Dear Ladies
& Gentlemen,
I said in my Newsletter last week that this
week would be 'volatile' - however, I never
expected volatility to be solely one way ....
up!
It seems in my humble opinion that we keep on
going 'full-circle' here insomuch as the
fundamentals get studied closer when we are out of
earnings reporting season, then for the brief 3
week period where companies post
'better-than-expected' results, markets jump. Then
once this period is over, back down we come
again.
Of course, things are not helped by the Media
that so typically are currently talking markets
up; but take a look at these half-dozen 'negative'
news articles that I have read this
week.
Once you do, perhaps you will see why - with
such solid negative news out there - I question
markets being on such a determined upward
trajectory:
1. The record credit-market rally of 2009
engineered by President Barack Obama and Federal
Reserve Chairman Ben S. Bernanke is starting to
reverse as optimism erodes that the economy is
poised to recover.
Corporate bonds, loans and mortgage
securities and asset- backed debt have all
weakened or been stuck in ranges in the past three
to five weeks on concern that markets strengthened
too far, too fast. Yields on high-yield, high-risk
US company bonds rose to 9.69 percentage points
more than Treasuries Thursday, after falling to
9.17 points on June 12 from 16.62 points on Dec.
31, according to Barclays Capital Inc. index data.
Loans to the companies fell to 79.41 cents on the
Dollar, from 80.24 cents on June 12, Standard
& Poor's data show.
Pacific Investment Management Co. and Seix
Investment Advisors Inc. say the success of Obama
and Bernanke in averting a financial-market
collapse with $12.8 trillion of spending, lending
and commitments won't morph into a quick end to
the US recession or typical expansion afterward.
In the view of Pimco, the world's largest bond
manager, the "new normal" is growth of no more
than 2% over the next five years.
Everyone's talking about 'green shoots' and
the reality is we're in a world where you're
talking about 1 to 2% real gross-domestic-product
growth over the next year.
Some of these green shoots are going to turn
to weeds.
Policy makers and investors were cheered by
improving markets because of their "simplistic
view that all you need to do is change psychology,
and the negative feedback loops into positive
feedback loops, and all of a sudden the consumer
would be back to its debt-financed consumption
binge.
US corporate bond sales tumbled last week to
$15.5 billion, a 25% decline from the five-year
average for the second week of July. In the first
half of the year, sales totaled at least $744
billion, compared with $590.2 billion in the same
period of 2008.
An end to the
credit-market rally may jeopardize a recovery as
debtors from California homeowners with
interest-only mortgages resetting to higher
payments to junk-rated companies find borrowing
costs stopped short of falling enough to allow
them to avoid defaulting. Consumers and companies
may struggle to maintain spending or staff.
The World Bank said on June 22 that the
global economy will contract 2.9% in 2009,
compared with its previous forecast of a 1.7%
decline. Earnings at S&P 500 companies have
fallen a record seven straight quarters and are
forecast to decrease for two more before
rebounding at the end of 2009.
2. Citigroup and Bank of America, two
financial giants still reeling from the crisis, on
Friday failed to dispel investor fears over their
future after reporting second-quarter profits that
were boosted by large one-off gains.
The lenders, which have been bailed out by US
taxpayers and are under close regulatory scrutiny,
continued to suffer from consumers' financial woes
and did worse than rivals such as Goldman Sachs
and JPMorgan Chase in investment
banking.
Citi, which is about to cede a 34% stake to
the US government, reported a $4.3bn profit
compared with a loss of $2.5bn a year ago.
Earnings were boosted by a $6.7bn gain from the
partial sale of Smith Barney, Citi's brokerage
business, to Morgan Stanley. Without the gain,
Citi would have been deep in the red and recorded
its sixth loss-making period in the last seven
quarters.
The poor financial health of US consumers
continued to weigh on both Citi and BofA as losses
in their credit card, mortgages and other retail
lending businesses continued to mount. Citi
incurred credit costs of $12.4bn during the
quarter, including $3.9bn set aside to cover
future loan losses. BofA had credit costs of
$16.4bn in the three months to June.
Vikram Pandit, Citi's chief executive, said
the consumer business was Citi's "most significant
challenge", but added that there were signs "of
moderation in . . . loss trends".
John Gerspach, the new finance chief, who
took over the job a week ago after the surprise
move by his predecessor Ned Kelly (he had to go
really didn't he, a Bank being run by someone
named after a famous 'cowboy') to another role,
said Citi had limited exposure to commercial real
estate - the next problem spot in the financial
system.
BofA managed to produce second-quarter
earnings of $3.2bn thanks to one-time gains but
its profits declined both from the previous
quarter and a year ago.
The Charlotte-based bank recorded a $5.3bn
gain from its sale of a stake in China
Construction Bank during the quarter, and another
$3.8bn gain on the sale of its share of a
merchants payment company to a joint venture
backed by an unnamed investor (F.E.D Reserve
perhaps?).
3. CIT Group Inc., the 101-year-old
commercial finance company facing bankruptcy after
failing to receive federal guarantees for its
bonds, said it's in talks with potential lenders
to secure funding.
The company, which finances about 1 million
businesses from Dunkin' Brands Inc. to Eddie Bauer
Holdings Inc., is "continuing to evaluate
alternatives," New York-based CIT said Thursday in
a statement. Earlier, bondholders held calls to
discuss whether to swap some claims for equity to
reduce indebtedness, according to a person
familiar with the situation.
CIT is running short of cash, and may need as
much as $6 billion to avoid filing for bankruptcy
protection after the US wouldn't give the firm a
second bailout, according to CreditSights Inc.
CIT, which has reported $3 billion of losses in
the last eight quarters, received $2.33 billion in
funds from the US Treasury in December and hasn't
been given access to the Federal Deposit Insurance
Corp.'s debt-guarantee program.
CIT indicated that it needs at least $2
billion of rescue financing in the next 24 hours
or it would likely file for bankruptcy. It is
believed the figure is in the range of $4 to $6
billion plus, making outside capital sources shy
away.
4. A new financial crisis will develop from
the failure to effectively regulate derivatives
and the extra global liquidity from stimulus
spending, Templeton Asset Management Ltd.'s Mark
Mobius said.
"Political pressure from investment banks and
all the people that make money in derivatives"
will prevent adequate regulation, said Mobius, who
oversees $25 billion as executive chairman of
Templeton in Singapore. "Definitely we're going to
have another crisis coming down".
Derivatives contributed to almost $1.5
trillion in writedowns and losses at the world's
biggest banks, brokers and insurers since the
start of 2007. Global share markets lost almost
half their value last year, shedding $28.7
trillion as investors became risk averse amid a
global recession.
The US Justice Department is investigating
the market for credit-default swaps, Markit Group
Ltd., the data provider majority-owned by Wall
Street's largest banks, said July 13.
Mobius didn't explain what he thought was
needed for effective regulation of derivatives,
which are contracts used to hedge against changes
in stocks, bonds, currencies, commodities,
interest rates and weather. The Bank for
International Settlements estimates outstanding
derivatives total $592 trillion, about 10 times
global gross domestic product.
"Banks make so much money with these things
that they don't want transparency because the
spreads are so generous when there's no
transparency," he said.
A "very bad" crisis may emerge within five to
seven years as stimulus money adds to financial
volatility, Mobius said. Governments have pledged
about $2 trillion in stimulus spending.
The Justice Department's antitrust division
sent civil investigative notices this month to
banks that own London-based Markit to determine if
they have unfair access to price information,
according to three people familiar with the
matter.
Treasury Secretary Timothy Geithner last week
urged Congress to rein in the derivatives market
with new US laws that are "difficult to evade." He
said strong capital requirements were the key.
Geithner repeated President Barack Obama's
call to force "standardized" contracts onto
exchanges or regulated trading platforms, and
regulate all dealers.
Mobius also predicted a number of short,
"dramatic" corrections in stock markets in the
short term, saying that "a 15 to 20% correction is
nothing when people are nervous."
5. Britain's unemployment rate reached a
higher-than-expected 7.6% in the three months to
May, the biggest quarterly increase for 28 years,
official data showed on Wednesday. Skip related
content
"The unemployment rate was 7.6% for the three
months to May 2009," the Office for National
Statistics said in a statement.
"This is the largest quarterly increase in
the unemployment rate since 1981," it added.
Analysts had forecast an unemployment rate of
7.4%.
6. Confidence in the world economy dropped
for the first time in four months in July as
government stimulus efforts showed little sign of
reducing job losses, a survey on six continents
showed.
The Professional Global Confidence Index
declined to 39.13 in July from 43.57 in June. A
reading below 50 means pessimists outnumber
optimists. A measure of US participants'
confidence in the world's largest economy fell to
29.5 from 36.7, the survey showed.
The MSCI World Index is down about 2% since
the US Labour Department on July 2 reported
higher-than-expected job losses and an
unemployment rate approaching 10%. Treasury
Secretary Timothy Geithner said July 14 the world
will probably suffer "more than the usual"
setbacks in exiting the worst slowdown since the
Great Depression.
The US lost 467,000 jobs last month and Vice
President Joe Biden said the administration
"misread the economy" when it predicted
unemployment would peak at 8% once the stimulus
package was passed. President Barack Obama said
the jobless rate, now at 9.5%, will "tick up" over
the next several months.
Companies from London-based British Airways
Plc, Europe's third-largest airline, to
Chicago-based defense contractor Boeing Co. are
firing workers to cut costs as demand slumps.
British banks have slashed more than 55,000 jobs
globally.
The gauge for Western Europe fell to 31 from
32.6. Unemployment climbed in Germany, Ireland,
Switzerland, Romania, Sweden and the Czech
Republic in June. South Korea's jobless rate rose
to the highest in more than eight years last
month, while Japan's was at a five-year high in
May.
You see Ladies and Gentlemen, there are six
reasons alone to explain why the fundamentals are
simply all wrong.
The debate over whether the $787 billion
stimulus package is sufficiently large or
efficiently designed obscures a broader question,
some economists say: Can any fiscal measure pull
the economy out of the recession?
With credit still crimped and the outlook for
consumer demand gloomy due to rising unemployment
and increased personal saving, no amount of
government intervention will be able to stanch the
hemorrhaging of jobs and quickly ease the US out
of its deepest recession in a half-century, they
said.
Many households that want to borrow can't,
and many that can borrow won't because they now
must save for retirement the old-fashioned way. As
a result, the multiplier from even a well-designed
stimulus package is likely to be quite
modest.
The stimulus plan passed in February is
executing pretty much as expected, yet it won't
affect the economy's primary problems, which are
falling values of assets like homes and stocks. So
far, about $60 billion in spending and $43 billion
in tax relief has been dispensed, accounting for
13% of the plan's total.
The slow pace of recovery has driven bond
yields lower as investors continue to seek the
safety of US government debt. Ten-year note yields
are down 38 basis points, or 0.38 percentage
point, since June 10.
The outlook for many companies also is
clouded. Second- quarter profit at General
Electric Co., the world's biggest maker of
power-generation equipment and services, probably
fell by more than 50%, according to the average
estimate of 13 analysts surveyed. Most benefits
from the stimulus plan won't arrive until next
year, the Fairfield, Connecticut- based company's
chief executive officer, Jeffrey Immelt, told
investors May 19.
Proponents of the stimulus said the economic
situation and the prospects for recovery would be
much bleaker if no fiscal response had been put in
place.
"It's working, it's demonstrably working,"
said Jared Bernstein, chief economic adviser to
Vice President Joseph Biden, whose office is
overseeing the stimulus rollout.
Even though a second stimulus package is
unlikely at this point, those advocating such a
measure said it may be needed precisely because
the effects of the first have been so modest.
The combination of rising unemployment and
thrifty consumers definitely lowers the multiplier
effect of every stimulus Dollar spent. That just
means you need more stimulus. There's really no
alternative.
Obama administration officials such as
Treasury Secretary Timothy Geithner said the
measure needs time to work and are appealing for
patience.
"The stimulus program was designed to make a
contribution over a two-year period and the
biggest impact on investment will come in the
second half of this year," Geithner said Thursday
in an Internet chat with Les Echos newspaper in
Paris.
Martin Feldstein, a professor of economics at
Harvard University in Cambridge, Massachusetts,
and former head of the National Bureau of Economic
Research, said the stimulus may provide a
short-term boost that will quickly ebb.
"We'll get that bounce for a couple of
quarters but then it will fade out," Feldstein
said.
It's too early to consider another round of
fiscal priming, Geithner said. "I don't think
we're in a position yet to make that judgment."
For the moment, the initial measure has shown
little impact. The net worth of households has
fallen almost 22%, by almost $14 trillion, since
2007, to the lowest level in five years. House
prices have fallen more than 32% from their 2006
peak, according to the S&P/Case-Shiller
national index, while the Standard & Poor's
index of 500 stocks is 40% below its October 2007
level.
The crisis reminded Americans that home
values can fall as well as rise and that bull
markets don't last forever, causing consumers to
stash away a much larger portion of their incomes.
Government data showed that the household savings
rate rose to 6.9% in May, from zero in April 2008.
The May figure is the highest in almost 16 years.
Nouriel Roubini, an economist at New York
University who is chairman of RGE Monitor, and
Richard Berner, co-head of global economics at
Morgan Stanley in New York, forecast the rate
could rise to 10%. Economists Reuven Glick and
Kevin Lansing of the Federal Reserve Bank of San
Francisco estimated in a May 18 paper that
Americans would continue to boost their rate of
savings, which could reach 10% by 2018. Such a
jump would trim three-quarters of a percentage
point per year from consumer spending.
Rising joblessness could further damp the
ability of consumers, whose spending in recent
years has made up more than two-thirds of the
economy, to continue to shoulder that burden.
Contractions in industries such as autos,
construction and financial services have helped
shrink payrolls by 6.5 million since the recession
began in 2007, Labour Department figures show. The
June jobless rate reached 9.5%, the highest since
1983.
Federal Reserve officials are anticipating a
jobless rate of 9.8% to 10.1% this year, according
to the central bank's latest economic forecast. In
an interview last month, President Barack Obama
also said the jobless rate would exceed 10% before
turning for the better.
In addition, the rolls of the long-term
unemployed are growing, with 29% of the jobless
out of work for more than 26 weeks, the most since
records began in 1948. A broader measure of
underemployment that includes those who want full-
time positions but work part-time has almost
doubled over the past two years, to 16.5%.
Consumer spending is forecast to rise 1.5% in
the fourth quarter and 1.7% for all of 2010,
according to a July survey of more than 50
economists. The average quarterly increase from
1997 through 2007 was 3.5%.
The US consumer clearly is not going to be
the consumption animal that he/she was for the
last 10 or 20 years - and rightly so.
Retailers such as San Francisco-based Gap,
operator of the Old Navy and Banana Republic
chains, and Abercrombie & Fitch, a
teen-clothing Franchise based in New Albany, Ohio,
are feeling the pinch. Both reported June sales
declines steeper than analysts estimated.
Airlines including Fort Worth, Texas-based
AMR Corp., parent of American Airlines, are
suffering as business travel declined. The world's
second-largest carrier's traffic, measured in
miles flown by paying passengers, fell 8.2% for
the quarter, as American and other airlines
discounted fares to fill planes. American filled
81.8% of its available seats in the second
quarter, down from 82.5% a year earlier.
Credit, which consumers often turn to during
recessions, remains difficult to obtain for many
Americans.
About 50% of domestic banks tightened credit
standards on prime mortgages in the first months
of 2009, up from 45% in January, according to a
survey of bank loan officers conducted by the
Federal Reserve in April.
"Although financial market conditions had
improved, credit was still quite tight in many
sectors," the central bank said in minutes of the
Federal Open Market Committee's June 23-24
meeting, released earlier this week.
What this means, is that the Americans are
not going to get the bang per buck that some of
the stimulus proponents hoped for.
On to those 'highly positive' numbers for the
week that was:
|
| US
Markets
How the US did
this week ..... |
![US Summary]() The Dow Jones Industrial Average
rose, capping its best weekly gain since March, as
International Business Machines Corp. rallied on
an increased earnings forecast and housing starts
unexpectedly jumped. Oil rose and treasuries
declined.
IBM surged 4.3% as cost cuts improved its
profit outlook. JPMorgan Chase, KB Home and DR
Horton gained as builders broke ground on the most
homes in seven months. Four stocks fell for every
three that rose on the New York Stock Exchange.
The Standard & Poor's 500 Index slipped,
giving it a weekly gain to 7%.
The Dow added 32.12 points, or 0.4%, to
8,743.94 at 4:05 p.m. in New York. The S&P 500
slipped less than 0.1% to 940.38. The Russell 2000
Index fell 0.5%.
The Dow advanced 7.3% this week after analyst
Meredith Whitney said bank shares will rally and
companies from Goldman Sachs Group Inc. to Intel
Corp. and Johnson & Johnson reported results
that topped estimates. The S&P 500's weekly
gain was also its best since March.
Earnings beat analysts' estimates by an
average of 16% for the 38 companies in the S&P
500 that released results since July 8. Profits
fell an average 35% in the second quarter and will
drop 21% from July through September, according to
analysts' estimates. The S&P 500 has rallied
39% from its 12-year low on March 9 amid
speculation the economy is recovering.
Analysts had lowered their expectations to
the point that most companies seem to be beating
in one fashion or another.
IBM advanced $4.78 to $115.42, the highest
since Sept. 30. The world's biggest
computer-services provider was the second
technology company in the Dow this week to post
forecasts that beat estimates, following Intel on
July 14, indicating they are coping with the worst
economic slump in five decades.
Technology companies, the best-performing
industry group in the S&P 500 this year,
extended their 2009 gain to 31%, nearly double the
16% return of commodity producers, the next-best
group.
IBM made almost 65% of its revenue outside
the US last year, while Intel Corp. made all but
15% of its sales in other countries. Growth in
Emerging and developing economies will outpace
advanced economies this year and next year, the
International Monetary Fund predicted July 8.
The IMF forecast growth of 4.7% next year and
1.5% this year for emerging economies. Developed
economies will grow 0.6% in 2010 after shrinking
3.8% this year, the Washington-based lender said.
The US economy will shrink 2.6% this year and grow
0.8% next year, the IMF said.
Treasuries fell, posting their first five-day
decline in six weeks, after the housing starts
report added to signs the recession may be easing.
Ten-year note yields rose after Commerce
Department figures showed US housing starts
increased 3.6% to an annual rate of 582,000,
higher than the 530,000 median forecast of
economists surveyed. Yields declined earlier after
bomb blasts in Indonesia's capital Jakarta killed
eight people, spurring demand for the safety of US
debt.
|
| European
Markets
What has
been happening in Europe this week
..... |
![Europe Summary]() Europe's bourses enjoyed
their largest weekly rise since the year began as
investors' spirits were lifted by well-received US
corporate earnings.
Banks surged higher as the market interpreted
strong results from US investment bank Goldman
Sachs as a signal that some European lenders could
make a vigorous return to profitability.
The FTSE Eurofirst 300, a pan-European index
of leading companies, rose 7% over the week to
870.56.
The Stoxx 600 added 0.4% to 210.67, the
highest level since June 12. The gauge has climbed
6.8% this week as companies from Goldman Sachs
Group Inc. to Intel Corp. and Johnson &
Johnson reported profit that beat estimates.
GERMANY
German stocks rose for a fifth straight day,
and the DAX Index completed its biggest weekly
rally this year, as economist Nouriel Roubini said
the worst of the financial crisis is over.
Daimler AG advanced as Goldman Sachs Group
Inc. increased its price target on the stock. SAP
AG, the world's largest maker of
business-management software, and Siemens AG,
Europe's largest engineering company, climbed more
than 1%.
The DAX added 0.4% to 4,978.40, bringing this
week's gains to 8.8%. The index has still declined
3.2% since June 2 on speculation share prices have
outpaced the outlook for the economy after a
three-month rally. The broader HDAX Index climbed
0.4% Friday.
Daimler increased 2% to 28.95 Euros, as
Goldman Sachs Group Inc. raised its price estimate
for the world's second-largest maker of luxury
cars 8.6% to 38 Euros. Bayerische Motoren Werke
AG, the world's biggest maker of luxury cars,
climbed 2.7% to 29.27 Euros, the highest closing
price in more than a month.
Deutsche Boerse AG, the operator of the
Frankfurt bourse, climbed 1.5% to 57.35 Euros. The
company named Gregor Pottmeyer chief financial
officer, filling a post left vacant since April,
when Thomas Eichelmann left Europe's biggest stock
exchange because of "differences."
SAP increased 1.2% to 30.24 Euros, while
Siemens rose 1.3% to 51.62 Euros. Metro AG,
Germany's largest retailer, climbed 3.7% to 39.25
Euros.
Arcandor sank 4.2% to 46 cents. The retailer
expects to present a "rough" rescue plan in the
second half of August, insolvency lawyer Hubert
Goerg said.
Carl Zeiss Meditec jumped 5.9% to 10.68
Euros. The maker of medical lasers to correct
vision defects said it is "posting pleasing
results" even in the current difficult economic
environment, adding that it expects revenue growth
of at least 5% this year.
Deutsche Beteiligungs added 3.3% to 12.40
Euros, the biggest one-day gain in more than three
weeks. The 40-year-old German private equity
company may pay a dividend for this year after
selling its stake in pump-maker Lewa GmbH for more
than the company thought it was worth.
Q-Cells SE tumbled 3.1% to 10.75 Euros,
extending Thursday's 5.6% decline. Goldman Sachs
Group Inc. cut its price estimate for the German
producer of cells used in solar panels 33% to 14
Euros.
France
France's CAC 40 Index climbed for a fifth
day, adding 18.78, or 0.6%, to 3,218.46. The
benchmark measure has gained 7.9% this week. The
SBF 120 Index advanced 0.6% Friday to 2,334.82.
Accor dropped 2.15 Euros, or 7.5%, to 26.32.
That's the steepest percentage drop in eight
months. Europe's biggest hotelier reported a 9%
drop in second- quarter sales and said revenue
won't improve for the rest of the year.
Carrefour lost 1.22 Euros, or 3.7%, to 31.40
Euros after Europe's biggest retailer reported a
second straight drop in quarterly sales as French
and Spanish shoppers trim their budgets. Revenue
fell 1.2% to 23.44 billion Euros.
Valeo SA, France's second-largest auto-parts
supplier, added 69.5 cents, or 4.7%, to 15.64
Euros after UBS AG rated the shares "buy" in new
coverage, citing "a cyclical recovery in the
industry."
There is no need for a second economic
stimulus plan in France, but extra targeted
measures haven't been ruled out, the minister for
the plan, Patrick Devedjian, said Wednesday in a
radio interview.
Speaking on Europe 1, Devedjian noted France
has invested Eur13.2 billion of its Eur26 billion
economic stimulus plan and aims to spend 75% of
the total by the end of the year.
He also said he is not in favor of
terminating the government's funded car-scrapping
scheme at end of December 2009, as foreseen in the
budget.
Devedjian said he is in favor of extending
the scheme by at least one year and gradually
reducing the cash rewards households receive for
scrapping their old cars.
"We could go from Eur1,000 to Eur800 or
Eur700 in the first six months and then move to
Eur400 to Eur300," Devedjian said, noting is
should be done in a coordinated way across the
European Union.
Devedjian noted that the French stimulus plan
has created or saved around 250,000 jobs this
year.
"The (economic) crisis is clearly not over,
but there are numerous positive signs everywhere,"
Devedjian said.
He also called for banks to lend more.
"I understand full well that banks are in a
delicate situation, but we need banks to be more
generous in their supply of loans, as this is what
supports the economy," Devedjian said.
BELGIUM
In Brussels the Bel 20 closed out the week at
2,083.11, a small decline of 0.07%
Friday.
ArcelorMittal, the world's biggest
steelmaker, rallied in the build-up to an
announcement on Friday that its bankers had agreed
to relax loan covenants on some of its $26bn of
borrowings. ArcelorMittal rose 16% over the week
to €24.45.
Solvay, the Belgian pharmaceuticals and
chemicals company, jumped 8.5% over the week to
€62.40 after reports that it was nearing a sale of
its drugs arm.
Belgian investment group RHJ International's
takeover bid for General Motors' Adam Opel GmbH
includes investing Eur275 million for a 50.1%
stake and asks for Eur3.8 billion in government
funding, according to the group's offer document
seen by Dow Jones Newswires Friday.
The plan, dated July 15, also foresees
cutting 9,900 jobs in Europe and keeping the Opel
plant in Bochum open while idling the Eisenach
plant in 2010 to 2011 and resuming production
there in 2012.
RHJ plans to repay government debt by 2014,
the document says.
The plan also foresees employees
participating in the company, to be called
NewOpel, with the economic equivalent of a 10%
ownership stake against long-term contributions
regarding pay and bonus.
Employees will be contributing Eur250 million
to Eur300 million in annual savings.
The Belgian Deputy Prime Minister and the
Minister of Finance of, Didier Reynders, and
Ambassador of Luxembourg in Belgium, Alphons
Berns, signed an agreement on Wendesday in
Brussels, for the avoidance of double taxation and
prevent tax evasion with respect to taxes on
income and wealth. This is an amendment to the
Convention of 17 September 1970 between Luxembourg
and Belgium.
This agreement is now fully in the
Convention-model of OECD on international tax
cooperation.
This agreement is a symbol of good and close
political and economic relations between the two
countries, stressed ministers Didier Reynders and
Luc Frieden who met by phone in the morning before
signing.
The protocol amendment provides for the
exchange of information on request and in
individual cases between the tax administrations
of both countries. It applies to tax years 2010
and following and has no retroactive effect. The
agreement does not seek an automatic exchange of
bank information and does not allow for general
inquiries ( "fishing attempts").
THE
NETHERLANDS
The AEX in Amsterdam finished the week on
266.40, up 1.11% for the day.
Royal Vopak NV surged 8.5% to 41.04 Euros.
The world's biggest chemical and oil storage
company said it expects to post group operating
profit excluding one-off items of "close to" 100
million Euros for the second quarter.
There are "clear indications" of fraudulent
activity in the Dutch carbon emissions market, the
Dutch ministry of finance said regarding its
decision on Tuesday to take steps to prevent
value-added tax (VAT) fraud.
"Specifically carousel fraud, where the
booked turnover tax is not paid but nevertheless
deducted from tax in the tax return," the ministry
said on its website.
To prevent possible fraud, the carbon permit
buyer, instead of the seller, will pay VAT from
Wednesday.
"In order to do away with uncertainty for
buyers, I have decided that entreprenEurs who sell
emissions rights will simply mark the bill with
'turnover tax transferred'.
The buyer will then insert the tax into his
or her tax return," Dutch deputy finance minister
Jan Kees de Jager said in a statement.
Carousel fraud, also called missing trader
fraud, involves fraudsters importing VAT-free
goods from other countries, selling them
domestically and charging VAT, then disappearing
without paying the tax to the
government.
Trading in European Union carbon permits on
Dutch exchange Climex grew by 49% in June, despite
an overall drop in trading volumes across all
European emissions exchanges, recent data
showed.
Some observers expressed concern over the
rise in Climex's spot volumes after a spike in
French emissions exchange BlueNext's volumes
sparked rumors of tax fraud. They said fraudsters
might target the Amsterdam-based Climex.
SWITZERLAND
In Zurich the SMI closed Friday out at
5,594.14, up exactly 1% for Friday.
Swiss retail sales fell in May from a year
ago as shoppers cut back spending on clothes and
shoes, adding to signs of weakening consumption
and a lack of inflationary pressures in the Alpine
country.
Retail sales fell 1.4% from a year ago when
adjusted for inflation after a 1.2% rise in April,
the Federal Statistics Office said on Wednesday.
The Swiss economy slipped into recession in
the middle of last year and the Swiss National
Bank forecasts a decline in gross domestic product
by up to 3% in 2009, which would be the sharpest
contraction since 1975.
So far, however, Swiss consumers have shown
resilience to the downturn. In the first five
months, retail sales were still up 0.5% in real
terms when adjusted for the number of shopping
days.
The May data, however, also showed some signs
of resilience. Spending on office and consumer
electronics rose by over 15% and sales of kitchen
and household supplies were 4.6% higher then a
year ago in real terms.
The main drag was spending on shoes and
clothes, which fell 9.5%. Swiss shoppers may have
held back because they were waiting for the start
of summer sales in June.
But most economists expect the Swiss to curb
spending more in the coming months. The export-led
recession has forced many companies to axe jobs,
driving unemployment to the highest level in over
3 years in June with a jobless rate of 3.6%.
The SNB has taken a number of drastic steps
to fight recession and deflation risks. The
central bank cut rates close to zero, intervened
to stem a rise in the Swiss Franc and bought
corporate bonds to keep credit spreads down.
AUSTRIA
In Vienna the ATX finished the week at
2,088.69, down 1.7% Friday and the largest loser
in Europe.
German airline Deutsche Lufthansa AG on
Thursday made new proposals to the European Union
in its bid to get clearance for its planned
takeover of Austrian Airlines, a spokesman for the
Austrian finance ministry told Dow Jones Newswires
Thursday.
Lufthansa spokesman Andreas Bartels also said
there are new proposals. Both declined to be more
specific.
Earlier Thursday, the Austrian finance
ministry issued a press statement in which
Austrian Finance Minister Josef Proell welcomed
Lufthansa's new, modified offer for Austrian Air.
The European Commission, the executive branch
of the EU, later issued a statement that said it
"can confirm that it has received a new offer from
Lufthansa in the context of its ongoing in-depth
investigation of Lufthansa's proposed takeover of
Austrian Airlines."
"The Commission will study the offer
carefully but cannot make any further comment at
this stage," it said.
Earlier Thursday Austrian newspaper Der
Standard cited unnamed commission sources as
saying Lufthansa has submitted a revised offer,
which includes dropping flights between Vienna and
Frankfurt and Vienna and Geneva.
The European Commission said Tuesday it is
taking Austria to the European Court of Justice
over its failure to recover illegal state aid from
insurer Grazer Wechselseitige, or GRAWE.
The commission had called on the Austrian
state to take back Eur41.5 million, plus interest,
from GRAWE after the insurer bought state-owned
Bank Burgenland at a knock-down price.
GRAWE paid Eur100 million for the bank
despite a higher bid of Eur155 million from a
Ukrainian-Austrian consortium.
The amount to be recovered represents the
difference between GRAWE's bid and the higher bid
after the commission, the European Union's
executive and regulator, judged GRAWE had obtained
a competitive advantage by paying the lower price.
SWEDEN
The OMX Stockholm 30 Index not surprisingly,
in Stockholm, finished the week on 842.15, up a
mighty 2.29% on the last trading day of the
week.
Sandvik, the world's largest maker of
metal-cutting tools, surged 7.1% in Stockholm
after reporting an operating loss that was smaller
than the company predicted last month.
Atlas Copco AB, the world's biggest maker of
air compressors, advanced 7.1% to 83 Kronor. The
company reported second-quarter net income of 1.46
billion kronor ($187 million).
Investor AB, the investment vehicle of
Sweden's Wallenberg family, Tuesday reported a
quarterly rise in the value of its assets for the
first time in two years, supported by a rebound in
equity markets.
The market rally also allowed Investor to
swing to a quarterly net profit from a
year-earlier net loss. The company reported a
second-quarter net profit of 16.85 billion Swedish
kronor ($2.14 billion) as it booked big unrealized
gains in the value of its assets. A year earlier,
the company recorded a net loss of 3.52 billion
kronor as it lowered the value of its investments
from the previous period.
Chief Executive Boerje Ekholm said he would
be "surprised if the global economy isn't
bottoming out and we are on our way to recovery."
However, he cautioned that the economic recovery
process may not be as robust as hoped.
Investor, the Nordic region's largest
investment company, said its closely watched net
asset value per share, which analysts say offers
the best reflection of the company's performance,
totaled 165 kronor as of June 30, up 15% from 144
kronor on March 31.
The net asset value per share as of June 30
fell short of the 182 kronor recorded a year
earlier, when market values overall were higher
than Friday.
Appliance maker Electrolux AB reported a
sharp rise in second-quarter net profit Thursday,
after restructuring costs weighed on year-earlier
results, and said the US market was showing early
signs of recovery.
Net profit jumped to 658 million Swedish
kronor ($84.8 million) from 99 million Krona a
year earlier, when it booked restructuring costs
of 539 million kronor. Savings initiatives and
lower raw-material costs helped push up its bottom
line.
Higher prices for Electrolux's products and
the weakness of the Swedish Krona against the
Dollar and Euro, meanwhile, helped lift revenue
7.4% to 27.48 billion kronor from 25.59 billion
kronor.
Swedbank on Friday swung to a 2.01 billion
krona ($256 million) second-quarter loss, with the
Swedish bank stung by loan losses in the Baltic
region and the Ukraine.
Market fears over contagion from Eastern
Europe into the Western banking system have grown
this year, particularly after a Moody's Investors
Service warning in March.
And Swedbank has more branches in the Baltic
countries and Ukraine than it does in its native
Sweden.
Swedbank's loss wasn't as bad as its
first-quarter loss of 3.36 billion Krona, but the
lender earned 3.6 billion Krona in the
year-earlier second quarter.
Analysts polled by Dow Jones Newswires had
forecast a 785 million Krona loss.
The disappointing numbers came after it wrote
off 6.67 billion Krona in loans and other credit
losses.
NORWAY
On Olso the OBX closed out the week at
254.15, up 0.78%.
Shares in Norway's Synnove Finden surged more
than 40% on Monday after it said Scandza would
offer 24.90 Crowns ($3.80) per share for the rest
of the group, 42% above Friday's closing price.
Scandza, which invests in and develops Nordic
food groups, already holds 50.5% of the shares in
Synnove Finden.
Shares in dairy group Synnove Finden were up
40.6% at 24.60 Crowns, giving it a value of about
534 million Crowns.
Integrated solar company Renewable Energy
Tuesday said it has raised 4.52 billion Norwegian
Kroner ($697 million) before transaction costs in
a significantly oversubscribed share issue aimed
at bolstering its financial flexibility.
The company offered 170.45 million new shares
at NOK26.50 for which it received subscriptions
for around 269 million shares, making it
oversubscribed by almost 60%.
REC has been hit in recent months by weak
demand for solar products, which has reduced
prices for solar modules, in turn affecting supply
and demand balances and prices further up its
value chain. It has already reduced production and
made short-term layoffs in its wafer and solar
units, but has said it remains upbeat about the
longer-term prospects in the poly-voltaic
industry.
REC said the share capital will be registered
on around July 23 and new shares will be delivered
to subscribers on or about July 24.
After the rights issue, the company's share
capital will total 664.77 million shares.
DnB NOR Markets acted as global coordinator
and joint bookrunner, and ABN Amro, BNP Paribas
and Nordea Markets were joint lead managers and
joint bookrunners.
Norwegian video-conferencing equipment maker
Tandberg said on Thursday it has received no offer
from a potential buyer of the company.
"As far as I know there is no offer," said
Geir Olsen, an official from the company's
investor relations department, when asked about a
potential offer for the company.
The Financial Times reported on Thursday that
US private equity investor Silver Lake was
preparing an offer for the company at 135 Crowns
per share. Tandberg's shares were up 6.31% at 118
Crowns.
DENMARK
The OMX Copenhagen 20 closed Friday out at
292.92, up 0.65%.
Denmark's third-biggest bank by market
capitalisation, Jyske Bank, reported improved
second-quarter earnings, helped by one-off cost
items, and raised its guidance for full-year 2009
core earnings.
Jyske Bank shares leapt more than 7% to a
five-week high of 158 Crowns before cooling off
somewhat to 155 Crowns, still up 5.1% by 0825 GMT.
The stock rose against the trend of a falling DJ
Stoxx European bank sector index .
Second-quarter profit before tax and a
contribution to a state contingency fund that
rescues failed banks rose to 546 million Danish
Crowns ($103.3 million) from 27 million in the
first quarter, Jyske Bank said in a surprise early
release.
First-half core earnings before loan
impairment charges and provisions for guarantees
rose to 1.45 billion Crowns from 1.24 billion in
the first six months of 2008.
The bank had earlier been scheduled to report
on Aug. 25.
The bank's contribution to the Danish Private
Contingency Association in the second quarter rose
to 201 million Crowns from 94 million in the first
quarter, it said.
Denmark's Vestas declined to comment on
Thursday on analysts' speculation that it may buy
Indian rival Suzlon's majority stake in UK-based
gearbox maker Hansen Transmissions if the stake is
put up for sale.
Analysts said that if Suzlon Energy chose to
sell its 61% stake in Hansen Transmissions, wind
turbine maker Vestas will be a likely
buyer.
After receiving gross proceeds of 5.98
billion Danish Crowns ($1.13 billion) from a May 4
capital increase, Vestas could very well be
interested in Hansen Transmissions.
FINLAND
The OMX Helsinki ended the week at 5,435.72,
down 0.06% and one of only a few losers in Europe
on the day.
Rautaruukki Oyj, Finland's biggest producer
of carbon steel, slumped 6.5% to 13.37 Euros after
reporting a second consecutive quarterly loss on
weakened construction demand.
Nokia tumbled after it slashed expectations
for sales and profit margins for the next year.
Shares in the world's largest mobile phone handset
maker dropped 1.2% to €9.36on Friday, taking their
fall over two days to 15.7%.
Thursday, a report by Statistics Finland said
the wages and salaries in the whole of the economy
fell 0.1% year-on-year in the March to May period,
in contrast to a growth of 8.4% last year.
During the period, wages and salaries dropped
the most by 8.1% in the manufacturing sector,
followed by a 4.7% fall in the financial
intermediation sector. At the same time, the
fastest growth of 10.3% was in the health and
social work.
In May, the wages and salaries for the whole
economy dropped 1.3% compared to the previous
year.
Stora Enso Will Record a Write-Down of At
Maximum USD575 (Eur 418) Million Related to Its
19.9% NewPage Shareholding and Vendor Note as a
Non-Recurring Item in Its Second Quarter 2009
Results.
The vendor note formed part of the
transaction consideration when Stora Enso
finalised the divestment of its North American
paper operations to NewPage on 21 December 2007.
Following the contribution and cancellation of a
portion of the vendor note, the percentage of
NewPage shares owned by Stora Enso will remain
19.9%.
Stora Enso's second quarter results will be
announced on 23 July 2009.
SPAIN
In Madrid we saw the IBEX close Friday at
10,041.90, up 0.44%.
Spain has moved a step further toward passing
a long-awaited reform to its regional financing
model which the government hopes will seal
alliances for what could be a make-or-break 2010
budget proposal.
The bill received the green light by the
multi-regional Financial Policy Committee late on
Wednesday and will be passed to parliament after
the summer for final approval.
The reform replaces a model introduced seven
years ago and provides Spain's 17 regions with an
extra 11 billion Euros ($15.45 billion) over the
next four years, divided up depending on
population changes, geographic spread and age.
The agreement is an important advance for the
ruling Socialist party which has become
increasingly politically marginalised over the
last year amid the worst economic slump in 50
years, soaring unemployment and an ailing
industrial base.
Without a working majority in parliament,
analysts said the conservative opposition would be
able to summon enough votes to block the 2010
budget proposal which could force an early
national election.
Spain's ballooning public deficit, which is
expected to top 10% this year, will be unaffected,
the Economy Minister Elena Salgado said, as the
public shortfalling will be offset by regional
surpluses.
Spain's economy is likely to have shrunk
'substantially' less in the second quarter than in
the first, though growth will remain negative to
the end of the year, the economy secretary was
quoted on Monday as saying.
'We don't have a precise estimate, but we
believe that the fall (in gross domestic product)
will be substantially less than in the first
quarter,' Jose Manuel Campa said in an interview
with the financial daily Cinco Dias.
'Until the end of the year we will continue
to have negative growth rates, but increasingly
smaller ones.'
Spain's economy shrank 1.9% in the first
quarter from a quarter earlier, its sharpest
contraction in half a century.
Savings bank foundation FUNCAS (how can you
take them seriously with a name like that?) said
on Monday the worst may be over.
PORTUGAL
In Lisbon, the PSI General Index finished the
week at 2,481.42, up 0.17% Friday.
Portuguese gross domestic product will
contract by 3.5% this year and then shrink a
further 0.6% in 2010, the Bank of Portugal
forecast on Wednesday in its summer economic
bulletin.
The bank left unchnaged its previous forecast
for this year's contraction made in April, when it
provided no 2010 projection.
It also said it expected the main consumer
price index to fall 0.5% this year and then rise
1.3% in 2010.
Portugal entered recession in the last
quarter of 2008, posting zero growth for the whole
of last year.
The world financial system displays clear
signs of "regularisation of marketing functioning"
but it is impossible to forecast when these
improvements will be fully felt by national
economies, says Portuguese Finance Minster
Fernando Teixeira dos Santos.
The Finance Minister told the Lusa News
Agency this week in Madrid there are signs the
international economic downturn is bottoming out
"but nobody can guess what will happen in the
future."
Portugal's finance minister, who also serves
as economy minister, was in Madrid for a
conference on the banking sector's role in
resuscitating economies in the Ibero-America bloc,
a meeting gathering top officials from Spain,
Portugal and various Latin American states.
Portugal's Caixa Economica Montepio Geral has
set guidance on a 1 billion Euros ($1.4 billion)
three-year covered bond at mid-swaps plus around
110 basis points, IFR reported on Friday.
ITALY
Italy's benchmark FTSE MIB Index was little
changed, adding 11.51, or less than 0.1%, to
19,244.46 as of 1:01 p.m. in Milan. The gauge has
gained 5.3% this week.
Aedes, a real estate and fund-management
company, climbed 2 cents, or 3.5%, to 60 cents.
The company said in a statement Thursday that a
"guarantee consortium" is ready to ensure the full
subscription of its capital increase.
Banca Italease surged 21% to 2.66 Euros after
advancing 49% Thursday. Banco Popolare SC (BP IM)
will raise at least 1 billion Euros ($1.4 billion)
for Italease by selling shares and will
restructure the bank after a buyout failed to
reach its target.
Banco Popolare shares fell for a second day,
losing 8.5 cents, or 1.7%, to 5.08 Euros.
Separately, UniCredit Markets & Investment
Banking noted in that "at the moment the Italian
banks with the highest exposure" to Risanamento
SpA (RN IM) "should be Intesa Sanpaolo SpA (ISP
IM), and Banco Popolare through Banca Italease." A
Milan court asked the real-estate developer to
appear on July 29 to respond to a prosecutor's
declaration that the company has failed.
Intesa shares fell 4.75 cents, or 2%, to 2.34
Euros. "Although most exposures are collateralized
with commercial real estate assets and some banks
are likely to have already posted some provisions
in previous quarters, additional provisions will
need to be posted by all lenders should the judge
rule for a bankruptcy of the business," Credit
Suisse Group AG analyst Andrea Vercellone said in
a note to clients.
Banca Monte dei Paschi di Siena, Italy's
third-biggest bank, rose 1.7 cents, or 1.5%, to
1.19 Euros, taking this week's increase to 11%.
Fox-Pitt Kelton Cochran Caronia Waller lifted its
recommendation to "outperform" from "in-line,"
saying that the stock's relative underperformance
year to date is "unjustified."
Gruppo Editoriale L'Espresso, the Italian
publisher controlled by financier Carlo De
Benedetti, gained for a third day, adding 3.3
cents, or 3.1%, to 1.11 Euros. Exane BNP Paribas
upgraded the stock to "outperform" from "neutral,"
saying that" L'Espresso is taking advantage of the
steepest advertising slump ever to significantly
reduce its cost structure."
K.R. Energy fell for a third day, losing 0.48
cents, or 2.5%, to 18.85 cents. Chief Executive
Officer Riccardo Ciardullo resigned, the Italian
renewable energy company said Thursday in a
statement.
Maire Tecnimont rose 17.5 cents, or 7%, to
2.65 Euros, the highest since September. The
Italian energy- services company had its price
estimate increased to 3 Euros from 2.2 Euros at
UniCredit Markets & Investment Banking, which
reiterated a "buy" rating. The brokerage cited
"greater confidence in the delivery of medium/long
term results" and "the company's improved
competitive positioning."
Equita Sim increased its price projection by
50% to 2.9 Euros.
Prysmian gained 24 cents, or 2.1%, to 11.43
Euros, the highest in about nine months. Basic
resources stocks were the best performers among
the 19 industry groups in Europe's Dow Jones Stoxx
600 Index Friday.
GREECE
The Athex Composite closed out the week at
2,230.44, gains of 0.77% on the day.
Greece's central bank expects the country's
economy to shrink by up to 1% this year, compared
to a previous zero growth forecast after weaker
than expected tourism data, Bank of Greece
officials said on Monday.
This adds to evidence that the Greek economy
is heading towards its first recession since 1993
this summer, as the world economic crisis weighs
on tourism, construction, shipping and private
consumption, the country's biggest growth drivers.
'We expect the contraction to be between 0
and 1%,' a Bank of Greece official who declined to
be named told Reuters.
Deteriorating economic data forced the Greek
government last month to cut its optimistic 1.1%
growth forecast to zero.
But analysts and international organisations
expect the economic slump to be even deeper. The
IMF said in May it expects the economy to contract
by up to 2%. The European Commission forecast a
0.9% drop.
Athens hotel owners said on Monday their
revenues were down 20% from last year between
January and May. About 19,000 jobs in tourism were
lost after a 9.6-percent drop in visitor numbers,
industry association SETE said last week.
Tied down by budget deficits and a booming
debt, Greece's government cannot afford a stimulus
package for the economy. It has announced a string
of new taxes and other measures to increase state
revenuews.
The government, which has a one-seat majority
in parliament and may have to call early elections
by March, said last month it would raise 1.9
billion Euros ($2.64 billion) from higher taxes on
lottery winnings, mobile phones, cars and
property.
The budget is also strained by high interest
payments to service the country's debt, the
European Union's second-highest in terms of GDP
after Italy, at 97.6% last year.
Greece borrowed about 50 billion Euros from
international markets in the first six months of
the year, equivalent to about a fifth of the
country's GDP.
Construction and private consumption are also
stalling after years of robust growth. According
to April figures released last week, building
activity plummeted by 39% year-on-year in terms of
volume and retail sales fell 15%.
|
| The UK
Market
Did it
follow the Global trend
..... |
![UK Markets]() Turnround hopes buoyed BT Group
on Friday as the FTSE 100 completed its steepest
weekly rally of the year.
BT gained 3.2% to 109p on the back of a
Bernstein Research upgrade to
"outperform".
An improved performance at BT's Global
Services division should help rebuild investor
confidence over the next few quarters. This will,
in turn, lend credence to hopes that BT can
rebuild its monopoly via the UK government's
Digital Britain project.
In the meantime, improved cashflow could
allow BT to raise its dividend once pension
negotiations conclude later this year.
The Footsie closed higher for a fifth
straight day, rising 0.6% or 26.91 points to
4,388.75. The index was up 6.3% for the week, its
best performance since the turn of the
year.
HSBC underpinned the rise, up 1.6% to
545p.
Friends Provident shares fell 0.7% to 71=p,
after the insurer retaliated against an approach
by Resolution with a proposal that it becomes the
acquirer. Resolution closed 4.2% up at 92
Panmure Gordon said it expected a stand-off
to develop between the pair, during which Friends
was likely to drift back to pre-bid levels of
about 60p.
BG Group paced the oil stocks, up 1.7% to
#10.49< after being added to Goldman Sachs'
"buy" list. The broker cited BG's "outstanding
pipeline of new projects".
"The industry will struggle in the coming
years not just to grow production, but even to
stand still," said Goldman. "In such an
environment characterised by disappointing
production numbers and rising oil price, we
believe that BG is ideally positioned."
Oil services group Petrofac hit a record
high, gaining 2.7% to 750=p following its $1bn
deal this week with Abu Dhabi.
Among the fallers, Rolls-Royce eased 2% to
372
Catering supplies group Bunzl was 2.5% weaker
at 425>p after Merrill Lynch said growth was
stalling.
Competition is undermining pricing and market
share is difficult to win, while further growth
from acquisitions is unlikely given Bunzl's
stretched balance sheet, Merrill said. The broker
downgraded from "buy" to "neutral".
IT services groups were strong among the
mid-caps in reaction to IBM's better-than-expected
earnings. Dimension Data climbed 3.9% to 59=p and
Logica was up 2.5% to 81>p.
Insulation supplier SIG was up 4.2% 106p in
the wake of stakebuilding by IKO, a Canadian
construction company.
Aegis lost 3.1% to 84>p after BNP Paribas
advised taking profits into its 14% year-to-date
rally. Second-quarter growth was likely to be no
better than the first, which saw Aegis lag behind
peers for the first time in a decade, BNP said.
European budgets are under pressure and
corporate activity is at a standstill, while the
potential sale of Microsoft's Razorfish agency to
Publicis would take out a credible acquirer of
Aegis's assets.
Further stake building by Bill Gates failed
to support JJB Sports with the retailer fading
2.7% to 27
JJB said the Bill & Melinda Gates
Foundation Trust had taken its investment to 4.8%,
up from the 3.1% it disclosed on Wednesday.
Meanwhile, activist investor Harris Associates,
which is closely associated with Mr Gates's fund,
lifted its stake to 14.1%.
Altium Securities doubted that JJB would
benefit from having the Microsoft founder's name
on its investor list.
"His undoubted success heading a dominant
force in the software industry does not
necessarily make him an expert on flogging England
replica kits from a weak base," said the broker,
which downgraded JJB to "sell".
Separately, JJB was rumoured to be close to
launching a share placing and open offer,
potentially priced at about 12p apiece.
Dyson Group lost 15% to 17p. Annual
revaluations of the materials specialist's
properties and pension deficit knocked #11.9m off
the former as the latter grew by #10.9m.
A better-than-expected trading statement
lifted nightclub owner Luminar by 10% to 121
Climate Exchange, the carbon futures trader,
fell 0.6% to 939p on "sell" advice from KBC Peel
Hunt.
Max Property rose 2.4% to 120p after
confirming it was in advanced talks to buy assets
from the receivers of
Industrious. |
| Asia Pacific
Regional Markets
Did they set
the tone or follow the lead
..... |
![Asiapac Indices]() JAPAN
Tokyo stocks rose Friday as financials gained
on Wall Street's rally, but trading was thin and
lacked momentum as investors refrained from any
heavy buying before the upcoming three-day
weekend.
NEC's 8.9% fall helped restrain any market
upside on dilution concerns over a possible
capital boost plan. A person familiar with the
matter told Dow Jones Newswires that the firm is
considering raising funds to strengthen its
capital base. Shares closed at Y288 on very heavy
volume.
The Nikkei 225 Stock Average still managed to
rise 51.16 points, or 0.5%, to 9395.32 for its
fourth straight positive finish.
Investors are waiting to see how US stocks
will move on earnings from Citigroup and Bank of
America as well as on June housing starts data,
all due later in the global day. A possible
bankruptcy filing by US lender CIT Group also
looms, analysts said.
The Japanese market is off Monday for a
national holiday.
The Topix index of all the Tokyo Stock
Exchange First Section issues rose 6.04 points, or
0.7%, to 878.29. Trade volume was among the lowest
of the year, at about 1.6 billion shares.
For this week, the Nikkei added 1.2%, but is
still down 5.7% for the month. The index remains
up 6.0% for 2009.
Real estate firms, brokerages and insurers
were solid on short-covering triggered by Wall
Street's rally. Mitsui Fudosan rose 3.9% to
Y1,581, while Nomura Holdings added 2.8% to Y734
and Tokio Marine Holdings gained 2.8% to Y2,600.
Sony fell 0.9% to Y2,265 after its mobile
handset joint venture Sony Ericsson posted its
fourth straight quarterly loss for the second
quarter. Although the net loss was in line with
expectations, the on-quarter drop in handset sales
volume is negative.
Nissan Motor rose 2.5% to Y569 on news that
it is considering expanding its limited offerings
of hybrid vehicles by installing its own
gasoline-electric system technology in more models
to catch up with rivals.
September Nikkei 225 futures ended up 50
points, or 0.6%, at 9380 on the Osaka Securities
Exchange.
SOUTH KOREA
South Korean shares closed at the highest
level in more than nine months Friday with gains
in brokerage and some technology stocks, but the
overall market was quiet before the weekend and
the release of US commercial banks' earnings.
The Korea Composite Stock Price Index, or
Kospi, added 7.88 points, or 0.6% to end at
1440.10, the highest closing since Sept. 30 when
the index ended at 1448.06.
Caution about a correction set in after the
recent runs and before the weekend and the release
of earnings from Bank of America and Citigroup,
added Lee.
Domestic institutions and foreigners bought a
net KRW126.1 billion and KRW154.8 billion worth of
stocks, respectively, while local retail investors
offloaded a net KRW309.5 billion.
Samsung Securities rose 4% to KRW72,200, and
Mirae Asset Securities advanced 3% to KRW71,400.
Among technology stocks, LG Electronics rose
3.7% to KRW127,500 on earnings optimism, while LG
Display gained 2.3% to KRW35,600 after reporting
Thursday better-than-expected second-quarter
earnings and an upbeat outlook for third quarter.
But Samsung Electronics lost 0.6% at
KRW670,000, and Hynix Semiconductor dropped 0.3%
at KRW15,600 on profit-taking.
LG Chem, the country's biggest chemical firm
by sales, ended up 0.4% at KRW139,000 due to its
decision to invest KRW1.2 trillion by 2012 to
build three production lines to manufacture glass
used in liquid crystal display panels.
It also said Thursday its second-quarter net
profit rose 31% on year to a quarterly record high
of KRW467.1 billion.
Posco, the world's fourth-largest steelmaker
by output, said Friday that its board approved the
acquisition of a 90% stake in Vietnam's Asia
Stainless Corp. and the construction of a 450,000
ton-a-year plant to produce galvanized steel
sheets used in manufacturing automobiles in India
by May 2012.
Although such investment is seen as positive
to the company's long-term growth, its shares
didn't react much to the news by ending nearly
flat at KRW450,000 after the recent gains on hopes
for earnings improvement in the second half of
this year, said analysts.
HONG KONG
Gains in property companies, on the prospect
of a warm reception to a developer's new project,
and China-focused firms, after robust mainland
economic data, led Hong Kong shares higher for the
fourth consecutive session Friday.
The blue-chip Hang Seng Index rose 443.79
points, or 2.4%, to 18,805.66, after trading
between 18,457.42 and 18,855.86. The index rose
6.2% on the week.
Turnover totaled HK$66.19 billion, down from
HK$70.85 billion Thursday.
Traders said they expect the Hang Seng to
test 19,000 in the near term, but consolidation
pressure would likely then kick in.
Hong Kong's property sub-index rose 3.6%,
outperforming the broader market. Cheung Kong rose
4.5% to HK$92.40, while Sun Hung Kai gained 4.7%
to HK$102.4.
China-focused blue chips extended gains on
confidence about the mainland's economic recovery
after the economy grew 7.9% in the second quarter,
accelerating from the first quarter's 6.1% gain.
The H-share index rose 2.2% Friday, after
rising 6.1% in the previous three sessions.
Internet company Tencent surged 7.1% to
HK$98.50, while China Unicom jumped 6.8% to
HK$11.26. Aluminum producer Chalco gained 4.5% to
HK$7.67.
Auto companies also rose with the broader
market. Morgan Stanley said China's auto sales
growth of 19.5% in the first half was a positive
surprise, beating its forecast of 6.5%.
Beijing's policy push and growing
affordability in inland China will continue to
support the sector, it said.
Dongfeng Motor rose 5.3% to HK48.12 and Great
Wall Auto rose 5% to HK$7.36.
CHINA
Demand for coal and nonferrous metal
producers outweighed concerns about a potential
oversupply of shares due to an imminent massive
initial public offering, pushing China's shares
moderately higher Friday.
The benchmark Shanghai Composite Index, which
tracks both A and B shares, ended up 0.2% at
3189.74. The index gained 2.4% for the week.
The Shenzhen Composite Index rose 0.7% to
1084.39.
Turnover for the Shanghai Composite Index
fell to CNY188.69 billion from CNY221.22 billion
Thursday.
Analysts said the market will likely continue
to consolidate next week, as investors mull on
improving corporate profitability, the health of
the country's economy, and the effect of new
shares brought by IPOs.
Subscription for China State Construction
Engineering's planned CNY40.68 billion-CNY51
billion IPO, which could be the world's biggest
IPO this year, is scheduled to take place Tuesday
and Wednesday.
Coal and nonferrous companies rose on
rotational buying, as investors moved funds to the
two sectors that have had relatively small gains
since early June, Li said.
Henan Shenhuo Coal Industry & Electricity
Power ended up 10% at CNY32.20, and China Coal
Energy rose 7.4% to CNY14.53. Aluminum Corp. of
China surged by the maximum 10% daily trading
limit to CNY15.05, and Western Mining jumped 8.0%
to CNY17.24.
Small caps were broadly higher, boosted
partly by strong demand for retailer Your-Mart on
its debut on the Shenzhen Stock Exchange. The
company's share price nearly doubled to CNY37.90
from the IPO price of CNY 19.58.
Electronics makers surged on hopes that an
improving economy would strengthen demand and
increase profit margins, said Chen Huiqin, an
analyst at Huatai Securities.
Anhui USTC iFlyteck jumped 10% to CNY35.59,
and Hunan Corun New Energy also rose by 10% to
CNY19.68.
Blue chips such as financial companies and
oil refiners were broadly lower on profit-taking.
Industrial & Commercial Bank of China
ended down 1.3% at CNY5.24, after rising 2.9% in
the previous three sessions. PetroChina fell 1.0%
to CNY14.59, extending Thursday's 0.7% fall after
rising 2.9% Tuesday and Wednesday.
TAIWAN
Taiwan stocks rose 1.04% on Friday to a fresh
one-month closing high following strong US
corporate earnings, while LCD shares such as AU
Optronics led gains on improving demand for flat
panels.
The main TAIEX share index closed 70.69
points higher at 6,850.99, its highest since June
6.
The index had gained more than 1.2% in the
past week, posting a weekly gain for a fourth
straight week, and maintaining its position as one
of the best performering stock markets among 30
tracked by Reuters.
Turnover was thin at T$133 billion ($4.03
billion) compared with Thursday's T$150 billion,
as some investors stayed sidelined ahead of more
corporate earnings in the upcoming week.
Taiwan's largest LCD flat-panel maker AU
climbed 1.6%, while smaller crosstown rival Chi
Mei Optoelectronics rose 1.06%, in line with the
broader optoelectronics sub-index's 1.45%
gain.
Their advance came after South Korea's LG
Display reported market-beating profits on
Thursday, and forecast robust demand for
flat-screen TVs and other tech gadgets.
PC makers continued their trek upward, with
the world's No. 3 PC brand Acer closing 3.62%
higher as investors bet that the company could
harness its leadership position in the market to
make further inroads.
The broader computer and peripheral sub-index
gained 0.84%.
Bucking the broader market trend was contract
laptop PC maker Compal, which dropped 3.08% after
the company said it would subscribe for up to 70%
of LCD maker CPT's private share
placement.
Analysts warned that Taiwan stocks could
remain rangebound for most of next week, trading
between 6,700 and 7,100, as most investors had
already priced in possible gains as a result of
closer ties with the island's giant neighbour
China.
The main stock index is also hovering around
its 2009 high, and could face some resistance in
the near future on profit-taking and fears of a
possible bubble building up, analysts said.
THE
PHILIPPINES
The markets in Manila were closed Friday due
to severe weather problems.
SINGAPORE
Singapore shares closed up 1.25% on Friday,
shrugging off intraday losses in reaction to the
deadly hotel bombings in Jakarta, dealers
said.
The blue chip Straits Times Index closed
29.94 points higher at 2,430.96 on volume of 1.63
billion shares worth $1.42 billion (US$979
million).
Gainers led losers 338 to 138, with 778
issues unchanged.
The market bounced back after being spooked
by the twin hotel bombings in Indonesia earlier on
Friday, with DBS Vickers Securities saying that
the STI remained on an uptrend.
However, it warned that low volumes traded
over the last few sessions suggested
'participation is weaker and gains may not be
broad based, even as STI heads toward 2,560
(points)'.
Banking shares closed up, with DBS rising 18
cents to $12.40, Oversea-Chinese Banking Corp
edging up four cents to $7.03 and United Overseas
Bank gaining 26 cents to $15.38.
Among property shares, Capitaland was up 11
cents to $3.73, City Developments climbed 40 cents
to $9.38 and Keppel Land closed eight cents higher
at $2.31.
Singapore Airlines advanced six cents to
$13.50 and Singapore Telecommunications inched up
three cents to $3.32.
Shipping firm Neptune Orient Lines gained 10
cents to $1.68 and semiconductor foundry Chartered
Semiconductor Manufacturing rose five cents to
$2.09.
MALAYSIA
The FTSE Bursa Malaysia Kuala Lumpur
Composite Index, which opened higher Friday
slipped into the red briefly around 10.30 am and
fell as much as 5.03 points before
recovering.
At 5pm, the benchmark index closed 12.02
points higher at 1,120.90. About 939.3 million
shares changed hands, valued at some RM1.45bil.
Gainers outpaced losers by 295 to 277 while 277
counters were unchanged.
Far East Holdings Bhd was the top gainer,
rising 50 sen to RM6.20, while Bumiputra-Commerce
Holdings Bhd and BAT added 25 sen each to RM9.95
and RM45 respectively. Genting rose 15 sen to
RM5.75 and EON Capital Bhd added 16 sen to
RM4.80.
Boustead Heavy Industries Corp Bhd rose 16
sen to RM4.58 while Malayan Banking Bhd advanced
15 sen to RM6.10.
The top loser for the day was Amtel Holdings
Bhd. The counter lost 27.5 sen to 50.5 sen.
Concrete Engineering Products Bhd lost 22 sen to
RM2.88 while PPB Group down 20 sen to RM12.30. KNM
Group was the most actively traded stock with 1.23
million shares done. The counter lost 2.5 sen to
82.5 sen.
THAILAND
Thai shares rose 2.29% Friday on a return of
investor confidence in the country's political and
economic future.
The Stock Exchange of Thailand index ended at
596.11, up 13.37 points.
The Election Commission ruled Thursday that
13 elected parliamentarians from the leading
Democrat Party had violated constitutional
prohibitions against holding stocks in media
companies or firms with government contracts.
Prime Minister Abhisit Vejjajiva said Friday
that the ruling, which must be approved by the
Constitution Court before going into effect, would
not affect the government's stability.
INDONESIA
Indonesia's shares initially tumbled more
than 2% after a pair of powerful explosions killed
nine and wounded at least 50 people at the upscale
Ritz-Carlton and Marriott hotels in Jakarta. The
country's currency, the Rupiah, dropped almost 1%
against the Dollar.
However, at the close, the Jakarta Composite
Index came back to finish at 2,106.35, just 0.55%
down on the day.
PT Destinasi Tirta Nusantara, which provides
travel services, plunged 14% to 210 Rupiah. Rival
PT Panorama Sentrawisata declined 6.2% to 183
Rupiah.
INDIA
Indian stocks rose, completing the benchmark
index's best week since May, as the government
said it will sponsor new laws to overhaul the
banking and pension fund industries and allow
greater foreign investment in insurance.
ICICI Bank Ltd., the second-biggest lender
and owner of the No. 1 private insurer ICICI
Prudential Life Insurance Co., jumped 7.1% after
Finance Secretary Ashok Chawla said the ministry
will introduce bills in parliament to reform the
financial industry.
The Bombay Stock Exchange's Sensitive Index,
or Sensex, rose 494.67, or 3.5%, to 14,744.92. It
was the world's best-performing index among 88
major markets. The gauge has gained 9.2% this
week, recovering most of the 9.5% lost last week
after Finance Minister Pranab Mukherjee on July 6
unveiled the widest budget deficit in 16 years and
failed to lay out firm plans to sell state assets.
The S&P CNX Nifty Index on the National
Stock Exchange added 3.4% to 4,374.95. The BSE 200
Index increased 3.1% to 1,799.38.
State-run NMDC Ltd., India's largest iron-ore
producer, surged 8.8% after Chawla said the
government will sell stakes in listed companies.
ICICI Bank rose 7.1% to 742.85 Rupees. State
Bank of India Ltd., India's biggest lender,
advanced 4.4% to 1,673.95 Rupees.
The bills the government plans to introduce
in parliament are aimed at increasing foreign
investment in the country and accelerating
economic growth. The banking bill seeks to remove
a 10% cap on the voting rights of foreign
investors in non- state banks, while the insurance
bill aims to lift the foreign direct investment
ceiling to 49% from 26%.
Reliance Infrastructure Ltd., the
second-biggest utility, advanced 8.7% to 1,152.6
Rupees. Jaiprakash Associates Ltd., the largest
maker of dams, gained 7.2% to 212.85 Rupees.
Bharti Airtel Ltd., India's No. 1 mobile phone
service provider, rose 5.3% to 826.25 Rupees.
NMDC jumped 8.8% to 389.85 Rupees after
Chawla said the government will offload stakes in
listed companies first to raise funds and identify
state-owned companies for sale in three to four
weeks.
Stepped-up asset sales will increase
government revenue to invest in roads, ports and
other infrastructure, besides helping reduce a
budget deficit that threatens to push up interest
rates and hurt economic growth.
Chawla Friday said India's record borrowing
in the financial year ending March 31 will only
have a "marginal impact" on bond yields and won't
drive interest rates too high. Yields on the 6.9%
2019 bond have risen 24 basis points to 6.81% from
before the budget announcement on July 6,
underscoring concern increased borrowing will
drive up rates and costs for borrowers.
The Sensex surged a record 17% after Prime
Minister Manmohan Singh's Congress party won its
biggest election victory in two decades in
mid-May. The rally underscored high expectations
among investors as Singh reduced his dependence on
allies such as the communist parties that opposed
asset sales and looser foreign investment policies
during his first term.
The Sensex has risen 53% this year, partly
aided by speculation that government stimulus
spending worldwide will help to end the first
global recession since World War II. The measure's
equities are valued at 16.9 times reported
earnings, almost double the 8.8 times they fetched
in March.
Tata Motors Ltd., India's biggest truckmaker
and owner of Jaguar Land Rover Ltd., added 6.4% to
315.8 Rupees, leading gains among automakers after
it said it handed over the first Nano, the world's
cheapest car, Friday. Mahindra & Mahindra
Ltd., India's largest maker of sport-utility
vehicles and tractors, gained 8% to 778.05 Rupees.
Hero Honda Motors Ltd., India's biggest motorcycle
maker, advanced 6.7% to 1,640.3 Rupees.
Tata Consultancy Services Ltd., the No. 1
software services provider, rose 3.4% to 434.1
Rupees before its June quarter results late
Friday. Infosys Technologies Ltd., the
second-largest software services provider, gained
4% to 1,866.3 Rupees.
Exide Industries was the best performer on
India's broader BSE200 index Friday, it surged
after fourth- quarter profit climbed 49%. Exide,
India's biggest maker of automotive batteries,
jumped 12% to 78.45 Rupees. Exide said net income
rose to 1.22 billion Rupees ($25 million) in the
three months to June 30.
HCL Technologies, the Indian software-
services company controlled by billionaire Shiv
Nadar gained 11% to 215.45 Rupees after it was
raised to "overweight" from "neutral" by JPMorgan
Chase & Co. The brokerage also raised its
target price to 250 Rupees from 130 Rupees.
AUSTRALIA
Gains on Wall Street helped the Australian
share market hit a fresh four-week high Friday
before it succumbed to profit-taking after a
stellar run this week.
The benchmark S&P/ASX 200 index closed up
5.2 points or 0.1% at 4000.8 after hitting 4026.7
in early trading. At its high, the index was up
7.8% since Monday.
Volume was light after above-average turnover
Thursday.
Overnight, Wall Street rose for a fourth
consecutive session, after noted US economist,
Nouriel Roubini, said the US economy was no longer
in "free fall." But after the US close, Roubini
said he hadn't changed his view that growth was
unlikely before 2010.
Traders said there was profit taking after
recent gains.
In resources, BHP Billiton rose 0.8% to
A$35.20, while Rio Tinto rose 0.2% to A$52.48 and
Fortescue Metals fell 2.0% to A$3.92 after recent
strong gains.
Bluescope Steel hit a five week high of
A$2.91 after RBS upgraded it to Buy and four other
brokers upgraded their price targets following
Bluescope's decision to restart its Number 5 Blast
Furnace in response to improved market conditions.
But Bluescope closed just 1.1% higher at A$2.80.
It was a similar story on Incitec Pivot,
which hit a three-week high of A$2.46 before
closing up 2.6% at A$2.39. US-listed peer, Mosaic
rose 12% to US$5.43 after a Brazilian newspaper
tipped a takeover by Vale. Mosaic and Vale
declined to comment.
In the energy sector, Woodside rose 2.9% to
A$42.60. It hit a two-week high of A$42.89 after
Dow Jones Newswires cited analysts saying now
could be right time for BHP Billiton to bid for
Woodside.
Traders and fund managers were surprised by
the uptick in Woodside shares, pointing out that
such speculation has been around for a long time
and that there are major obstacles, such as
Shell's stake in Woodside.
Financials were mixed, with ANZ rising 0.7%
to A$16.76 and National Australia Bank down 0.7%
to A$23.79. Suncorp fell 1.1% to A$6.93 after
Goldman Sachs JBWere traders labeled Suncorp their
"number one sell."
In the property sector, Macquarie Countrywide
Trust surged 10% or 19% to A$0.615 after selling
its US portfolio for US$1.2 billion.
Leighton Holdings rose 4.9% to A$25.17 after
Macquarie Equities upgraded it to a neutral
rating.
Telstra fell 1.5% to A$3.35 after finding
technical resistance near A$3.40.
UBS strategists (what do they know ....?)
said the S&P/ASX 200 remained on track to hit
4400 by year end, adding that tactical downside
risks to the market appeared to be dissipating.
"The balance of evidence increasingly points
to a global recovery (albeit moderate) in our
view, which should be supportive for stocks," says
UBS. The broker recommends investors remain
underweight resources and real estate investment
trusts and overweight banks and industrials.
NEW ZEALAND
New Zealand shares rose for a fourth day amid
speculation weaker second-quarter earnings are
already reflected in prices and there are more
signs of life returning to the global economy.
Fisher & Paykel Appliances and Cavalier Corp.
led the advance.
The NZX 50 Index rose 6.7, or 0.2%, to
2808.22, the highest since June 16.
Within the index, 19 stocks rose, 19 fell and
13 were unchanged. Turnover was NZ$85
million.
F&P Appliances rose about 6% to 71 cents,
the highest in a month. The shares of the
appliance manufacturer have an average rating of
'outperform,' based on recommendations of six
analysts compiled by Reuters.
Cavalier, the carpet maker, rose 5.4% to
NZ$1.95. Shares rose on Wall Street after JPMorgan
Chase posted better than expected earnings and
Treasury Secretary Timothy Geithner said in an
interview that there are "durable" signs that
financial markets are on the mend.
Sky City Entertainment Group climbed 3.7% to
NZ$2.78. The hotel and casino operator is rated
`outperform,' based on the recommendation of nine
analysts compiled by Reuters. Four rate it a
'buy.'
Infratil Ltd., which is considering the sale
of its holding in Germany's Lubeck airport, gained
1.8% to NZ$1.74. Fisher & Paykel Healthcare,
which counts the US as one of its biggest markets,
advanced 1.7% to NZ$2.96.
Sealegs Corp., the manufacturer of amphibious
vehicles, gained 1.6% to 12 cents after
forecasting a drop in revenue this financial year
and said it is cutting operating costs to adjust
to tougher economic conditions. Last month, the
company was rated a "speculative buy" by McDouall
Stuart, with long-term growth prospects in the US
lifting revenue. The company was optimistic it can
ramp up activity when demand returns, and said it
the US Coast Guard had signed off on its
amphibious boat models.
Lion Nathan, Australia's second-largest
brewer, fell 1.5% to NZ$14.36. The company
Thursday said it will meet its profit target this
year of between A$305 million and A$315 million.
Major shareholder Kirin Holdings gained Overseas
Investment Office approval to mop up the 54% of
the company it doesn't already own.
Mainfreight Ltd., the trucking company, raise
0.5% to NZ$4.10. It was raised to 'neutral' from
'underperform' by Credit Suisse, according to the
NZ Herald. A decline in freight volumes is
levelling off, the report said. Analyst Kar Yue
Yeo forecasts a 51% drop in quarterly earnings to
$4.2 million. Analysts rate the stock
'outperform,' based on the average of analyst
recommendations compiled by Reuters.
Ryman Healthcare fell 2.6% to NZ$1.53, the
biggest decline on the NZX 50
Friday. |
| Global
Commodities
'Food
for thought' or 'a Grain of
truth' ..... |
![Commodities]() Commodity markets rallied this week as
risk appetite was bolstered by evidence of
strengthening activity in China,
better-than-expected US corporate earnings and
Dollar weakness.
In oil markets, Nymex August West Texas
Intermediate pushed above the $63-a-barrel mark
Thursday, rising $1.54 to $63.56 a barrel, up 6.1%
this week. ICE September Brent rose $1.63 to
$65.38 a barrel, a gain of 8% on the
week.
Chinese refineries produced record volumes in
June, up 7.8% year on year, while domestic crude
output continued to decline, increasing demand for
supplies from the international market.
Base metals have seen substantial upgrades in
price forecasts for 2009 and 2010, according to
the latest Reuters poll. This week sentiment was
boosted further by data that showed
stronger-than-expected growth in Chinese gross
domestic product in the second quarter.
Copper gained 9.4% at $5,315 a tonne over the
five sessions. Stephen Briggs at RBS said the
spotlight would turn to supply-side stresses. Mine
production growth was expected to average 4% per
annum for the next five years and the market was
likely to return to a deficit in 2011.
Aluminium prices hit a fresh 2009 peak on
Friday at $1,735 a tonne before easing back to
$1,705, up 8.5% on the week, even though
inventories have risen to more than 4.5m tonnes, a
record.
Cocoa prices rose after better-than-expected
demand data. North American grindings (wholesale
demand from chocolate makers and food companies)
were down 6.8% in the second quarter from the same
period last year, compared with a drop of 13% in
the first quarter. Production problems in west
Africa are expected to cause a supply deficit this
year. ICE September cocoa rose 4.2% to $2,755 a
tonne over the week.
Gold inched 0.2% higher to $938 a troy ounce
on Friday and rose 2.8% over the week.
|
| Global
Currencies
In for a
Penny, in for a Pound
..... |
![UK Markets]()
The Yen and the Dollar suffered
this week as better-than-expected US corporate
earnings and improving economic data boosted
investor confidence.
Improving sentiment hit the Yen hardest. Over
the week, it fell 1.7% to Y94.04 against the
Dollar, dropped 2.9% to Y132.76 against the Euro
and lost 2.7% to Y153.66 against the
Pound.
The Yen's losses were more acute against
commodity-linked currencies as raw material prices
rallied. Over the week, it fell 4.7% to Y75.43
against the Australian Dollar, lost 6.1% to Y84.31
against the Canadian Dollar and dropped 4.6% to
Y60.69 against the New Zealand Dollar.
Falling haven demand also hit the Dollar, but
the US currency faced additional pressure from
news that China's foreign exchange reserves, the
world's largest, had grown by a record $178.3bn to
$2,130bn in the second quarter.
Analysts said the largest increase in
reserves was in May, when the Dollar weakened
sharply as Treasury yields in the US rose. Fear of
a weaker Dollar contributed to inflows to China,
sparking offsetting intervention by the Chinese
authorities to stem strength in the renminbi.
Analysts said the pace of accumulation
suggested China was having difficulty in
diversifying its foreign exchange stockpiles in
the short term.
It is estimated that the Chinese authorities
hold 65-70% of their reserves in Dollars, with the
rest in other currencies including the Euro, Pound
and Yen. Rapid accumulation of Dollars as the
Chinese authorities seek to maintain the balance
in their reserves puts downward pressure on the US
currency.
Over the week, the Dollar dropped 1.2% to
$1.4109 against the Euro, fell 0.6% to SFr1.0779
against the Swiss Franc and dropped 0.9% to
$1.6337 against the Pound.
The South African Rand rose 1.3% to R8.0705
against the Dollar over the week, the Brazilian
Real climbed 3.4% to R$1.9273 and the South Korean
Won gained 2.4% to Won1,254.50.
The New Zealand Dollar lost ground on
Thursday after a rating agency raised fears over
the country's finances.
Fitch reiterated New Zealand's AA+ sovereign
credit rating, but downgraded its outlook from
stable to negative.
At first the news hit the New Zealand Dollar
hard. It had rallied strongly this week as rising
risk appetite boosted demand for the relatively
high-yielding currency and Alan Bollard, governor
of the Reserve Bank of New Zealand, said the
country was emerging from the global recession
more quickly than its peers.
Following the Budget, Moody's announced that
its outlook on New Zealand's Aaa sovereign credit
rating remained stable, and S&P upgraded its
outlook to stable from negative.
The Australian Dollar closed higher Friday,
consolidating near US80c after a week of strong
gains.
It closed at US79.98c, up from Thursday's
close of US79.67c. During the day, the unit moved
between US79.86c and US80.64c, the latter reached
at the start of the local session.
The Canadian Dollar is down against the US
unit as the greenback strengthens.
The Canadian Dollar though showed a
negligible reaction to news that Canada's
all-items consumer price index was down 0.3% from
a year ago in June, the first deflationary yearly
reading in almost 15 years.
The US Dollar is at C$1.1140.
And as always, bring currencies to a close
this week out here in China; the RMB closed at
CNY6.8317 to the US
Dollar. |
| China
Key news
eminating from China this week
..... |
![China Markets]() While the rest of
the world anxiously seeks the green shoots of
recovery, China's business landscape is already
looking thickly forested with the essentials of a
thriving industrial economy.
Domestic production and consumption of
diesel, steel, plastics, chemicals and white goods
had all returned to, if not surpassed, the peak
levels of the boom times of early 2008 by June
this year.
The property market was also showing signs of
recovery, with building starts, as measured by
floor space, rising 12% year on year in June, the
first increase in 12 months.
The economic rebound has been driven by a
simple but effective mechanism still controlled by
the ruling Communist party: a surge in lending by
state banks. Chinese banks, all but a handful of
which are owned by the government, lent Rmb7,370bn
($1,079bn, €765bn, #656bn) in the first half of
this year, nearly double the total loans extended
in the whole of 2008.
The fruits of the government's policy is
captured in the 7.9% growth in second-quarter
gross domestic product, compared with a 6.1% rise
in the previous quarter.
The economy is expected to grow even faster
in the final two quarters, allowing Beijing to
reach its target of 8% growth for 2009, a goal
that many economists dismissed as unreachable only
a few months ago.
Beijing's all-out commitment to its target is
already flowing through the global economy, in the
form of higher commodities prices and record iron
ore imports.
In spite of the data showing the industrial
economy operating at record levels, the
government, wary about taking its foot off the
accelerator, has brushed aside calls to rein in
its stimulus programme. Wen Jiabao, the premier,
has repeatedly confirmed Beijing's commitment to a
"proactive fiscal policy", code for exceptionally
loose fiscal and monetary policies.
"So far, there is no signal of any major
policy change," said an economist with access to
top leaders.
China announced an economic stimulus package
of Rmb4,000bnin October but economists said the
real spending could be more than twice that, if
all projects submitted to Beijing are approved and
funded.
Chinese media reports said local government
funding bids made as part of the stimulus plan
total Rmb10,000bn.
Government officials and economists have
warned that the flood of bank lending, which is
funding most of the stimulus package is already
generating dangerous new bubbles in the property
and stock markets.
The People's Bank of China, the central bank,
has quietly increased interbank lending rates, to
make it more expensive for small local lenders to
access funds. Most deposits are held by the big
five state banks, requiring smaller lenders to
borrow money from them to fund aggressive loan
programmes.
Wu Xiaoling, a former vice-chairman of the
PBoC, said the stimulus package had "laid
potential problems for a huge waste". "Relevant
government departments should adjust from the
'speed first' policy in the second half of the
year to focusing on 'quality first'," she said in
an interview with the Chinese press. But with no
sign that inflation has returned, the central
government is expected to maintain its loose
monetary policy until it is convinced that the
recovery is firmly entrenched.
Exports, a large contributor to growth, have
continued to contract on a monthly basis and
showed few signs of returning to the double-digit
growth rates they enjoyed over the three to four
years until mid-2008.
The government's policies might not be
reviewed until November, when leaders and
regulators meet for their annual conference on the
economy.
Economists said that by the end of the year
exports would have started to show year-on-year
growth from the troughs of late 2008 and inflation
was likely to have returned, albeit
mildly.
Even if the government does begin to tighten
towards the end of 2009, much of the stimulus will
be embedded in the economy for years to come, as
more than half the new loans extended this year
are for long-term infrastructure projects.
This will make it even more difficult to
scale back the lending.
*****************************
Rio Tinto, the Anglo-Australian mining giant,
on Friday rejected Chinese allegations that four
of its employees detained in Shanghai were
involved in bribery and stealing state secrets
during tense iron ore contract
negotiations.
The detentions have caused a furore in
Australia and raised questions about how foreign
businesses operate in China.
Sam Walsh, Rio's iron ore chief, said claims
that the employees were bribing officials at
Chinese steel mills were wholly without
foundation.
"We remain fully supportive of our detained
employees, and believe that they acted at all
times with integrity and in accordance with Rio
Tinto's strict and publicly-stated code of ethical
behaviour," he said in a statement.
Mr Walsh added that the miner continued to
operate in China and was maintaining high levels
of iron ore shipments from its Pilbara operations
in Western Australia.
Rio has maintained the innocence of the
Shanghai-based employees - including Australian
citizen Stern Hu - ever since they were taken in
this month, but Friday's statement was the first
time the company had stood behind the four so
vehemently.
Gary Locke, the new US commerce secretary,
promised he would raise the case of Mr Hu with
Beijing.
China's foreign ministry had warned the
Australian government against
interference.
"We resolutely oppose anyone deliberately
whipping up this case or trying to interfere in
China's judicial independence," Qin Gang, foreign
ministry spokesman, told reporters on Thursday.
"This is not in Australia's interest."
Stephen Smith, Australia's foreign minister,
met He Yafei, his Chinese counterpart, in Cairo on
Thursday. He said the investigation by Chinese
authorities was ongoing.
Rio's London-listed shares were 1.27% higher
at #21.07 in early trading.
*****************************
Beijing's foreign reserve holdings have
surged through the $2,000 billion mark, as money
pours back into China to take advantage of faster
economic growth and rapidly inflating asset
prices.
The flow of funds threatens to renew pressure
for a revaluation of the renminbi at a time when
the government and domestic business are focused
on financial stability.
An economist at a state think-tank said
Beijing was caught in a squeeze similar to the one
that bedevilled policymakers earlier this century,
with a flood of hot money trying to force the
government's hand on the currency.
Those behind the hot money are betting that
China's economic recovery will be
sustained.
The second quarter gross domestic product
figures, due to be released on Thursday, are
expected to record strong growth, of just under 8%
for the last three months.
The People's Bank of China, the central bank,
announced on its website that foreign reserves
reached $2,132bn at the end of June after a rapid
accumulation of funds in the second
quarter.
The reserve build-up in the second quarter
was $177.9bn, including a monthly record in May of
$80.6bn.
The quarterly figure far outstrips China's
trade surplus and inbound foreign direct
investment for the same period, proof that the
accumulation of funds inside the country is being
driven by other factors.
The latest figures also represent an abrupt
reversal of an emerging trend of the previous two
quarters.
Foreign reserves increased just $7.7bn in the
first three months of the year, and $40.4bn in the
fourth quarter of 2008, as foreign firms sent
profits home and banks demanded repayment of
loans.
*****************************
China's government failed to sell as much
debt as it planned for the third time in two weeks
on speculation the central bank will push up
money-market rates to prevent bubbles in stock and
property prices.
The finance ministry sold 18.51 billion RMB
($2.7 billion) of the six-month bills, less than
the 20 billion RMB on offer, Chinabond said in a
statement on its Web site. The average winning
yield was 1.6011%, higher than the 0.85% rate at
the last sale of 182-day bills on June 19.
Yields on similar-maturity treasury bills
have risen 45 basis points this month on concern
the country's 4 trillion RMB ($585 billion) fiscal
stimulus package will stoke inflation. Loans rose
almost fivefold in June from a year earlier to 1.5
trillion RMB and the government Thursday reported
that economic growth accelerated to 7.9% in the
second quarter.
The Shanghai Composite Index has jumped 75%
this year, a performance second only to Peru among
88 global stock benchmarks. Home prices in China's
major cities rose in June for the first time in
seven months, the government reported last week.
The People's Bank of China Thursday sold
one-year and three-month bills at their highest
yields this year in open- market operations,
luring cash from the financial system and pushing
up money-market rates to curb record growth in
lending. The one-year yield rose almost 10 basis
points to 1.595% at the auction.
The seven-day repurchase rate, a measure of
funding cost in the interbank market, Friday
climbed one basis point, or 0.01 percentage point,
to 1.53%, based on the daily fixing published by
the China Interbank Funding Center at 11 a.m.
That's the highest level it's been fixed at this
year. The rate earlier Friday climbed as high as
2%.
Demand for debt is cooling as investors favor
assets that will benefit most from the economic
recovery and this month's resumption of new shares
sales prompts investors to free up cash. China
State Construction Engineering Corp. said on July
13 it got approval for what may be the nation's
biggest initial public offering in two years.
The government barely met its sale target in
a 28 billion RMB three-year debt auction on July
15, drawing bids for 1.16 times the amount on
offer, after attracting insufficient demand in two
sales last week. The so-called bid-to-cover ratio
at Friday's sale was 0.925 times, compared with an
average of about 1.5 at successful sales this
year.
|
| Summary
The coming
week looks like
..... |
![Commodities Indices]()
More of the same next week, that
is for sure. The 'better-than-expected'
Bandwagon seems to be on a roll!
Second-quarter earnings will again take
center stage next week, forcing Federal Reserve
Chairman Ben Bernanke to compete for a starring
role.
More than one-third of the companies that
comprise the Dow Jones Industrial Average and
one-quarter of those in the Standard & Poor's
500 Index will report next week.
Meanwhile, investors will be hanging on every
word from Bernanke as he delivers his semi-annual
monetary policy testimony to Congress on Tuesday
and Wednesday.
A housing report due Thursday is expected to
show existing home sales continued to increase in
June, as they have for the past two
months.
Morgan Stanley is expected to report a loss
Wednesday, though strong revenues in the
fixed-income division are likely. Wells Fargo,
also reporting Wednesday, is expected to report a
sharp earnings drop, though it may benefit from a
boom in mortgage refinancing.
Boeing, which reports Wednesday, can be
expected to answer questions related to the
schedule for the first flight of its new 787. The
plane maker abruptly canceled the initial flight
at the end of June, citing a failed stress test,
and no new date has been announced.
Package-delivery giant United Parcel Service,
often considered a bellwether for the broader
economy, will provide insight into the beleaguered
freight-transport sector when it posts results
Thursday.
Strong Macintosh sales and a new iPhone are
expected to boost Apple's bottom line when the
consumer-electronics giant reports fiscal
third-quarter results Tuesday. Wall Street expects
Apple's sales to pick up about 9%.
Software giant Microsoft, which reports
Thursday, is expected to post lower results. That
would come one quarter after Microsoft's first
revenue decline as a public company.
It is hard to see how bank results next week
can top the boost which Goldman and JPM gave
stocks this week. More of a mixed bag is likely
with the US slate including Bank of New York
Mellon, Morgan Stanley, Wells Fargo, Capital One,
and American Express while Credit Suisse will be
the first major European bank to report.
Defaults and delinquencies will be in focus
for banks more exposed to the retail sector --
both for what it means for their outlook and for
what it bodes for household solvency and
spending.
Investors heading into next week with bullish
inclinations will be looking for the VIX to stay
subdued after falling to lows last seen in
September 2008, especially if more pent up cash is
to be released from money market funds. Bears will
be thinking that what might be the S&P's best
weekly performance since mid-March could be
setting the market up to be more sensitive to bad
news.
Flash PMIs will show whether the positive
surprise of the German orders and output data was
a flash in the pan for the Euro zone, and whether
Chinese growth is generating orders in key Euro
zone countries.
British Q2 GDP - the first out of any G7
country - will show the relative strengths and
weaknesses of domestic demand, exports and
inventory components and it will be particularly
interesting in the UK's case to see just how
supportive Sterling's past slide has proved for
net trade.
Minutes from the Bank of England's last
policy meeting and Congressional testimony from
Federal Reserve Chairman Ben Bernanke should give
a clearer steer on where quantitative easing
programs are heading. Key questions investors want
answered are why the BoE deferred making a firm
decision on whether to extend QE beyond August,
and whether the Fed will increase its bond
purchases.
Government bond markets will be particularly
sensitive and signs that central bank appetite for
buying government debt is cooling - perhaps
because of concern over long-term inflation -
could trigger heavy selling, particularly in a
climate of strong US bank earnings and rebounding
equities.
Here in the AsiaPac region, the Japanese
market is off Monday for a national holiday.
All told, I think we are going to look at
more 'hype' coming out of these earnings reports
and as I have said all along, if you set your
expectations so very low, anything is going to be
a
bonus! |
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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