal budget is due in the first week of July.
On the National Stock Exchange, the 50-stock S&P CNX Nifty declined 1.2%, or 54.30 points, to end at 4,583.40.
The total traded volume on the Bombay Stock Exchange was 78.97 billion rupees ($1.66 billion), compared with Thursday's 75.96 billion rupees. Losers beat gainers 2,020 to 706, while 48 stocks were unchanged.
The index loss was led by construction and engineering major Larsen & Toubro, which fell 2.6% to 1,582.45 rupees, and State Bank of India, which lost 3.5% to 1,637 rupees.
Shares of Larsen have more than doubled in 2009, while State Bank has risen 27%.
Tata Motors fell 3.7% at 356.65 rupees, Bharti Airtel declined 2.8% to 830.45 rupees and mortgage lender Housing Development & Finance Corp. lost 2.8% to end at 2,281.40 rupees.
Reliance Industries, which rose 2.5% to 2,356.80 rupees, and state-run Oil & Natural Gas Corporation, which ended up 0.8% at 1,126.80 rupees, were among the few stocks that bucked the trend on hopes that the sustained rise in global oil prices could help earnings this quarter.
Iron ore exporter Sesa Goa jumped 5.6% to 202.90 rupees on news it has acquired Dempo Group's Goa mining assets for $368 million.
Satyam Computer Services - which is recovering from India's biggest corporate fraud - lost 0.5% to 80.45 rupees, after hitting its 10% limit in each of the past three days.
AUSTRALIA
The Australian share market is having a dream run before the financial year ends June 30.
For the third day running, the market struck a fresh seven month high, Friday, leaving it up 2.2% on the week, 6.4% for the month so far and 9.1% since Dec. 30.
The benchmark S&P/ASX 200 index closed up 15 points or 0.4% at 4062.2 after rising as high as 4079.4.
Financials took the baton from materials, yet investors continued to show strong interest in coal and iron ore stocks, while also buying engineering services companies leveraged to the recent surge in commodity prices.
Some traders believe asset allocation will continue to propel the market after financial year end.
Most expect a rise to 4500 by the end of 2009, but some now say 5000 may be possible in July. The index is 30% above its March low of 3120.8.
Banks, insurers, property trusts and fund managers surged, with ANZ up 2.5% to A$17.30, QBE up 3.2% to A$19.52, Suncorp up 3.7% to A$6.76, Westfield up 1.8% to A$11.68 and AMP up 3.0% to A$5.14.
Materials were mixed, with BHP Billiton down 0.6% to A$38.04 despite a 4.1% rise in copper prices, Fortescue fell 4.6% to A$4.15 after hitting an eight-month high of A$4.55 and OZ Minerals rose 17% to A$1.045 after shareholders approved MinMetals bid to buy most of the company, except its flagship Prominent Hill Mine.
But the iron ore sector still found some keen demand, with Mount Gibson Iron rising 6.9% to A$1.155 and Murchison Metals rising 7.5% to A$2.15.
In the energy sector, oil stocks ignored crude oil's rise to a fresh eight-month high of US$72.68, with Santos down 2.9% at A$14.99 and Oil Search down 2.1% to A$5.97.
But coal stocks stayed firm after recent coal price strength, with Felix Resources up 7.0% to A$14.89 and Centennial Coal up 6.3% to A$3.03.
Among industrials, engineering and mining services companies stood out, with Boart Longyear up 4.5 cents, or 19%, at 28 cents, Downer up 7.8% to A$5.12 and United Group up 3.4% to A$10.61.
"The market is chasing these second derivatives of resources and commodities strength," said a senior institutional trader at a major broker. "The more commodity prices go up the more drilling miners will do."
NEW ZEALAND
New Zealand shares finished slightly higher Friday on stronger offshore markets, but the paucity of local corporate news and prevailing caution about earnings outlook hobbled buyers.
Most stocks traded in light volume, masking the underlying price action, brokers said.
The Reserve Bank of New Zealand's decision to pause its rate easing cycle and the subsequent tightening in financial conditions have also hurt demand.
The NZX-50 Index ended up 0.5%, or 13.28 points, at 2809.83.
Blue-chip electricity retailer and generator Contact Energy led the top 10 gainers, rising 3.5% to NZ$5.89 in thin trade. Appliances maker Fisher & Paykel Appliances rose 4.8% to NZ$0.66, benefiting from the company's recent efforts to bolster its balance sheet and boost its offshore business, with China's appliances maker Haier taking a 20% stake in the company late last month.
Building materials maker Fletcher Building advanced 1.5% to NZ$6.85, with the stock consolidating around these levels after a successful capital-raising in April. Generally improving housing market data have supported the stock, but analysts remain cautious about the sector's recovery given rising unemployment and mortgage rates.
A rising New Zealand Dollar, aided by the RBNZ's pause and broadly lower US Dollar, continued to hurt export stocks and those sensitive to a higher exchange rate.
Medical equipment maker Fisher & Paykel Healthcare fell 1.7% to NZ$2.96. Adventure tourism and caravan operator Tourism Holdings finished flat at NZ$0.47. A high local currency has in the past hurt the company's profits as it reduces the purchasing power of tourists.
Retailers were mixed after April retail sales data showed a modest rise. However, core retail sales, excluding automobile sales, declined slightly.
Discount retailer The Warehouse ended down 0.3% at NZ$3.74, and children's clothing retailer Pumpkin Patch advanced 2.3% to NZ$1.35. |
| Global Commodities
'Food for thought' or 'a Grain of truth' ..... |
 Crude oil reached a near eight-month high this week as investors continued to place bets on a global economic rebound, raising concerns that a sudden rise in commodities prices could suffocate any nascent economic recovery.
West Texas Intermediate, the US benchmark for oil prices, gained 5% over the week as policymakers showed the first signs of acknowledging that the sharp gains could be in some part justified by economic fundamentals.
The International Energy Agency, the developed nations' oil watchdog, said on Thursday that the market was witnessing the "long-awaited emergence of improving fundamentals" - an about-turn from its previous warnings that the uptick in crude prices was driven by optimism.
The July West Texas Intermediate contract on Nymex, the New York energy market, gained $3.49 over the week to $71.95 a barrel.
ICE July Brent, the European benchmark, added $2.41 to $70.88 a barrel - a 3.5% rise.
Agricultural commodities ended the week broadly higher, with soyabean prices at a nine-month high after the US government warned that domestic soya stocks would drop to the lowest level in 32 years.
CBOT July soyabeans rose 3% to £12.62½ a bushel. CBOT July soyameal rose 7.9% to $462.2 per tonne. It is up 60% since the start of February and could lead to a jump in poultry costs.
Gold ended the week down 1.4% at $942.40 a troy ounce after a sell-off on Friday. |
| Global Currencies
In for a Penny, in for a Pound ..... |
The US Dollar was the strongest of the majors on Friday as the currency staged a solid rebound against the Canadian Dollar, Swiss Franc, British Pound, Euro, Japanese Yen, and Australian Dollar.
The Euro ended the day down against the greenback on Friday as the US currency staged a broad rebound across the majors. Fundamentals were also working against the Euro, as Eurostat said that industrial production in the Euro-zone fell 1.9% during April, bringing the annual rate down to a record low of -21.6% and highlighting the impact of the global economic slowdown on export-reliant economies.
Meanwhile, the Swiss Franc was one of the weakest major currencies on Friday, and it will face very high event risk next week. On Thursday, the Swiss National Bank is like to leave their 3-month LIBOR target range unchanged at 0.0% - 0.75%, but the thing to watch for in the SNB's subsequent policy statement is talk of FX intervention.
The Japanese Yen ended on a mixed note on Friday, falling against the US Dollar and New Zealand Dollar while gaining against the Canadian Dollar. South Africa's rand dropped today as declining commodity prices fueled speculation the rally may be overdone, trimming the currency's gain for the week.
The South African Rand traded 1.2% lower at 8.0465 per Dollar for an appreciation of 0.2% since June 5. Against the Euro the Rand fell 0.3% to 11.2643 today, leaving it little changed for the week.
The Canadian Dollar and Norwegian Krone declined versus the greenback after crude oil dropped from a seven-month high. The Latvian lats was poised for its best week in more than five years as the Baltic state moved closer to securing International Monetary Fund financing needed to avert bankruptcy.
The Canadian currency dropped 1.5% to C$1.1187 per US Dollar, heading for a second weekly decline, after crude oil dropped as much as 2.6% to $70.80 a barrel. The Krone fell 0.3% to 6.3396 per US Dollar.
Brazil and Russia joined China this week in saying they would shift some $70 billion of reserves into multicurrency bonds issued by the International Monetary Fund, raising concern central banks are diversifying away from Dollars. Leaders of Brazil, Russia, India and China, the so-called BRIC countries, are scheduled to meet on June 16 in Russia to discuss their economies.
The Dollar Index, used by the ICE to track the greenback against the Euro, Yen, Pound, Canadian Dollar, Swiss Franc and Swedish Krona, has lost 9% in the past three months amid concern the Fed's purchase of government bonds will flood the market with Dollars.
Talk of the Pound dropping to parity against the Euro has evaporated as concerns over the Eurozone's banking system intensify.
Many commentators had assumed the watershed was inevitable at the turn of the year, when Sterling dropped to a record low of £0.9803 against the single currency.
Ultra-loose monetary policy and panic surrounding the UK banking system saw investors abandon the Pound, with worries over the country's ability to attract the funds necessary to finance its ballooning deficits adding to the belief that Sterling was a one-way downward bet.
But this week, the Pound reached its strongest level against the single currency since early December.
Indeed, at £0.8531 against the Euro, the Pound is up more than 15% since the start of the year.
The Pound's performance is partly explained by the recovery of UK banking stocks, so crucial to the country's economy. While the problems in the UK banking system are widely believed to be out in the open, the same cannot be said for the Eurozone.
Alistair Darling, UK finance minister , told the Financial Times this week that a failure by other European countries to clean up their banks could hold back economic recovery.
And bringing currencies to a close this week here in China, the RMB ended the week CNY6.8338 to the US Dollar, down slightly on Thursday's close. |
| China
Key news eminating from China this week ..... |
 Further signs that China's Rmb4,000bn ($586bn) stimulus packages had spurred economic activities in the country emerged on Friday, as Beijing announced growing factory output, new bank lending and a jump in retail sales last month. But economists warned that growth in the private sector remained weak.
Industrial production rose 8.9% in May from a year earlier, higher than April's 7.3% growth. Retail sales increased 15.2% after a 14.8% rise the previous month.
The strong data came a day after China said investment surged to record highs last month and although exports and imports fell, economists said they had stabilised and were basically flat if measured on a monthly, seasonally-adjusted basis.
Chinese banks made Rmb664.5bn in new loans in May, up from Rmb591.8bn in April. The increase took the total amount of new lending so far this year to Rmb5,800bn, higher than the official target of Rmb5,000bn for the entire year.
Although the elevated level of lending raises concerns about worsening asset quality, significant non-performing loans problems are unlikely to materialise in the near-term, given that new loans have been predominantly medium and long-term in duration.
**********************************
Chinese exports and imports continued to fall in May but investment surged to record highs in the world's third largest economy as the government pumped money into new infrastructure projects to boost flagging growth.
Exports fell 26.4% from a year earlier, a steeper drop than the 22.6% fall in April and the seventh consecutive month of decline.
Imports fell 25.2%, after a 23% drop the previous month, but economists said imports and exports had stabilised and were basically flat if measured on a monthly, seasonally-adjusted basis.
Chinese import volumes of many commodities and natural resources surged in May, indicating a rebound in infrastructure building. That supported figures on Thursday showing fixed-asset investment was 32.9% higher in the first five months of the year, compared with the same period in 2008, an implied rise of 38.7% in May alone from a year earlier.
That was the third highest rise on record but because prices are falling in China, last month's investment figure was the highest since the government began publishing figures in 1997. While government-led infrastructure investments continue to lead the charge, private investments are showing positive signs as well.
The twin engines of the economy over the past decade have been the booming property market and surging exports. Thursday's data appeared to indicate at least one of those engines could be starting to recover.
Growth in property-related fixed-asset investment accelerated to 6.8% from a year earlier in the first five months, compared with 4.9% year-on-year growth between January and April. However, the growth rate was still 25.1 percentage points lower than year-on-year growth in the first five months of 2008.
Sales volumes of commercial and residential real estate rose 45.3% in the first five months from a year earlier, but the huge rise in turnover did little to boost prices, leading some economists to question the accuracy of the statistics.
In Beijing real estate sales volumes more than doubled in the first five months from a year earlier but the average price was actually down 1.1% in May from a year earlier.
The surge in bank lending has resulted in a large increase in real estate transactions, possibly of a speculative nature, which may explain the rise in volumes. Fixed asset investment in China continues to increase on the back of state-directed projects. This will help keep the economy growing, but there are increasing concerns about the amount of lending that has been required to fund the projects.
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Prices in China fell less sharply last month than in April, official data showed on Wednesday, fuelling hopes that the government's Rmb4,000bn ($586bn) stimulus measures are easing deflationary pressures.
The consumer price index fell 1.4% last month from a year earlier, marking the fourth straight month of falling prices. The index declined 1.5% in April from a year previous.
On a seasonally-adjusted basis, consumer prices rose month-on-month for the third straight time in May, gaining 0.1%. Yu Song, an economist at Goldman Sachs, said deflationary pressures were "clearly subsiding".
The decline in food prices eased significantly, from 1.3% in April to 0.6% in May. Prices of non-food items, however, fell 1.7% last month, more than April's 1.5%.
China's property market showed signs of stabilising in May. According to the National Development and Reform Commission, property prices in 70 cities fell 0.6% in May from a year earlier, compared with a 1.1% decline in April. On a month-on-month basis, prices rose 0.6% from April.
Factory gate prices fell 7.2% in May. Analysts said the fact that the drop was sharper than the 6.6% fall in April was due mainly to technical factors as the same period last year had seen a dramatic rise in upstream prices. "Our [own] index shows that upstream prices have been stable in recent weeks," said Mr Song.
Economists expect prices to continue falling until later this year but generally think that the worst deflationary pressures have passed.
A group of government-affiliated researchers even warned of stagflation risks in a report published in the official China Securities Journal on Wednesday. The central bank should adjust its monetary policy to "neutral" from "proactive" if the rate of inflation rises above 3% and economic growth remains below 9%, argued Fan Jianping and other researchers at the State Information Center, an institution under the National Development and Reform Commission, the cabinet's main economic planner. |
| Summary
The coming week looks like ..... |
Concerns about the housing sector will dominate the Treasury market next week, with the potential for lower yields after this week's successful Treasury auctions.
But the rally, which began Thursday, may not have much farther to run.
Investors have been watching Treasury yields closely as a clue to mortgage rates, and hoped-for improvement in the housing sector. Data on Monday and Tuesday will address the housing market's short-term potential for recovery.
The National Association of Home Builders' Housing Index for June is expected to show a reading of 17 in a report to be issued on Monday. This index hit a trough of 8 in January and has been improving modestly since.
Housing starts in May are expected to have increased to a seasonally adjusted annual rate of 490,000, from April's rate of 458,000. But that rate still represents a 50% decline from the May 2008 rate of starts. Similarly, building permits are expected to increase to 500,000 from April, which would be a 51% decline from year-ago data.
Inflation will be back at center-stage for financial markets next week with oil's surge past $70 a barrel and rising bond yields rekindling worries about long-term borrowing costs and the fragile housing sector.
A series of inflation readings for May in the United States, Britain and the Euro zone will focus investors' minds after oil prices jumped over 20% last month and bond markets were spooked enough to lift 10-year US Treasury yields to 4% -- an eight month high.
Against an increasing global oil and agricultural commodity price backdrop, there is the potential that market headline inflation concerns maintain in the coming weeks.
The Group of 8 (G8) will meet over the weekend, and while it may ultimately prove to be a non-event, traders should keep an eye out for the communiqué as indications that exit strategies for the stimulus measures enacted by members are being plotted could provide a boost to risk appetite when trading resumes on Sunday. Though highly unlikely, discussions about currencies would be sure to shake up the markets as well.
Next Wednesday, the latest inflation figures for the US are forecasted to show slight increases on a monthly basis, but clear weakness on an annual basis. Indeed, headline CPI is projected to have risen 0.3% during May, while the core measure, which excludes food and energy, is anticipated to rise 0.1%.
Meanwhile, headline CPI is expected to have fallen 0.9% in May from a year ago, the steepest drop since February 1950, compared to a decline of 0.7% in April. On the other hand, core CPI may have only eased to a 1.8% annual pace of growth from 1.9%, suggesting that volatile commodity prices are the sole reason for the contractions in headline inflation.
Weaker than expected results have the potential to stoke deflation fears as opposed to inflation fears, but overall, the markets haven't shown a strong reaction to past CPI reports, and this time around we may see more of the same.
In Europe, on Thursday, the Swiss National Bank is like to leave their 3-month LIBOR target range unchanged at 0.0% - 0.75%, but the thing to watch for in the SNB's subsequent policy statement is talk of FX intervention.
Indeed, the SNB's last statement on March 12 indicated that the central bank wanted to "prevent any further appreciation of the Swiss Franc against the Euro" in an effort to "counter the risk of deflation and of a dramatic deterioration in the economy."
Similar comments have the potential to drive the Swiss Franc lower upon this release, while a neutral policy stance and no mention of currencies will likely lead the Swiss currency higher.
British investors will look for higher ground next week with the focus on the latest company results and a barrage of data that could shed fresh light on the recession-hit economy.
Financial markets will digest the latest inflation data on Tuesday, June 16, and unemployment figures on Wednesday, June 17. Retail sales and public finances data releases are due on Thursday, June 18.
Next Wednesday, the minutes from the Bank of England's June 4 meeting may not be as market-moving as they've been in the past, as there has already been significant detail revealed about the mindset of the Monetary Policy Committee (MPC).
Indeed, we already know that the BOE has decided to expand their quantitative easing (QE) program by 50 billion Pounds to 125 billion Pounds, but there are indications that they may increase the scope of the program even further as they recently published a paper in which they sought comments on the prospect of including purchases of secured commercial paper in their Asset Purchase Facility (APF).
That said, the inclusion of secured commercial paper doesn't necessarily mean that they will allocate more money toward the APF, and this is a detail that will be critical to British Pound price action as past QE announcements have weighed on the British Pound in particular.
On the company earnings radar next week, supermarket giant Tesco, Britain's biggest retailer, publishes its first-quarter numbers on Tuesday, June 16, while confectionery group Cadbury issues a trading update on Thursday, June 18.
Next Monday evening, the Bank of Japan is anticipated to announce that they are leaving rates unchanged at 0.10%, but this is not the part of the central bank's announcement that will garner the most attention.
Instead, markets may only respond to the sentiment reflected in their subsequent policy statement. After the BOJ's last meeting, they raised their outlook on the economy for the first time in nearly 3 years, saying that "economic conditions have been deteriorating, but exports and production are beginning to level out."
There is speculation that the BOJ will upgrade their outlook once again, and if this is the case, the Japanese Yen could gain on a very short-term basis. On a longer-term basis, though, risk trends have been driving price action and the impact of positive BOJ commentary may not go very far.
The key next week though will be those BRIC countries meeting and the affect their meeting will have on the US Dollar I feel.
FX reserve plans, IMF financing, and the nature of the new IMF bond are on financial markets' radar in the run-up to the first BRIC summit that will be held in Russia next week.
The pre-summit comments have revealed differences - at least in presentational terms - between Russia and China on the issue of Dollar reserves. US TIC data next week will add fuel to the reserve debate.
How much the big emerging powers can agree on and how much unity they show at their first such summit will shape expectations of how much they can influence international policy and the market fallout of any proposals they table.
If they do reach widespread agreement on reducing their Dollar Reserves, we could see the US Dollar start to tail-spin as early as next week I feel - this is a key one to watch.
If we see the Dollar start to go into free-fall, the price of Oil will shoot over $100 a barrel very quickly and then we will be back where it all started in October 2007 - not for different reasons either, but because of 'more of the same' combined with 'some of the new'.
This will prove in my humble opinion, that in their rush to get back up again to dizzying heights, the financial world learned nothing from the global market demise of 2008! |
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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