Dear Adrian,
Term for the week; Double Dip!
No, not in the sense of 'Double Dipping' your Nacho in the Salsa, taking a bite and then repeating the process with the remaining piece.
'Double Dip' is what I see happening in the Global Economy now where we have seen a short global recovery (3 months) and then I believe another downturn is imminent.
Yes, hardly the news any of you wanted to hear I know, but I have been hinting at this for 6 weeks now; we are NOT out of the woods yet or anywhere close to it; yes, there is light at the end of the tunnel but we still have to see more downside reaction to such things as the new US Financial Regulations announced this week that will undoubtedly put a tighter rein on investments by global funds in emerging market countries.
Add to this the fact that unemployment is not falling, it is not even close to falling - this week alone the US announced a further 608,000 people lose their jobs in one week. When this figure gets down to say 250,000 people losing their jobs and an equivalent number of new job starts, I might start thinking that we are getting somewhere - but quite simply we're not and the job losses will get worse before then can even hope to get better.
More than one-quarter of American states now have unemployment rates higher than 10%, and all but two saw a further job-market deterioration in May.
Tennessee and Indiana joined the rank of states, now 13, that have jobless rates exceeding 10%, and eight states - including California, Florida and Georgia - reached their highest level of joblessness in May since records began in 1976, the Labour Department reported Friday in Washington.
Companies factored in restructuring throughout 2008 and it is only now that we are starting to see those restructuring plans implemented fully; as such, from April 2009 - the new fiscal year - we are starting to see much more downsizing (particularly here in Asia where 2008 did not see too many expatriates being sent home). In the three months since April, more Expatriates Asia-wide have been told their positions are being 'localised' or are 'no longer viable' than the combined period of the whole of 2008.
Some may argue that the expatriate positions do not reflect the 'real world' unemployment picture but what they do reflect correctly, is the corporate HR policy becoming more bottom-line focused in fiscal year 2009/2010.
You only have to look at the number of children leaving International Schools at the end of the school term next week, to find how many families are repatriating this summer - not to return in September. My children have never been to so many 'going away parties' at the end of the school term.
As I have said all along, I also do not believe at all that we have seen the full fall-out from the credit crisis and I still believe that a few major banks still will fail.
Banks were indeed once again in focus this week.
Bank of England Governor Mervyn King said Britain's banking system may need to raise more capital to finance the economic recovery as officials keep printing money.
"It may take further additions to equity capital before the banking system will be able to supply credit at a price and on a scale to finance a sustained recovery," King said in a speech at the Mansion House in London Friday. "It is too soon to reverse the extraordinary policy stimulus that has been injected into the UK economy through monetary policy."
The Bank of England plans to spend 125 billion Pounds ($204 billion) of new money on assets to kick-start economic growth, and Gordon Brown's government has propped up some of the nation's biggest banks with taxpayer funds. King, speaking alongside finance minister Alistair Darling, said both monetary and fiscal policy will have to change as the economy stabilizes.
"When appropriate the Monetary Policy Committee will raise bank rate" from the current 0.5% "and gradually run down its portfolio of assets in a manner consistent with maintaining orderly markets," King said. "It is also necessary to produce a clear plan to show how prospective deficits will be reduced during the next Parliament."
Dividing lines for the next election, which must be held within a year, sharpened this month. The opposition Conservatives has accused Brown of misleading voters after the prime minister denied most ministries face deep spending cuts. A mix of spending restraint and tax increases is inevitable, whichever party takes office, economists say.
The government has nationalized banks and invested billions of Pounds in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. UK banks have already raised $158 billion in capital to shore up their balance sheets, Bloomberg data show.
While the current crisis still has "some way to run" and banks have more work to do in reducing leverage, investors have continued to perceive greater risk in the industry, King said.
"Put bluntly, market data on credit spreads imply that some banks are viewed as a worse credit risk than some of their customers," he said. "Companies that can bypass the banks to access capital markets directly are doing so."
Investors are demanding extra returns to hold bonds issued by banks. The spread between the yields of Sterling-denominated bonds issued by financial companies and benchmark government debt averages 619 basis points, according to Merrill Lynch & Co. data. That compares to an average spread of 289 basis points for non-financial companies. A basis point is 0.01 percentage point.
King said there are "tentative signs" the central bank's asset purchase program is starting to work as money supply is "picking up." Policy makers this month reiterated their plan to keep buying government and corporate bonds.
While full economic recovery may be "protracted," King said "there are some signs that the British economy is beginning to stabilize, and financial markets have improved markedly."
King said new regulation on the banking sector should eliminate an implicit state guarantee for firms that combine household services with risky investment banking or funding strategies. He suggested banks which pose greater risks to taxpayers should face higher capital requirements or be prevented from offering services to consumers.
Any regulated bank should also be required to produce a plan for it to be wound down in the event of failure.
Banks have also been in focus in the US.
Standard & Poor's on Wednesday cut its ratings on Wells Fargo, US Bancorp, Fifth Third Bancorp and 19 other banks, reducing five banks to "junk" status.
The ratings agency said in a news release that the downgrades reflect a less favorable outlook for the financial sector, including tighter regulation, greater volatility and the likelihood that loan losses will increase. The ratings actions are part of S&P's ongoing review of the financial services industry.
Among the other 13 banks downgraded include BB&T, Capital One Financial, Fifth Third Bancorp, KeyCorp, Regions Financial, US Bancorp and Wells Fargo. All seven were among the 19 companies which underwent the federal government's stress tests earlier this year.
Remember Wells Fargo from when I first told you to watch the bank back in Q4 of last year - I had my doubts then and I have my doubts still now!
Add to all this the fact that we have seen the 2009 Swiss economic forecast cut this week, along with the Italian one and the Slovakian one.
Look at the US; no matter how many 'experts' on CNBC or Bloomberg tell us the US is on the road to recovery, all that you have to do is look at unemployment, national debt, inflation, rising interest rates, sluggish credit, continued problems in the housing market, weak consumer confidence - what more could you want to oppose the view that 'the recession is over'?
Weak consumer confidence, diminished household wealth and a global downturn that has hurt exports are continuing to weigh down the US economy.
I cannot imagine for the life of me that we are going to be 'out of the woods' before the end of summer and in my humble opinion, I see it being Q1 2010 before we can say we have passed through the worst and are on the way to a global recovery.
This week was lower generally around the world as these fears started to slowly materialise, although Friday brought some light relief to some markets - saving a full five trading days of negativity with minor growth on the last trading day of the week.
On to those numbers: |
| US Markets
How the US did this week ..... |
 US stocks advanced, rebounding from a slump driven by energy shares, as JPMorgan Chase & Co. led banks higher and Microsoft Corp. and Apple Inc. spurred a rally among technology companies.
JPMorgan rose to the highest price in a week after saying it will cost less to repay government rescue funds than some analysts estimated. Microsoft Corp. rallied after Goldman Sachs Group Inc. added the company to its "conviction buy list" and Apple Inc. climbed after releasing a new iPhone. Commodity producers fell with oil and metals prices.
The S&P 500 added 0.3% to 921.23 at 4 p.m. in New York, after dropping as much as 0.3%. The index decreased 2.6% in the first weekly slump in a month. The Dow Jones Industrial Average retreated 15.87 points, or 0.2%, to 8,539.73. The value of all US shares increased 0.4%, according to data.
While the S&P 500 is still up 36% since sliding to a 12-year low on March 9, a worse-than-estimated report on manufacturing in the New York area and a downgrade of credit ratings at 18 banks by S&P dragged stocks lower this week. The market's three-month rebound occurred as the government and Federal Reserve pledged $12.8 trillion to end the first global recession since World War II.
Financial stocks in the S&P 500 rose 1.7%, the most among 10 industries. JPMorgan added 2.4% to $35. The bank will incur a one-time "negative adjustment" of $1.1 billion reflecting "accelerated amortization" of the issuance discount on preferred shares sold to the government, the company said in a regulatory filing. That's less than the $1.48 billion estimated - whoopee!
Technology stocks in the S&P 500 gained 1.2% as a group. Microsoft had the second-biggest advance in the Dow average, adding 2.4% to $24.07, after Goldman Sachs analysts said the largest software maker may beat profit estimates as revenue increases.
Apple rallied 2.7% to $139.48. The company drew crowds to the release of its new iPhone, using the promise of faster speed and more features to keep shoppers from defecting to Research In Motion Ltd. and Palm Inc.
Novell Inc. surged 10% to $4.68. The second-largest US seller of Linux software may be willing to sell itself, JPMorgan analysts said after meeting with Chief Financial Officer Dana Russell.
Exxon Mobil Corp. and Chevron Corp. fell as oil and gasoline tumbled on speculation that supplies of the motor fuel will climb as refineries bolster output.
Energy stocks in the S&P 500 lost 0.9% as a group after crude futures dropped 2.5% to $69.60 a barrel in New York. The industry had rallied as much as 0.8% earlier. Exxon slumped 0.6% to $71.05. Chevron lost 0.5% to $68.06.
Wyndham Worldwide Corp. climbed 9.8% to $12.30 after the Franchiser of Ramada and Super 8 hotels reiterated its second-quarter forecast. Wyndham said it expects adjusted earnings of 36 cents to 41 cents per share, compared with the average analyst estimate of 37 cents.
E*Trade Financial Corp. tumbled 12% to $1.26 for the biggest decline in the S&P 500. The online brokerage that's lost money for seven consecutive quarters sold shares at a 23% discount to Thursday's closing price, diluting the value of existing shares.
Ciena Corp. gained 8.3% to $10.61. The maker of fiber-optic network gear for communications companies including AT&T Inc. was rated "buy" at Stifel Nicolaus & Co.
The rally in US equities may fade because fewer shares are participating, according to StockCharts.com.
The percentage of companies listed on the New York Stock Exchange trading above their 50-day average price shrank to less than 70% this month after topping 90% in May, according to data compiled by StockCharts.com, even as the NYSE Composite Index rose. The divergence shows a narrowing in the breadth of the market's advance, according to analysts who make predictions based on price patterns and volume history. |
| European Markets
What has been happening in Europe this week ..... |
 European stocks rose for a second day, with the Dow Jones Stoxx 600 Index trimming its first weekly drop in a month.
The Stoxx 600 added 1.3% to 208.28. The gauge still fell 2.8% this week on speculation share prices have outpaced the outlook for economic growth after a three-month, 36% rally sent valuations up to 25.4 times earnings, the highest level since 2004.
National benchmark indexes rose in all 16 western European markets that were open. The UK's FTSE 100 added 1.5% and France's CAC 40 advanced 0.9%. Germany's DAX was little changed after climbed 0.9%.
Markets were more volatile than usual Friday as options on equity indexes and some individual stocks expired.
Futures traders are demanding the smallest discounts to speculate on European stocks since June 2007 as equities rally and financial markets recover from last year's credit seizure.
Markdowns that traders require to exchange the current Euro Stoxx 50 futures contract, which expires Friday, for one that matures in three months was 2.63 index points as of June 17, according to estimates by Frankfurt-based Deutsche Bank AG. The discount averaged 8 points in the two weeks leading up to the December expiration, the widest difference since the data began in March 2006.
GERMANY
German stocks completed the biggest weekly drop in more than three months as the DAX Index closed little changed Friday.
Salzgitter AG, the country's second-largest steelmaker, and Henkel AG climbed more than 2.2%, while E.ON AG rose 3.9% as UBS AG lifted its stance on utilities in Europe and WestLB AG recommended adding to holdings in the company. Volkswagen AG, Europe's biggest automaker, retreated 3%.
The benchmark DAX Index gained less than 0.1% to 4,839.46. Through the end of last week, the measure had rallied 38% from this year's lows on optimism measures to revive the global economy will work, trading at 27.1 times the earnings of its companies, the highest level since 2004. The HDAX Index of Germany's biggest companies rose 0.2% Friday.
The DAX Index swung between gains and losses Friday as options on equity indexes and some individual stocks expired. The measure dropped 4.5% this week, the steepest decline since March.
Salzgitter added 2.7% to 61.60 Euros. Henkel AG, the German maker of Loctite and Persil detergent, climbed 2.2% to 22.59 Euros.
E.ON, the country's largest utility, rallied 3.9% to 25.80 Euros. European utilities were raised to "overweight" at UBS because the "dividend yield is attractive relative to bonds, the equity market and other sectors," according to a report from strategists.
Separately, WestLB lifted its recommendation for E.ON to "add" from "neutral."
Volkswagen fell 3% to 224 Euros. A total of 666,984 Volkswagen puts trading on Eurex expire Friday, according to data from the exchange. The biggest open interest lies with strike prices of 136 Euros, 135 Euros and 130 Euros, the data show.
Expirations of derivatives can cause swings in share prices as investors and speculators may need to compensate the end of an options bet with underlying shares.
HeidelbergCement AG, the German cement maker owned by billionaire Ludwig Merckle, climbed 1.9% to 31.69 Euros. The company agreed to a sixfold increase in the interest margin it pays on 8.7 billion Euros ($12.1 billion) of loans. The shares surged 17% Thursday after the company announced a "comprehensive" refinancing agreement.
Stada Arzneimittel climbed 2.1% to 17.60 Euros, snapping a two-day drop. UniCredit Markets & Investment Banking lifted its share-price estimate for the generic-drug maker 10% to 22 Euros.
TUI AG, the owner of Europe's largest travel company, rallied 8.8% to 5.61 Euros. Equinet AG raised its recommendation to "buy" from "reduce," saying the recent decline in the shares wasn't justified.
TUI sank 14% this week after a research report by Deutsche Bank AG sent the stock tumbling. The brokerage since revised its share-price estimate to 4.40 Euros from 1.90 Euros because it had previously "misinterpreted a technical issue regarding the treatment of an inter-company loan," according to spokesman Frank Hartmann. Deutsche Bank maintained its "sell"
FRANCE
France's CAC 40 Index rose for a second day, advancing 27.21, or 0.9%, to 3,221.27 in Paris, paring its decline this week to 3.2%. That's the biggest weekly drop since May 15. The SBF 120 Index increased 0.9% Friday.
Dexia SA, Belgium's biggest bank by assets, and Alcatel- Lucent SA, the world's largest maker of fixed-line networks, led gains in the CAC 40.
Dexia rallied 2.9% to 5.65 Euros, while Alcatel advanced 3.5% to 1.94 Euros.
Club Mediterranee, Europe's largest resort company, jumped 69 cents, or 6.7%, to 10.95, after surging 6.9% Thursday, after the Benetton family has purchased a 2% stake. The purchase was confirmed by Club Med spokesman Thierry Orsoni in a telephone interview Friday.
European Aeronautic, Defence & Space (EADS), which owns planemaker Airbus SAS, advanced 28 cents, or 2.4%, to 11.65 Euros, a fourth day of gains. Airbus said Paramount Airways of India signed a memorandum of understanding for the purchase of 10 Airbus A321 airliners. Argentina said it plans to buy Airbus widebody A330 and A340 airliners for national carriers Aerolineas Argentinas and Austral.
EuropaCorp climbed 6 cents, or 0.9%, to 6.75 Euros, rising for a third day this week. The film producer and distributor founded by French director Luc Besson reported a 36% gain in full-year net income to 9.4 million Euros ($13 million).
Veolia Environnement, the world's biggest water company, rallied 86 cents, or 4.2%, to 21.33 Euros, its biggest gain in more than a week.
BELGIUM
In Brussels the Bel 20 gained 0.85% to close at 1,997.71.
Belgian property investment group Befimmo said on Friday that 3,416,852 new shares, or 91.58% of its offering, were subscribed during the initial phase of its rights issue, which closed Thursday.
"Befimmo is very pleased with this success which is a measure of the trust of its shareholders, existing and new, in the implementation of its strategy, especially in an uncertain economic context," it said in a statement.
It said in the second phase of the rights issue, the remaining preferential rights would be represented by scrips that would be put on sale from June 22 and reserved for institutional investors.
Befimmo said the conditions would be the same as in the first phase of the issue, with two new shares at 44.65 Euros per share for seven rights in the form of scrips.
It said the results of the sale of scrips and the final results of the rights issue would be published on June 23 in Belgian newspapers L'Echo and De Tijd, and in France.
Befimmo's portfolio is focused on offices in Brussels, the majority of them on long-term let to public institutions.
Belgian-French financial group Dexia said in November it would sell its troubled US bond insurance subsidiary FSA to US peer Assured Guaranty for $361 million in cash and 44.6 million new Assured shares, making for a total consideration of $722 million at that time.
Assured Guaranty expects to raise about $573.5 million through an offering of stock and notes, of which $364 million would be used to pay the cash portion of the FSA deal.
THE NETHERLANDS
In Amsterdam the AEX finished the week at 257.16, up 1.44% on the day Friday.
Nuon NV will definately be sold to Swedish utility Vattenfall, the Dutch company said Wednesday. Over 90% of Nuon's shareholders voted for the sale of their shares in Nuon's production and supply company to Vattenfall.
The majority of the meeting also agreed to the statutory unbundling of Nuon NV into a production and supply company and a network company Alliander NV. The Alliander shares remain in the hands of the current shareholders.
Commenting on the shareholders' decision, Nuon's CEO said: "We greatly appreciate our shareholders' confidence in our strategic partner Vattenfall. We can look back on a fruitful process in which we worked intensively with our supervisory board, shareholders and works council to find a strategic partner and to draw up criteria for this partner."
He said a major step has been made towards the future, both for the production and supply company that is merging with Vattenfall and for the network company Alliander that will remain in the hands of the public shareholders.
An Amsterdam court will decide which of Fortis Holding and Fortis Bank Netherlands will pay Eur362.5 million to a group of preference shareholders by June 25 at 1500 GMT, a spokesperson for Fortis Bank Netherlands said Friday.
The shareholders group must be paid Eur362.5 million in exchange for their preference shares that were issued in 1999 by Fortis Capital Company Ltd., which is now part of Fortis Bank Netherlands.
Fortis Bank Netherlands claims that Fortis Holding must pay the money as the company had already decided that a cash settlement would replace the originally intended conversion from preference shares to ordinary shares, to avoid a further dilution of the ordinary shares.
But Fortis Holding claims that the nationalized Fortis Bank Netherlands should pay the money to the shareholders group.
The Amsterdam court heard the pleas from both parties' lawyers Friday.
Fortis, a former financial giant, was split up in October 2008 as part of a financial rescue plan. The Dutch parts of Fortis, including Fortis Bank Netherlands, were bought and nationalized by the Dutch government.
SWITZERLAND
The SMI in Zurich rose 0.83% to close out the day/week at 5,421.59.
Swiss insurer Zurich Financial Services said Friday its solvency ratio improved in May due to a recent capital increase and a recovery in financial markets.
The solvency ratio, which gauges a company's balance sheet strength, climbed to more than 180% as of May from 157% in March and 160% at the end of 2008.
Around nine basis points of the increase in the solvency I ratio since March was from Zurich Financial's recent capital increase, spokeswoman Sylvia Gaeumann said. In April, the insurer placed 4.8 million new shares and 1.9 million existing treasury shares to part finance its $2 billion takeover of American International Group Inc.'s (AIG) car insurance business.
Zurich Financial doesn't have a solvency target but the current level of more than 180% is strong, Gaeumann said. Analysts welcomed the news, noting a recent improvement in capital markets was also a driver.
The Swiss government Friday said it has reached a new double taxation agreement with the US, a step considered to alleviate pressure on the country's banking industry and shake off its reputation as a tax haven.
The agreement with the US, which is still confidential and needs the backing of Swiss cantons and business associations, follows similar deals with six other countries, including France and Denmark.
The US hailed the new treaty, with US Treasury Secretary Timothy Geithner saying the agreement will help to cut down on tax evasion.
The end of Swiss-banking-supremacy is nigh I fear!
AUSTRIA
The ATX in Vienna rose 1.91% Friday to end the week at 2,066.58.
An Austrian media company has bought 50% of the shares of TV "Europe". This announced the current chair of the board of directors of the television Emil Stoyanov on a press conference, informed BTA.
Thursday in Vienna a contract for sale of 50% of the shares of TV to the media company "Stevia Communications", represented by Karl von Habsburg-Lotringen.
The Austrian media company is part of the European media group Altelys, which focuses on media investments in Eastern Europe. The main partner of Karl von Habsburg-Lotringen in Atlelys is Hristo Grozev.
Habsburg and Stoyanov have reached consensus on all points referring to the future management of TV "Europe". The chairman of the Board of the directors will be Habsburg and Emil Stoyanov will remain stakeholder in the media.
He pointed out that he will concentrate his attention in his activity as member of the European parliament. The TV will have two executive directors, who to present the interests of both sides - Lyubomir Popov and Martin Minchev.
SWEDEN
The OMX Stockholm 30 rose just over half a percentage point Friday, up 0.53% at 778.09.
Both Sweden's central bank and Financial Supervisory Authority in stress tests this month concluded that the banks - Nordea Bank, Svenska Handelsbanken, Skandinaviska Enskilda Banken and Swedbank - have sufficient capital to withstand loan losses ranging from at best $21.66 billion in two years and at worst $44.58 billion in three years.
Still, only Swedbank, and only in its most severe scenario, risks falling below the minimum legal capital requirement of 4% that banks must have to protect against losses. The outcome is "extreme," though not impossible, and assumes 60% of non-performing loans in Latvia and Ukraine, where Swedbank has a bigger presence than peers.
DENMARK
The OMX in Copenhagen rose just under the same half a percentage point, up 0.44% to finish at 293.16.
Denmark-based Danske Bank turned in a mixed bag of results in its most recent quarter.
The firm reported record Q1 income as it benefitted from strong banking activities. The gains were partially offset by a large amount of loan impairment charges. Nevertheless, the company has seen its stock appreciate 67% so far this year, making it the fourth-best performing stock in the European Financial Sector for 2009 to date.
FINLAND
The OMX in Helsinki made similar levels of gains, up 0.4% at 5,614.24.
Finland, the Euro region's second- best performing bond market this year, may more than double debt sales through 2012 after an export slump drove the country into its first recession in 16 years, a Treasury official said.
The northern-most member of the 16-nation economy will probably sell 21 billion Euros ($29.3 billion) of bonds and bills in 2009 and an average 27 billion Euros in each of the following three years, Ari-Pekka Latti, deputy director and head of funding and liquidity at Finland's State Treasury, said in an interview. That compares with an average of 12 billion Euros in the three years through 2008, he said.
"Finland is an export-oriented country and we're getting our fair hit because exports are not doing great, they are plummeting," Latti said in Helsinki. "We have to live according to the global cycle."
Finland is raising borrowing after exports fell an annual 26% in the first quarter amid a slump in trade fueled by the global economic turmoil. Unemployment rose to an 11-month high in April, threatening the country's first budget deficit since 2003. Finland's bonds earned investors 2% this year, compared with a 0.9% loss from German securities, according to Merrill Lynch & Co.'s Finnish Governments and German Federal Government indexes.
Yields on Finnish 10-year bonds have fallen to less than 50 basis points more than German debt of similar maturity amid optimism the worst of the global economic turmoil has passed. The difference, or spread, reached 89 basis points in January, the most since 1996, as investors shunned all but the safest government securities. The spread was 42 basis points as of 9:10 a.m. in Helsinki, the least since October on May 26.
Finland's gross domestic product shrank 2.7% in the first quarter from the prior three months, the most since 1991, as the global slump curbed sales at Espoo-based Nokia Oyj, the world's biggest maker of mobile phones. Nokia accounts for 33% of the value of the 136-company OMX Helsinki Index of shares. Exports account for about a third of Finland's economy. The government expects a budget deficit of 3.8% of GDP this year.
NORWAY
In Oslo, the OBX completed the Scandinavian trend Friday, with 0.39% gains, closing the week at 261.42.
Norway's central bank cut the benchmark interest rate for the seventh time in eight months as the world's fifth-largest oil exporter battles a trade-related recession and rising joblessness.
Norges Bank cut the overnight deposit rate a quarter of a point to 1.25% and said it expects it to remain between 0.75% and 1.75% until Oct. 28. The assessment that the rate "can remain close to 1% for a period ahead still applies," the bank said in a statement, forecasting a 1.5% benchmark in 2010.
SPAIN
The Ibex in Madrid managed strong gains Friday, up 2.1% to finish the week at 9,580.90.
Banco Santander SA, Spain's biggest bank, is seeking to match last year's earnings of 8.88 billion Euros ($12.4 billion) in 2009 as it battles the global recession and a slump in its major markets.
"The goal of the bank's board for 2009, which will be even harder than the previous year, is to maintain net ordinary profit at the level achieved by the group in 2008," Chairman Emilio Botin said Friday at the annual shareholders' meeting in Santander, Spain. "The Santander Group is coming out of this crisis clearly strengthened," and the worst of the financial turmoil may be over, he added.
The bank, which generates about 85% of its revenue from the margin between deposits and loans, has avoided the worst of a global financial crisis that has led to at least $455 billion of writedowns and credit losses at European banks since 2007. Santander, which recently expanded in the UK and US, still faces rising defaults on mortgages and loans to consumers and businesses in many of its markets.
Botin also pledged to maintain Santander's payout to shareholders last year of 4.81 billion Euros. Santander's board Thursday approved a first dividend against 2009 earnings of 13 cents a share, the same amount as the first 2008 payout.
Santander has gained 25% this year after losing half its value in 2008. Since the 2009 low point of 4 Euros on March 9, the stock has more than doubled.
Highly indebted construction company Sacyr Vallehermoso SA is no longer trying to sell its 20% stake in oil company Repsol YPF SA, Sacyr Chairman Luis del Rivero said Wednesday.
Sacyr has narrowed its debt through recent asset sales, Mr. del Rivero said at a news conference ahead of the company's annual general meeting. In the first three months of the year, the Madrid-based company booked close to €1 billion ($1.38 billion) from land and home sales at a discount of 15% to valuations, he said.
Sacyr has been struggling with a decline in the value of its investments. At the height of the Spanish real-estate boom, when interest rates were low and liquidity was abundant, Sacyr embarked on leveraged purchases, among them the stake in Repsol. However, when the real-estate market imploded amid the global financial crisis, financing costs jumped at the same time as the value of many of Sacyr's investments fell sharply, forcing the company to put the Repsol stake on the block.
In 2006, Sacyr paid €6.53 billion, or €26.71 a share, for its Repsol stake. The shares are now trading €15.71 each, valuing the stake at about €3.84 billion.
PORTUGAL
The PSI in Lisbon climbed 1.84% Friday in line with regional sentiment, closing out the week at 2,463.29.
Portuguese conglomerate Martifer said on Friday it formed a joint venture to produce steel towers for wind power turbines in the United States with a unit of Texas-based Hirschfeld Industries.
Martifer said in a statement the initial planned investment in a plant in Texas that will make towers for wind turbines was of $40 million, to be concluded in the second quarter of 2010. The two companies will own equal parts in the venture.
"Ultimately, the factory is expected to reach a capacity of 400 towers a year by 2013," Martifer said. The equipment is for the North American market.
"This will allow us to fully benefit from the strong development of the wind power sector we are witnessing the US right now," the statement quoted Marifer CEO Antonio Pontes as saying.
Martifer stocks jumped 6.7% in late trading on Friday to 3.52 Euros, recovering after a three-session slump.
ITALY
Italy's benchmark FTSE MIB Index advanced for a second day, adding 114.19, or 0.6%, to 19,347.98 in Milan. The gauge fell 5.1% this week.
The quarterly rebalancing of stocks weights in the FTSE MIB Index became effective after the closing of the market.
Autogrill increased 15 cents, or 2.6%, to 6.03 Euros, rebounding from the lowest in more than five weeks. Mediobanca Securities lifted its price estimate on the world's biggest manager of airport restaurants to 7.7 Euros from 5.7 Euros. The brokerage kept a "neutral" rating, pending "clearer hints of better traffic conditions starting from July."
Buzzi Unicem, Italy's second-biggest cement maker, rose 24 cents, or 2.5%, to 9.7 Euros, snapping a two-day loss. Intermonte Sim SpA reiterated a "buy" recommendation on the company, saying the impact on cement stocks from more stringent rules on mercury emissions in the US may be "overdone."
Italcementi, Italy's largest cement maker, gained 11 cents, or 1.4%, to 7.81 Euros.
Compagnie Industriali Riunite gained 1.7 cents, or 1.6%, to 1.07 Euros. Citigroup Inc. reiterated a "buy" recommendation, saying "the stock is trading at attractive levels." The brokerage noted its 2.2 Euro price estimate on the stock would increase by 1.5 Euros, factoring in the value of the Sorgenia stake after the recent transaction with Verbund.
Edison advanced 6 cents, or 6.3%, to 1.02 Euros, the biggest gain since April 2. The Milan-based utility was upgraded to "buy" from "hold" at Equita Sim SpA. Intermonte Sim SpA lifted its recommendation to "speculative buy" from "neutral," citing "potential gradual upward revision to earnings, driven by higher oil prices, coupled with mounting speculation on a potential shareholder structure reshuffle."
Enel added 17 cents, or 4.6%, to 3.86 Euros. European utility stocks were raised to "overweight" at UBS AG, which said the "dividend yield is attractive relative to bonds, the equity market and other sectors."
Fiat, Italy's largest manufacturer, fell for a sixth day, losing 12.5 cents, or 1.8%, to 6.94 Euros. "We view the rationalization of Termini Imerese as more than reasonable even if not sufficient to help the recovery in Fiat Auto's fundamental," Banca Imi analyst Monica Bosio wrote in a note. The brokerage has a "hold" rating on the stock.
Finmeccanica increased 23.5 cents, or 2.5%, to 9.83 Euros, the highest in two weeks. Italy's biggest defense company was rated "buy" at Nomura International Plc, which initiated coverage of the stock and set a price estimate of 12.5 Euros.
Lottomatica, the manager of Italy's national lottery, surged 26 cents, or 1.7%, to 15.65 Euros, a first day of gains in three sessions. Gruppo Banca Leonardo reiterated its "buy" recommendation, after raising its estimates on 2009 net income to 139 million Euros from 136 million Euros. The brokerage considers 2009 guidance "conservative."
Maire Tecnimont, an Italian energy-services company, increased 19 cents, or 8.5%, to 2.43 Euros after Credit Suisse Group AG raised its forecast for Brent crude to $54.73 a barrel in 2009.
Prysmian gained for a second day this week, adding 20 cents, or 2.1%, to 9.53 Euros. Centrosim initiated coverage of the energy-cable maker controlled by Goldman Sachs Group Inc. with a "buy" rating and a price estimate of 13 Euros.
Snam Rete Gas increased 7.25 cents, or 2.4%, to 3.13 Euros, extending gains of 2.3% Thursday. Italy's gas pipeline operator was rated "buy" at Bank of America Corp., which resumed coverage of the stock and set a price estimate of 3.7 Euros.
STMicroelectronics NV, Europe's largest semiconductor maker, added 11.5 cents, or 2.1%, to 5.55 Euros. Taiwan Semiconductor Manufacturing Co., the world's largest custom chipmaker raised its 2009 budget for equipment to "about the same as last year," compared with an April 30 forecast that spending would fall to $1.5 billion from $1.9 billion last year.
Telecom Italia Media climbed 11% to 12.01 cents. Shares of the television unit of Italy's biggest phone company will exit the FTSE Italia Small Cap Index to enter the FTSE Italia Mid Cap Index on June 22.
Unione di Banche Italiane added 40.5 cents, or 4.5%, to 9.44 Euros. The bank approved the final terms of its convertible bond sale. Cheuvreux kept an "outperform" rating, saying that "the convertible bond remains 32% cheaper than the Tremonti bond and adds flexibility to capital management."
GREECE
The Athex Composite in Athens, proved to be the largest gainer in Europe Friday, up 2.38% at 2,233.90.
Greece's largest lender National Bank said on Tuesday it is to propose a rights issue of up to 1.25 billion Euros ($1.74 billion) to boost its capital at a board meeting on June 18.
NBG shares fell 10% to 18.44 Euros on the announcement, with analysts citing the rights issue price and share dilution. The bank plans to issue new shares 2-for-9 at 11.3 Euros each.
The capital increase will help NBG strengthen its Balkan operations, the bank in a statement. NBG has operations in Bulgaria, Serbia, Romania, Albania, Cyprus, Egypt and Turkey and expects these countries' economies to return to growth next year.
'The capital increase will allow NBG to take advantage of growth opportunities in the context of its wider strategy, aiming to strengthen the group's presence in southeast Europe,' the bank said in a statement.
NBG also said the rights offer will put it at an advantage vis-a-vis competitors who might have similar plans. 'The capital increase ... gives us a lead versus other possible capital increases in the banking sector internationally,' the statement said.
Greek central bank chief George Provopoulos welcomed the rights issue. 'National Bank's share capital increase is a positive move in this environment,' Provopoulos told reporters at the sidelines of a press conference on climate change in Athens.
'It's a regulator's delight to see banks boosting their capital,' added Provopoulos.
Asked by reporters whether the rights issue would better position NBG for buyouts, Provopoulos said: 'It obviously has a comparative advantage to make acquisitions. I'm not saying that anything like that will happen.' |
| The UK Market
Did it follow the Global trend ..... |
 UK stocks climbed, trimming the first weekly loss in five weeks, as a gauge of mining shares rebounded from the longest losing streak in six months and homebuilders rallied.
Xstrata Plc rose amid speculation its largest shareholder, Glencore International AG, is considering an initial public offering. Taylor Wimpey Plc jumped more than 9% after the homebuilder reported a surge in its British order book. British Sky Broadcasting Group Plc gained 3% as UBS AG analysts recommended the shares.
The benchmark FTSE 100 Index climbed 65.07, or 1.5%, to 4,345.93 in London, paring the loss for the week to 2.2%. The FTSE All-Share Index added 1.5% Friday, while Ireland's ISEQ Index gained 1.5%.
Markets were more volatile than usual Friday as options on equity indexes, including the FTSE 100, and some individual stocks expired.
The FTSE 100, which this week dropped below its 200-day moving average for the first time since May, has rebounded 24% from the year's low on March 3. The measure last week traded at 30.9 times the earnings of its companies, the most expensive in five years.
Xstrata, the world's fourth-largest copper producer, gained 4.1% to 681 pence. The Financial Times, citing a person close to the situation, reported Glencore, the world's biggest commodities trader, is reviewing its partnership structure and is considering an IPO.
The company has held initial talks with bankers about a share sale, although an offering isn't considered imminent, the FT reported. Spokesman Marc Ocskay declined to comment on the report.
Lonmin Plc, the world's third-biggest platinum producer, added 5.6% to 1,250 pence, leading a measure of mining shares higher. Vedanta Resources Plc added 2.8% to 1,422 pence.
The FTSE 350 Mining Index rose 2.6%, rebounding from its longest losing streak since January.
Taylor Wimpey increased 9.7% to 34 pence. The UK's largest homebuilder said its British order book surged 73% from the end of last year as buyers returned to the housing market and prices stabilized.
The company has lowered its net debt to 1.01 billion Pounds as of June 17 from 1.59 billion Pounds and said it expects to reduce its debt level further by the end of this year.
BSkyB rallied 3% to 443.75 pence. UBS upgraded the UK's biggest pay-television provider to "buy" from "neutral," saying "regulatory fears" had created a buying opportunity.
Candover Investments gained 31 pence, or 12%, to 300 after agreeing to sell Wood Mackenzie Consultants Ltd. to leveraged buyout fund Charterhouse Capital Partners LLP, raising about 36.2 million Pounds in cash for the private equity fund.
Carnival Corp. rallied 97 pence, or 6.2%, to 1,668, extending Thursday's 7.2% advance after the biggest cruise-line operator reported second-quarter profit that beat analysts' estimates. Wachovia Corp. raised its recommendation for the US-traded shares to "outperform."
Carphone Warehouse Group increased 9.25 pence, or 6%, to 162.5. Royal Bank of Scotland Group Plc upgraded Europe's largest mobile-phone and laptop retailer to "buy" from "hold" and raised its share price estimate to 230 pence.
International Power Plc, the British utility that produces electricity in 20 countries, gained 6 pence, or 2.5%, to 242. UBS upgraded European utilities stocks to "overweight," saying dividend yield across the industry are "attractive relative to bonds, the equity market and other sectors." |
| Asia Pacific Regional Markets
Did they set the tone or follow the lead ..... |
 JAPAN
Tokyo stocks ended higher Friday as financial sector issues and oil developers rose, but the market's upside was limited as recent aggressive buying by retail investors faded.
The Nikkei 225 Stock Average rose 82.54 points, or 0.9%, to 9786.26. After making strong gains early in the session, the benchmark index lost momentum as speculative buying on specific positive cues faded.
Having just topped psychologically-important 10,000 mark last week for the first time in eight months, the Nikkei this week lost 349.56 points, its worst weekly performance since the week of March 2-6, when the index dropped 395.32 points.
For this month so far, the Nikkei is up 263.76 points.
The Topix index of all the Tokyo Stock Exchange First Section issues rose 7.76 points, or 0.9%, to 918.97. Volume was fairly solid around 2.5 billion shares.
September Nikkei 225 futures ended up 40 points, or 0.4%, at 9770 on the Osaka Securities Exchange.
Nikkei futures and options may weaken in coming days, probably to 9500, as the number of outstanding positions for put options with strike price at 9500 has been increasing this week, reflecting an increasingly bearish sentiment, said a Japanese brokerage manager.
Bank stocks were sharply higher, helped by rating hikes by several brokerages. Mitsubishi UFJ Financial Group rose 4.1% to Y616, after Goldman Sachs lifted its rating to Buy from Sell. Sumitomo Mitsui Financial Group gained 4.1% to Y4,080 after Mizuho Securities raised its rating on the banking group to 1. Oil developers gained after crude futures rose, with Inpex ending up 3.4% at Y767,000. Crude gains dragged down paper and rubber makers, with Nippon Paper Group falling 1.8% to Y2,435.
Elpida Memory briefly soared 11% in the morning after Kyodo News reported late Thursday that Elpida could apply for a public funds injection as early as Friday, while the Nikkei also reported that the company is seeking a Y30 billion capital injection and a Y10 billion government loan. But shares later trimmed gains and ended up 3.3% at Y1,069.
While an official decision on public funds would be positive given Elpida's weak earnings and concerns over its financial conditions, buying was led by speculators seeking nimble stocks backed by fresh buying cues, analysts said. An Elpida spokeswoman said the company is still considering applying for public funds.
Short-term players also bought Chiyoda Corp. after a Nikkei report it had won with South Korea's Samsung Engineering a roughly Y100 billion contract to build a key facility for a major oil refinery project in Saudi Arabia. Issue ended up 3.3% at Y790, well below its intraday high of Y843, as speculative buying quickly faded.
As retail investors became less aggressive, they took profits on GS Yuasa, which had soared 50% since the beginning of June on speculative buying of hybrid battery makers and other environmental technology stocks. The issue sank 14% to Y976. Another battery-related stock Meidensha dropped 7.5% to Y567.
SOUTH KOREA
South Korean shares closed higher Friday with gains in carmakers and banks lending support, but most investors remained on the sidelines amid a lack of strong upward momentum.
The Korea Composite Stock Price Index, or Kospi, rose as high to 1388.75 in the morning, tracking the overnight recovery of US stocks on positive economic data.
The market soon lost steam amid a lack of fresh upward momentum and ongoing uncertainties over geopolitical risks.
After dipping to intraday low of 1369.76, the main bourse ended 7.58 points, or 0.6%, higher at 1383.34. Foreigners bought a net KRW25.5 billion worth of stocks after a selling spree for the last four days. Local retail investors were net buyers of shares worth KRW54.7 billion, while domestic institutions sold a net KRW101.1 billion.
Hyundai Motor rose 3.1% to KRW72,500, and Kia Motors added 4.8% to KRW13,200 on hope for second-quarter earnings improvement and further improvement of their profitability in the second half amid plans to release more new cars and global efforts to support the auto industry, said Jeff Lee, an analyst at Hana Daetoo Securities.
Most bank stocks also did well, tracking the overnight rebound in American peers, said analysts.
KB Financial Group rose 1.7% to KRW40,000, and Shinhan Financial Group advanced 2.5% to KRW30,400.
Hynix Semiconductor rose 1.2% to KRW13,250 partly on news its contract prices for dynamic random access memory chips will likely continue to rise at least until the third quarter, while the global DRAM chip market may even experience a shortage in the third quarter of the year.
But most shipbuilders and shippers retreated on profit-taking. Daewoo Shipbuilding & Marine Engineering declined 1.2% to KRW19,850, while Hanjin Shipping fell 3.9% to KRW17,100.
THE PHILIPPINES
Share prices closed 1.48% lower on Friday as the market corrected further following recent gains, dealers said.
The composite index fell 35.96 points to 2,398.30 while the all-shares index dropped 1.85% to 1,545.10.
There were 17 gainers against 90 losers and 41 that were unchanged.
Turnover reached 1.395 billion shares worth P3.08 billion ($63.5 million).
The local currency traded at P48.498 to the Dollar.
Bank of the Philippine Islands fell 1.17% to P42 while Philippine Long Distance Telephone Co. dropped 0.6% to P2,310.
Megaworld Corp. fell 3.85% to P1 but Manila Electric Co. remained unchanged at P133.
HONG KONG
Gains in China's bourses and bargain hunting in local property companies sent Hong Kong shares higher Friday following a four-day tumble. The blue-chip Hang Seng Index rose 144.27 points, or 0.8%, to 17,920.93 after losing 5.9% over the previous four sessions. It traded between 17,759.86 and 18,015.11 during the session.
Turnover fell to HK$62.91 billion from HK$63.64 billion Thursday.
Trades said the local market is likely to consolidate in the near term after it hit a peak for the year of 19,161 on June 12.
The benchmark index is down 5.1% this week, but still up 58% from the March 9 trough for 2009 of 11,344.
The H-share index, which tracks Hong Kong-listed shares of mainland China-registered firms, rose 0.8% to 10,509.85.
Oil firms jumped after July crude oil futures rose $0.34 to end at $71.37 on the New York Mercantile Exchange Thursday. Cnooc advanced 0.5% to HK$9.63 and Sinopec rose 2.5% to HK$5.66.
PetroChina gained 0.4% to HK$8.48 after Asia's largest oil and gas producer by capacity said late Thursday it agreed to buy pipeline assets in western China from its parent for CNY9.71 billion.
The Hang Seng Properties Index rose 1.0% to 22,959.58 after it dropped 8.0 in the past four sessions.
Sino Land soared 4.6% to HK$12.22 after it dropped 10.2% since Monday. Hang Lung Properties rose 2.6% to HK$24.00 after it fell 10.2% in the past four sessions and Sun Hung Kai Properties was up 1.9% at HK$89.80 after it lost 7.1% in the same period.
CHINA
Chinese shares rose Friday, led by banks and real estate stocks as investors reacted positively to news that the government was lifting its nine-month moratorium on initial public offerings.
The benchmark Shanghai Composite Index rose 26.59 points, or 0.9%, to close at 2,880.49, ending the week up 5%. The Shenzhen Composite Index for China's second, smaller exchange edged up 0.3% to 943.87.
A small drug maker, Guilin Sanjin Pharmaceutical Co., announced it will become the first IPO of 2009, debuting June 29 in Shenzhen. The decision to begin gradually with a smaller company reassured investors who worried that the first IPOs might be for big companies, which could depress prices by flooding the market with shares.
Brokerage stocks rose in anticipation of new IPO-related business. Sinolink Securities Co. climbed by the daily 10% limit to 21.46 RMB, and Northeast Securities Co. surged 5.7% to 31.96 RMB.
Health-related shares climbed on expectations that the outbreak of swine flu might boost sales and on news that a drug maker would be the first new IPO. Merro Pharmaceutical Co. advanced the daily limit of 10% to 6.9 RMB, while Beijing Tiantan Biological Products Corp. leaped 6.9% to 25.52 RMB.
Banks and real estate shares also rose. Industrial & Commercial Bank of China Ltd., China's biggest commercial lender, climbed 2.4% to 5.19 RMB. Bank of China Ltd. gained 4.4% to 4.29 RMB, while China Construction Bank, Ltd. crept up 0.7% to 5.91 RMB.
China Vanke Ltd., the country's biggest developer, vaulted 3.9% to 12.39 RMB, while rival Poly Real Estate Group added 1.6% to 26.22 RMB.
TAIWAN
Taiwan stocks rose 1.41% on Friday to a one-week closing high, as upbeat US economic data lifted tech and financial shares, but Powerchip slid as it tried to reach agreement with bondholders.
The main TAIEX share index closed 86.62 points higher at 6,231.15, its highest close since June 12 and bouncing back from the previous session's 1-1/2-month low.
Turnover hit a three-month low of T$83 billion ($2.5 billion) as investors stayed away following a pull-back of about 3% this week that has made the TAIEX one of the world's worst performers during this month.
The financial sub-index jumped 1.7%, with Cathay Financial , the island's top listed financial holding firm, up 1.5%.
Smartphone maker HTC advanced 2.6%, after a local newspaper said HTC and Chunghwa Telecom will offer a smartphone using Google's Android operating system for free to some subscribers.
Powerchip, Taiwan's largest DRAM maker, slid 7% by its daily maximum limit, bucking the semiconductor sub-index's 0.59% advance.
Late on Thursday, Powerchip said it would extend the deadline for bondholders to accept its offer to reset the terms of a $158 million convertible bond that matured on Wednesday, as it had yet to secure agreement from a sufficient number.
Powerchip's smaller rivals Nanya Technology rose 1.8% while ProMOS Technologies lost nearly 1%.
SINGAPORE
Singapore shares closed 1.61% higher Friday, snapping six straight sessions of losses, but dealers said the market was still looking for firm leads.
The blue-chip Straits Times Index jumped 35.98 points to 2,273.18 on volume of 1.56 billion shares worth 1.21 billion Singapore Dollars (828 million US).
Gainers led losers 338 to 132, with 808 issues unchanged.
Banking shares closed higher. United Overseas Bank gained 44 cents to 14.54, DBS was up 14 cents to 11.64 and Oversea-Chinese Banking Corp inched up five cents to 6.70.
Among property shares, Capitaland advanced five cents to 3.55 and City Developments climbed 27 cents to 8.77 but Keppel Land eased a cent to 2.17.
Singapore Airlines gained 30 cents to 12.78 while Singapore Telecommunications fell two cents to 2.91.
Agribusiness group Wilmar International was up 14 cents to 4.96 and shipping firm Neptune Orient Lines closed seven cents higher at 1.53.
INDONESIA
The Indonesian index was up 2% on Friday, ending a 6.8% fall over the previous four days, pushed up by a 4% surge in Astra International and a 7.5% gain in top lender Bank Mandiri.
The JCI closed at 1,990.47, up a full 2.02% on the day.
MALAYSIA
Share prices on Bursa Malaysia closed firmer Friday on active buying in key heavyweight counters like Sime Darby and Maybank, dealers said.
The benchmark Kuala Lumpur Composite Index (KLCI) closed the day 5.09 points higher at 1,059.5 after opening 4.49 points higher at 1,058.9.
On the scoreboard, the Plantation Index gained 4.4 points to 5,328.63, the Finance Index jumped 82.25 points at 8,493.7 and the Industrial Index went up 25.82 points to 2,354.05.
The FBMEmas Index increased 36.37 points to 7,098.53, the FBM30 Index advanced 57.26 points to 6,795.83, the FBM2BRD Index inched up 6.99 points to 4,814.15 and the FBMMesdaq Index gained 10.43 points to 4,139.51.
Losers outnumbered gainers by 338 to 306 while 231 counters were unchanged, 352 untraded and 37 others suspended.
Volume slipped to 1.352 billion shares worth RM1.522 billion from 1.733 billion shares worth RM1.618 billion Thursday.
Leading the active counters Friday were Compugates and Mulpha which gained half a sen each to 7.5 sen and 56 sen respectively.
Meanwhile, KNM fell two sen to 86.5 sen, UEM Land dropped eight sen to RM1.51 and Tebrau Teguh lost 3.5 sen to 78 sen.
Key heavyweight gainers for the day included Sime Darby which rose 20 sen to RM7.00, Maybank which increased five sen to RM5.70 and Bumiputra-Commerce which jumped 30 sen to RM9.25.
Tenaga Nasional dropped five sen to RM7.55 and British American Tobacco slipped 75 sen to RM44.50.
Genting and Petronas Gas however gained 10 sen each to RM5.45 and RM9.80 respectively.
Volume on the Main Board slipped to 1.218 billion shares worth RM1.48 billion from 1.348 billion shares worth RM1.513 billion Thursday.
Turnover on the Second Board saw a significant drop to 76.698 million shares valued at RM29.157 million from 217.143 million shares valued at RM71.218 million previously.
Volume on the Mesdaq Market went down to 32.9 million shares worth RM6.323 million from 129.714 million shares worth RM24.238 million on Thursday.
Warrants decreased to 19.705 million units valued at RM3.374 million from 25.682 million valued at RM5.143 million previously.
THAILAND
Thai shares jumped 3.25% in value Friday on a regional rebound prompted by better economic indicators in the US.
The Stock Exchange of Thailand (SET) index ended at 588.98, up 18.55 points or 3.25%.
The Bangkok bourse had fallen from Monday to Thursday.
INDIA
Indian shares snapped a two session losing streak Friday led by infrastructure, real estate and metal companies.
The Bombay Stock Exchange's Sensitive Index, or Sensex, rose 1.8%, or 256.36 points, to close at 14521.89 after trading between 14179.77 and 14559.08 in a volatile session.
Friday's gains were helped by investors accumulating stocks at lower levels following as the 30-stock Sensex fell 4.7% for the week - its first weekly loss after 14 consecutive weeks of gains.
Dow Jones Technical Analysis tips the Sensex in a 13700-15600 range for next week.
On the National Stock Exchange, the 50-stock S&P CNX Nifty index rose 62.20 points, or 1.5%, to 4313.60.
The total traded volume on the Bombay Stock Exchange was about INR59.52 billion, compared with Thursday's INR71.56 billion. Gainers outnumbered decliners 1,345 to 1,293, while 66 stocks were unchanged.
The BSE Capital Goods Index was the biggest gainer among the 13 sectoral indexes, soaring 4.6% to 12259.94, led by index heavyweight engineering and construction firm Larsen & Toubro, which surged 5.7% to INR1,496.10.
Reliance Infrastructure jumped 5.1% to INR1,262.25, while Jaiprakash Associates gained 4.7% to INR200.25.
Bharat Heavy Electricals ended up 2.8% at INR2,090.50, after India's Minister Of Heavy Industries Vilasrao Deshmukh said the federal government was considering selling up to a 10% stake in the state-run company.
In the real estate sector, DLF, the nation's largest property developer by sales, recovered from its 3.3% fall Thursday and increased 2.6% to settle at INR330.55.
Metal gainers included Tata Steel, which rose 5.9% to be the biggest gainer on the Sensex, ending at INR411.75.
The company Friday raised prices on local hot-rolled and cold-rolled steel products by INR500-INR750 per metric ton.
Vedanta group's Sterlite Industries reversed all of Thursday's 2.3% loss, ending up 3.0% at INR606.70.
Reliance Industries, the nation's biggest company by market value, rose 0.7% to INR2,039.60, after losing more than 14% in the past four sessions on concerns its future earnings may get hurt after an Indian court ordered it to sell gas to former group company Reliance Natural Resources at nearly half the price recommended by the government.
State-run NTPC, down 2.2% at INR198.10, and Tata Power, down 1.1% at INR1,164.35, were among the few Sensex losers.
AUSTRALIA
Support for the Australian share market continued to build Friday after Wall Street bucked a three-day losing streak, thanks to stronger-than-expected economic data, which also helped support commodity prices.
Reflecting the improved tone, some cyclical sectors rallied, while a number of defensive sectors retreated.
The benchmark S&P/ASX 200 index closed up 7.5 points or 0.2% at 3899.6, its first rise in five days, after hitting a two-day high of 3933.8. The index lost 4.0% for the week, leaving it 25% above its March low.
Growth sectors including energy, financials and industrials rallied, while among defensives sectors, consumer staples, telcos and utilities lost ground.
Traders said resources were restrained by continued selling by investors raising funds to take up their Rio Tinto entitlement offer.
BHP Billiton closed flat at A$34.70 and Rio Tinto fell 3.4% to A$50.72.
Elsewhere in the materials sector, Bluescope surged 9.1% to A$2.63 and Fortescue rose 4.0% to A$3.86.
In the energy sector, WorleyParsons jumped 5.0% to A$24.13 after winning contracts for consultancy services to build two nuclear reactors, one in Egypt and the other in Armenia. Woodside Petroleum rose 2.7% to A$41.61 as crude oil remained supported above US$70.00.
CBA rose 1.1% to A$38.50, Westpac rose 1.0% to A$20.11, ANZ rose 1.2% to A$16.55 and National Australia Bank rose 0.2% to A$22.10.
Banks are well capitalized and faced less competition, due to the exodus of foreign banks and customer migration from non-bank financial institutions.
Southern Cross Equities favored Westpac because of its underperformance versus its peer group and the potential for St. George Bank integration synergies to beat guidance.
Elsewhere in financials, AXA Asia Pacific rose 4.7% to A$3.98 and Macquarie rose 0.8% to A$37.25. CLSA's Johnson initiated Macquarie coverage with a buy rating.
In the industrials sector Leighton Holdings, rose 4.0% to A$22.97 after a three-day selloff and Macquarie Airports rose 3.6% to A$2.33 after reporting that air traffic declines moderated in May.
Among defensive sectors, health care stocks strengthened, with CSL rising 1.4% to A$31.55 and Cochlear up 1.3% to A$56.84.
But telcos, consumer staples and utilities fell.
NEW ZEALAND
New Zealand shares drifted to a weaker close late Friday in light trade.
The NZX-50 ended down 0.5%, or 14 points, at 2784.27.
A 3.0% slide in bellwether Telecom to NZ$2.61 weighed on the index. Brokers said the stock lost ground on some light profit taking after gaining Thursday on news the telecommunications regulator announced terms in which rivals of Telecom could access its unbundled sub-loop network.
National carrier Air New Zealand also continued to lose ground, ending down 4.3% at NZ$0.90.
Brokers have said investors are increasingly worried about the impact of the global slowdown and the possible impact of swine flu.
Health Minister Tony Ryall Friday said the ministry is changing its approach to management from containment with the virus established in the main cities of Auckland, Wellington and Christchurch. According to the latest figures, the cumulative total of confirmed cases in New Zealand is 216.
Auckland Airport, another stock that stands to be affected by swine flu, shed 1.3% to NZ$1.57.
Medical devices maker Fisher & Paykel Healthcare shed 2.0% to NZ$2.88 as the high New Zealand continued to weigh on the stock. Technology concern Rakon, another exporter, fell 3.2% to NZ$1.52.
In the other direction, construction company Fletcher Building had a bit of a "fight back rally," gaining 1.2% to NZ$6.53.
The company is widely expected to benefit from the government's home insulation scheme to insulate homes and subsidize heating devices.
Contact Energy also ended in positive territory, gaining 0.9% to NZ$5.83. |
| Global Commodities
'Food for thought' or 'a Grain of truth' ..... |
 Oil prices established a foothold above the $70-a-barrel mark this week, helped by suggestions the Chinese economy was rebounding faster than expected.
With crude having hit an 8=-month high of $73.23 last week, debate continued between analysts over whether the market had been overbought and a retreat was imminent.
Bulls pointed to the World Bank's raising its forecast for Chinese GDP growth as evidence that its demand for commodities would support prices.
The US government said American motorists had increased their year-on-year travel for the first time in 16 months in April.
Goldman Sachs restated its bullish predictions for crude, saying there would be an improvement in fundamentals underpinning energy prices in the third quarter. Goldman has said it sees oil hitting $85 a barrel by the end of the year.
However, certain analysts said oil was due "a strong correction" and questioned the idea that current levels of economic growth could support crude at the prices seen in June.
Analysts played down the significance of news of further attacks on Nigerian oil pipelines by militants. "In our view, the positive price momentum and positive investor sentiment are the dominant drivers for the oil price hike," said analysts at Commerzbank.
"Investors are looking for a confirmation of their bullish expectations and find it in the news flow from Nigeria."
Nymex West Texas Intermediate oil futures for July delivery rose to a weekly high of $72.77 but finished the week down 4.3% at $69.55 a barrel. The August contract, which becomes the front month contract on Monday, traded at $70.02 a barrel.
ICE August Brent, the European benchmark, was down 2.4% at $69.19.
Spot gold prices dropped 0.3% to $935.20 a troy ounce as data showing that US inflation was still contained lessened the metal's appeal as an inflation hedge.
Copper briefly fell below $5,000 a tonne on fears that supply was still too abundant. It recovered slightly to end the week at $5,020 a tonne, down 3.8%. |
| Global Currencies
In for a Penny, in for a Pound ..... |
The Euro lost ground this week as worries over the health of the Eurozone banking system weighed on the single currency.
The European Central Bank warned that banks in the region might face another $283bn of losses by the end of next year.
Next week's auction of one-year funding from the ECB was also hitting demand for the Euro, putting pressure on short-term interest rates in the Eurozone.
There is market talk that European banks - and banks with branches in the Eurozone - were eager to secure the long-term funding available and that the tender was likely to be heavily subscribed.
This would put pressure on the Euro as banks converted the funds into other currencies.
Remember that it is not just Eurozone banks that have access to the ECB's facilities but also branches of foreign banks operating in the Eurozone as well. It is reasonable, it seems, to expect that some of the liquidity that the ECB makes available 'leaks' out of the region as the branches shift some of funds secured in the tender.
Over the week, the Euro lost 0.3% to $1.3977 against the Dollar, 2.6% to Y134.23 against the Yen and 0.5% to #0.8471 against the Pound.
Meanwhile, the Dollar was buffeted by seemingly conflicting comments from Russia over its status as a reserve currency.
The Dollar rallied strongly ahead of the Bric (Brazil, Russia, India and China) meeting in the Russian city of Yekaterinburg on Tuesday after Alexei Kudrin, Russian finance minister, allayed fears about diversification away from the Dollar.
He said there was "no alternative" to the Dollar as a reserve currency and Russia had confidence the currency was in "good shape".
But the Dollar suffered after Dimitry Medvedev, Russia's president, said there was a need to "consolidate" the international monetary system.
However, even if Bric representatives claimed that a move away from the Dollar was too early, the underlying message was still that, at some stage, a move out of the Dollar was a distinct possibility. The Dollar was hit further Thursday after Moody's placed California's credit rating on watch for a multi-notch downgrade. Over the week, the Dollar fell 1.8% to Y96.05 against the Yen and lost 0.3% to $1.6494 against the Pound.
The Dollar was flat on the week at SFr1.079 against the Swiss Franc, which endured a volatile week. It rose to a three-month high against the Euro after the Swiss National Bank declared intervention to stem the currency's strength had been successful on Thursday.
This prompted traders to test the SNB's tolerance, pushing the Swiss Franc up to a high of SFr1.5004, its strongest level since the central bank intervened to halt currency appreciation in March.
But the Swiss Franc fell sharply on speculation that the SNB had re-entered the market to sell the currency against the Euro later in the session. This left it 0.3% lower at SFr1.5078 against the Euro over the week.
South Africa's Rand strengthened against the Dollar, paring a weekly decline, as signs the global recession may be easing boosted demand for higher-yielding assets.
The Rand traded 0.8% stronger at 8.0899 by 5:10 p.m. in Johannesburg, from 8.1650 Thursday, trimming the retreat since June 12 to 0.9%. The rand gained 0.7% versus the Euro to 11.2686 Friday, for a retreat of 0.3 this week.
The Australian Dollar jumped against the greenback, rallying from 0.7982 to 8117 as traders moved into riskier assets.
Finally for currencies this week,l the RMB dropped against the US Dollar solely on Global US Dollar strength.
Dealers said they expect the RMB to continue trading between CNY6.8300 and CNY6.8400 in the near term as the government seeks a stable currency during the global financial crisis.
On the over-the-counter market, the Dollar ended at CNY6.8362, up from Thursday's close of CNY6.8347. It traded between CNY6.8339 and CNY6.8394. |
| China
Key news eminating from China this week ..... |
 China's securities regulators on Thursday set the stage for the resumption of mainland initial public offerings by granting approval to a relatively small market debut from Guilin Sanjin Pharmaceutical Company, official Chinese press reported.
The listings approval from the China Securities Regulatory Commission is the first since last September and the company is likely to be among the first to list on the mainland exchanges in nearly 10 months. Some 32 other companies are planning to come to the market when the CSRC lifts its moratorium on listings, which is expected imminently.
Guilin Sanjin, a maker of Chinese traditional medicines, won initial approval for its IPO last June. The Chinese group announced in the official China Securities Journal that it would issue up to 46m shares on June 29 to raise funds for projects that require $93m in investment.
There were expectations in the market on Friday that more small IPOs might be approved later in the day by the CSRC.
Beijing regulators have been debating whether to test the market with a very large IPO - like one from China State Construction Engineering Corp, a large home builder, whose prospectus said it wanted to raise about Rmb42bn - or a much smaller listing which might not rock the market.
Companies like Everbright Securities, a brokerage firm, and China State Construction Engineering, have been waiting for up to a year to go public, but the slump in the Chinese stock market in 2008 led the CSRC to suspend IPOs in September.
Since the CSRC made its first serious noises about IPO resumption more than three weeks ago, there have been daily stories in the Chinese press about which company will come first, and the market has reacted quite calmly.
Reuters estimates as much as Rmb100bn in new shares could hit the market once IPOs resume - though analysts caution that this is largely guesswork, since no one knows how many of the pipeline companies may have since altered their plans.
If the past is anything to go by, the amounts involved could be significant: Dealogic figures show that in 2007, there were 120 mainland listings worth $63bn. Global IPOs so far this year are scarcely a tenth of that, at just under $6bn, with $2.3bn in Asia excluding Japan.
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The World Bank raised its forecast for China's 2009 gross domestic product growth to 7.2% on Thursday, saying the apparent success of the government's stimulus package had improved the outlook from March - when the bank predicted 6.5% growth for the year.
But the World Bank said a sustainable recovery was not yet assured, in spite of the government's Rmb4,000bn ($590bn) fiscal stimulus, and that Beijing might have little room for additional measures this year.
"Government-influenced investment will strongly support growth in 2009. However, there are limits to how much and how long China's growth can diverge from global growth based on government-influenced spending," said Ardo Hansson, the bank's lead economist for China. "It is too early to say a robust, sustained recovery is on the way."
With government revenues falling and expenditure rising rapidly, the bank predicts that China's fiscal deficit will climb to almost 5% of GDP this year, well above the 3% budgeted by Beijing and a large jump from last year's deficit of 0.4%.
"On current projections it is not necessary, and probably not appropriate, to add more traditional stimulus in 2009," said Louis Kuijs, senior economist and main author of the quarterly update released on Thursday. "One reason is that the fiscal deficit is on course to be significantly higher than budgeted this year and additional stimulus now would reduce the room for stimulus in 2010."
Market-based investment and consumption are unlikely to rebound until the rest of the world starts to recover convincingly and the collapse in Chinese exports is reversed. Chinese exports fell about a quarter in the first five months of the year from the same period a year earlier.
China's economy grew 6.1% year-on-year in the first quarter, faster than any other leading country but well below the government's full-year target of 8%.
The World Bank said it expected China's economy to grow 7.7% in 2010, a much slower pace than the 13% reached in 2007 and the 9% rate of last year.
The bank estimates a full 6 percentage points of this year's 7.2% GDP growth will come from investment and spending either carried out by the government or directly influenced by it.
Beijing's stimulus package has largely been directed towards new infrastructure projects and other fixed-asset investments, raising the already high proportion of growth generated in those areas.
Beijing has been trying for years to shift its growth model away from investment towards a more consumption-driven economy but has struggled to make progress, in part because the absence of state-funded social welfare convinces households to save a high proportion of their income.
"There are limits to how much additional infrastructure-oriented stimulus can be spent effectively and efficiently," the World Bank report said. "If policymakers are concerned about the adverse consequences of the downturn for households, it is less costly to address these by using and beefing up the social safety net."
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Bluenext, Europe's largest carbon credit exchange, and China Beijing Environmental Exchange (CBEEX) set the cornerstone for an international trading platform for Chinese carbon emission credits on Thursday with an agreement to offer information on Chinese emission-reducing projects to potential foreign investors on Bluenext's website.
The agreement - coming ahead of a Copenhagen meeting in December which is due to decide on a successor to the Kyoto protocol - signals that exchanges are set to take a larger role in the sale of Chinese carbon credits to foreign investors and eventually making such credits freely tradable.
"Developing carbon trading has been our policy for 10 years now, but we haven't come along far enough in completing a clear regulatory framework," said Li Junfeng, deputy director at the Energy Research Centre of the National Development and Reform Commission, China's main economic policy planner. "So now you can take the first step and go forward."
Under the Clean Development Mechanism (CDM), developing countries can create Certified Emission Reductions (CER) from renewable energy projects or other projects that have been certified to reduce carbon emissions.
"China is the world's largest supplier of such reductions with about 100m tons a year, accounting for 66% of all contracted CDM supply," said Wei Zhihong, deputy director of the Global Climate Change Institute at Qinghua University. "This has the potential to grow to 1bn tons a year by 2020."
Since the country does not need to reduce its emissions under the Kyoto protocol, all these reductions can be sold to foreign users who need carbon credits.
However, China's supply has been piling up quickly as the country lacks channels for marketing and trading the credits, and Chinese utilities mainly sell emission reduction rights through brokers to foreign investors - a slow, comparatively inefficient and intransparent process.
Since January 2008, more than 1,700 certified emission-reducing projects have accumulated in the pipeline.
CBEEX is just one of several environmental exchanges in China. But since it was set up by the Beijing municipal government last August, it has mostly collected projects that qualify for CDM such as a hydropower station under construction in the northwestern province of Gansu - which is expected to generate reductions of 70,000 tons of CO2 from 2010 - or the modernisation of a coal-fired municipal heating system which will generate another 40,000 tons.
The exchange's role will eventually have to be to package emission rights into different products, Mr Wei said.
Datang, China's leading power generation enterprise, had Rmb80m in revenues from the sale of CDMs.
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China has introduced an explicit "Buy Chinese" policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.
In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.
The edict was issued jointly by the legislative office of the State Council, China's cabinet, the national development and reform commission (the country's powerful state planning agency) and the ministries of industry and information, supervision, housing, transport, railways, water resources and commerce.
The new edict bans local governments and departments from discriminating against domestic suppliers in their procurement. Foreign companies operating in China argue that the opposite is in fact true and that they have been largely cut out of procurement related to the government's stimulus package.
"We are puzzled by this discussion, especially since most European companies operating in China are locally incorporated and have not benefited directly from the government's stimulus package," said Joerg Wuttke, president of the European Union Chamber of Commerce in China. "Requiring government procurement to favour Chinese goods and services certainly won't help to address China's trade surplus of €170bn."
Trade data in recent months show import volumes, particularly of raw materials, have stabilised and started to increase strongly, while exports have stabilised but remain very weak following precipitous drops in both exports and imports since the fourth quarter of last year. China's trade surplus rose 15.7% to $88.8bn in the first five months from the same period a year earlier. |
| Summary
The coming week looks like ..... |
Without further signs of life in the lackluster economy or hints from the Federal Reserve the outlook is improving, the US's three-month rally may run into more obstacles next week.
But there is a lot of data to chew on next week, that's for sure.
Investors will assess data on new and existing home sales that could point to whether the battered housing sector has bottomed. They will also keep an eye out for profit forecasts or warnings as the second quarter draws to a close.
The Fed is widely expected to leave rates unchanged after its two-day meeting ends Wednesday, but investors will closely check its statement for clues on the central bank's economic outlook.
Some other data next week that could shed some light on the economic outlook will include durable goods orders, personal income and spending data, and weekly jobless claims.
While expectations are that the Fed will keep rates steady next week, the question is: How long will the Fed keep rates near historic low levels? The Fed's last decision on rates was in December, when it cut the benchmark fed funds rate to almost zero from 1%.
In the coming week, Federal Reserve Chairman Ben Bernanke is scheduled to testify on Thursday at a congressional committee hearing on the Bank of America-Merrill Lynch merger. This week, Representative Edolphus "Ed" Towns, a Democrat from New York, issued a second subpoena on Friday to the Fed seeking more documents, dating from last September through January, on the closed-door merger talks.
With the second quarter ending June 30, investors may see some pre-announcements from companies that could provide a better picture of how the corporate reporting period will look. Outlooks for the third quarter also will be crucial.
US corporate earnings, a major influence for the stock market, have been slow to recover since the recession. Data shows a decline in second-quarter earnings of 34.4% from a year ago.
Existing home sales are expected on Tuesday and new home sales are due the following day.
Other economic data next week includes a report on durable goods orders for May on Wednesday and data on the final US first-quarter reading on gross domestic product on Thursday along with weekly jobless claims.
On Friday, May personal income and spending figures will be released, followed by the final reading for June from the Reuters/University of Michigan consumer sentiment index.
Outside of the US, the front of next week is dominated by European economic data with the German IFO report coming out on Monday followed by PMI numbers on Tuesday.
The improvement in investor sentiment and the uptick in manufacturing PMI last month could boost business confidence. However activity in the manufacturing and service sectors this month could slow due to the residual effects of Euro strength. ECB President Trichet will be speaking on Monday.
Next week, the UK economic calendar is devoid of any meaningful data which means that Dollar sentiment will continue to determine price action of the Pound versus US Dollar.
The only releases expected are house prices and the CBI Distributive Trades survey. Bank of England officials are expected to testify on Thursday, which is the only time I expect some Sterling driven activity in the currency markets next week.
As mentioned at the start, Bank of England Governor King believes that it is too early to draw strong conclusions about the recovery because "no one knows what will happen. It's very easy to lose confidence quickly and indeed it was lost in a very short period of time. You can't regain it quickly, so it's bound to take a lot longer to recover than it was to fall into recession, which was a very sharp fall in activity over the last six months. I don't think it would be sensible to expect activity to pick up as quickly."
Here in the AsiaPac' region, according to the minutes from the May Bank of Japan monetary policy meeting, the central bank recognized the recent improvements in economic data and financial conditions but remained downbeat about the state of the economy.
The consumer price report is the most important piece of economic data from Japan next week. The market expects inflation to ease further, raising fears of deflation.
The recent weakness of the Japanese Yen should also help to bolster the trade balance, but with global demand still tepid, I do not expect a meaningful pickup in trade.
There are few top-tier Australian economic indicators next week; the focus instead will turn to New Zealand as they have GDP and the current account balance due for release.
All things considered, I feel that next week will be 'more of the same' with another 'negative' feel to the week.
Of course those 'Bulls' will try to talk the markets up again but they are now running out of things with which they can paint a rosy picture.
As we say, "it all comes out in the wash eventually" and no matter what spin the 'traders' are putting on things, we're still not out of those woods yet! |
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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