Archive forJuly, 2012

Mid Morning Market Report, 31st July 2012

It seems that hope still springs eternal and this is what has accounted for the impressive rebounds in markets over the past week and reflect how much investors want to believe that the panacea for years of economic mismanagement is only relatively a heartbeat away. Since the end of 2011, markets have managed to rally by around 10% during the first quarter of 2012 before giving back much of the gain in the second. Similarly, since the start of June, markets have generally recovered to a broadly comparable degree, by between 8% and 13%. After all the volatility, at the end of July in local currency terms the S&P 500 Index stands a net 10% up year-to-date, the Hang Seng +7.1%, the FTSE 100 +2.2%, the DAX +14.9% but Spain’s IBEX down 20.6%. In comparison, after a strong 14% rise in Q1, the gold price now stands just 3.8% up year-to-date.

US and Germany pledge cooperation to stabilize Eurozone

The US Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble pledged to cooperate in advancing policies to stabilise the Eurozone. The ministers met on the northern German island of Sylt, yesterday.

ECB President Mario Draghi turns proactive on debt crisis

ECB President Mario Draghi is scheduled to meet the US Treasury Secretary and the Bundesbank President to build consensus on tackling the Eurozone’s soaring borrowing costs, ahead of the ECB policy meet on Thursday. According to two central bank officials, Draghi’s proposal includes Europe’s rescue fund purchasing government bonds on the primary market, supported by ECB purchases on the secondary market to ensure interest rates are kept are record-low levels. Also, European policymakers are exploring last options to reduce Greece’s debt by an additional €70-100bn.

Mid Morning Market Report, 27th July 2012

With just a few words from the silver-tongued Mario Draghi, President of the European Central Bank, the world is suddenly a safer, warmer, place. Addressing the London 2012 Global Investment Conference on the eve of the Olympics, Mr Draghi’s comments suggested that the existing structure of the ECB actually allowed it to support directly sovereign debt issues to counter excessive borrowing costs such as face Spain and Italy in particular. Although this triggered rallies in bond and equity markets around the world, it does again prompt the question ‘Who is going to pay ?’. If or, eventually, when the ECB can act like other fully-fledged central banks, it may be able to print its way through the Eurozone’s problems like the Bank of England and the Federal Reserve are able to do for their national currencies while putting concerns about inflation on the back-burner.

We’ll do ‘whatever it takes’ to save the Euro: Mario Draghi

The European Central Bank (ECB) President Mario Draghi yesterday sent a strong signal of action in support of the Eurozone during his speech in London. Draghi said that the ECB would take all necessary steps to protect the Euro. This news comes days after concerns mounted over Greece needing yet another bailout. The ECB is likely to discuss concrete measures to tackle Spain and Italy’s soaring borrowing costs at a policy meet next week.

Mid Morning Market Report, 26th July 2012

Given the current flow of ambivalent economic indicators overlaid with the blizzard of mixed corporate results it is no surprise that markets appear to be diffident. The FTSE 100 Index closed Wednesday unchanged after the news of a third successive quarter of negative economic growth. Broadly, recoveries in the banks after the recent phase of bashing offset falls in mining shares. On the upside, chip designer and supplier to Apple Inc ARM Holdings gained 8.6% after revealing Q2 sales growth of 15% – above analyst estimates – although the company expressed caution about the rate of future growth given the uncertain demand outlook, particularly as i-Phone aficionados delay purchases until the new model due later in the year. Among the decliners, Tullow Oil continued its recent sell-off (6.3% lower and down by 16% since the start of the month) on indications that the estimated level of crude oil in some of its field off the coast of Ghana is below estimates.

ECB’s Nowotny merits giving the ESM a banking licence

Ewald Nowotny, member of the European Central Bank’s Governing Council, suggested that the European Stability Mechanism (ESM) could be leveraged by granting it a banking license; this would enable the bailout fund to exchange the bonds it purchases from troubled Eurozone countries for fresh cash from the ECB. The idea had until now been shunned by the President of the ECB, Mario Draghi.

Mid Morning Market Report, 25th July 2012

by Mike Franklin, Head of Investment Stratagy, Beaufort International Associates The Bearfest continued on Tuesday as equity markets succumbed to concerns in the Eurozone as Spain appeared to edge closer to needing a fullscale sovereign bailout and as representatives of the Eurozone ‘Troika’ (the European Commission, the European Central Bank and the International Monetary Fund) […]

Greece would need further debt restructuring: EU

EU officials said on Tuesday that Greece is likely to be way off-track in meeting debt obligations, thus requiring the ECB and Eurozone governments to further restructure some of its €200bn debt. The latest growth estimates from Greece show that the economy contracted 7% this year.

Mid Morning Market Report, 24th July 2012

Finally, the credit rating agency hordes have reached the gates of Berlin. In all this sorry saga about the Eurozone, you might well ask if nothing is sacred. However, the risk of a German downgrade has been mooted for some months now as triple-A rated Germany has had to stump up for successive bailouts for weaker Eurozone members. At this stage, it is just Moody’s ‘Outlooks’ for Germany and for The Netherlands and Luxembourg that have been downgraded to ‘negative’ from ‘stable’ on the grounds of ‘rising uncertainty’ amid mounting speculation that Greece may be close to an exit from the Eurozone. Certainly, the move is unlikely to be politically helpful for German Chancellor Merkel.

China’s PMI rises to five-month peak

HSBC’s China purchasing managers’ index (PMI) rose to 49.5 in July from 48.2 in June, led by an increase in the output sub-index to 51.2 – the highest level since October 2011.

Mid Morning Market Report, 23rd July 2012

Valencia, on the mid-Eastern coast of Spain, is noted for growing a sweet variety of orange. However, it yielded a more bitter fruit on Friday as news emerged that the region was in financial difficulty and would need support from Madrid. This and the continuing weakness of the Spanish Government 10-year bond (the yield at this stage standing at 7.2%) undermined sentiment in Europe and on Wall Street with index falls of 1% commonplace and Spain’s Ibex 35 Index closing 5.8% down at 6,246. That said, after some encouragement from corporate results, the S&P 500 and Dow Industrial indices still managed to record gains over the week of around 0.4% along with rises in France (+0.4%) and Germany (+1.1%). The FTSE 100 was marginally down (- 0.25 %) as pressure on the banks such as HSBC (-4.6% over the week) took its toll.

Debt-ridden Valencia requests Spanish government aid

Valencia, one of Spain’s most indebted regions, has sought financial aid from Madrid, raising serious fears about the country needing a full-fledged sovereign bailout. On Friday, the government further cut its GDP forecast for 2013, hinting the country would remain in recession well into 2013-the economy is expected to contract 1.5% in 2012.

Mid Morning Market Report, 20th July 2012

Big picture considerations took a back seat on Thursday as markets generally focused on corporate results. Market indices in Europe gained around 0.8% while the FTSE 100 closed up 0.5% on the day. Major drivers in London were Burberry Group (+4.6%) in sympathy with better-than-expected second quarter results from that purveyor of silk scarves and other luxury goods, Hermes International. Banks enjoyed a better day than of late with RBS Group up 3.9% alongside news that it successfully bid for an almost $900 million portfolio of former Bear Stearns assets. FTSE 350 constituent, motor parts and cycle retailer Halfords Group rose 4.3% as CEO David Wild felt obliged to ‘get on his bike’ and resign on announcing a 7.5% decline in Q3 sales.

German parliament approves Spanish bank bailout

German Chancellor Angela Merkel won support for the bailout for Spanish banks with a resounding majority, despite some dissent from her coalition partners. Eurozone leaders are expected to approve the aid of up to €100bn for Spanish banks on Friday-the exact loan amount is expected to be determined only in September.

ECB could play larger role in fighting debt crisis: IMF

In a recent report, the IMF said that the European Central Bank (ECB) could play a bigger role in countering the sovereign debt crisis by implementing further rate cuts, undertaking more bond purchases and increasing liquidity.

Ben Bernanke offers no clear signs of monetary easing

US Fed Chairman made no clear indications of implementing additional monetary measures at a hearing with the US Senate on Tuesday, but restated that further action to boost the economy would be taken when the need arises. He highlighted slow recovery in unemployment as the primary concern and expressed downside risks from the Eurozone crisis.

IMF cuts global growth forecasts; warns about Eurozone

The IMF cut its global growth forecast for 2013 to 3.9% from 4.1% estimated in April and warned of further downside risks if Eurozone leaders failed to quell the debt crisis. The forecast for 2012 remained unchanged at 3.5%. The IMF projected that emerging economies would grow 5.6% and 5.9% in 2012 and 2013, respectively (each estimate is 0.1% lower than that in April). It expects the Eurozone to grow 0.7% in 2013 after contracting 0.3% in 2012.

China’s economic recovery yet to gain momentum

China’s Premier Wen Jiabao warned that the country’s economic recovery is yet to establish momentum and indicated that further policy stimulus measures could be announced later this week. China also announced it would relax taxes on profits made by foreign companies by up to 50% to incentivise overseas investment. The decision also applies to dividends paid by China-based companies to foreign shareholders via the Qualified Foreign Institutional Investor scheme.

China’s Q1 2012 GDP growth slows to 7.6%

China’s economy grew 7.6% in Q2 2012, the slowest since Q1 2009, after growing 8.1% in Q1 2012. Though this was in line with expectations, recent data indicating easing inflation and cooling imports along with unexpected interest rate cuts fuelled fears that Beijing may not meet its FY2012 growth target of 7.5%. Other data released today showed industrial output grew 9.5% in June (against the 9.8% expected).

Spain steps up austerity measures under European pressure

Spain announced €65bn in tax increases and spending cuts after it secured up to €100bn in aid from European partners to shore up its troubled banks. The proposal included a rise in value-added tax on goods and services to 21% and cuts in unemployment benefits and civil service pay. The announcement came after EU leaders approved an additional year (until 2014) for Spain to meet its budget deficit targets.

German court delays verdict on ESM’s legality

Germany’s top court said the verdict on the legality of Eurozone’s permanent rescue fund and the fiscal compact would take longer than expected due to legal complexities. Legislative delays in Italy and legal complaints in Germany have delayed the commencement of the European Stability Mechanism (ESM), which was expected to start in early July. German Finance Minister, Wolfgang Schaeuble, stated any significant delay in starting the permanent rescue fund could rekindle financial market chaos and urged the court for a speedier decision.

China’s import growth below estimates in June

China’s imports rose 6.3% y-o-y in June, below the consensus forecast of an 11% increase. Exports grew 11.3% y-o-y compared to 15.3% in May. Consequently, the trade surplus moved up to US$31.7bn. These figures underscore the weakening domestic demand, even as China battles with faltering demand from the US and EU markets, thus increasing the government’s risk of missing its growth target of 10% in trade this year.

Inflation in China easing, further policy fine-tuning eyed

Annual inflation in China decelerated to a 29-month low of 2.2% in June from 3.0% in May, the National Bureau of Statistics said Monday. Inflation fell 0.6% m-o-m, double the expected rate. Producer prices decreased 0.7% m-o-m and 2.1% y-o-y. This has been ascribed to lower input prices as well as slowing global demand for Chinese goods. On Sunday, Premier Wen Jiabao said the economy, though stable currently, is facing “relatively big” downward pressures and further policy fine-tuning may be necessitated.

Three central banks ease monetary policy

ECB and the People’s Bank of China lowered interest rates while Bank of England extended its asset purchase program, all within a span of 45 minutes, to boost the faltering global economy. Though this indicates intensifying worries about global growth, authorities dismissed the suggestion that these actions were co-ordinated.

Europe’s big economies paint a gloomy picture

Business surveys across thousands of companies indicated that the Eurozone’s economy contracted between March and June. Germany’s services sector stagnated in June, hinting that the country too may be entering a downturn, while Britain’s mild recession extended into the third successive quarter. With poor economic performance indicators suggesting that a recession is looming, the ECB is likely to cut interest rates to a new record low, while the BoE is expected to restart printing presses to purchase bonds.

Expansion in China’s service sector decelerates

HSBC’s services purchasing managers’ index, which tracks smaller firms, slid to 52.3 in June from 54.7 in May due to a drop in new orders. This contradicts China’s official services PMI data that showed the fastest expansion in the services sector in three months in June. Although the difference in the surveys is due to differing methodologies and samples, the surveys depicting a mixed picture of activity, coupled with recent data showing a drop in manufacturing raises hopes of further policy measures to boost growth.

UK to see tepid, but positive growth in Q2 2012 – BCC survey

Findings of a survey by the British Chambers of Commerce (BCC) suggest the UK economy would see positive, but ‘weak and inadequate’ growth in Q2 2012. Recent PMI data shows factory activity shrank in May and June. Similar data for the services sector is expected to show the sector grew marginally. However, easing inflation, the subsequent rise in disposable income, and higher exports to non-European countries could help the economy expand 1.9% in 2013.

Surveys show business sentiment in Asia improving

The Bank of Japan’s quarterly Tankan index of large manufacturers’ sentiment came in -1 in June, beating market expectations of the index stabilising at -4. Large manufacturers also expect conditions to increase capital investment. Meanwhile, China’s official purchasing managers’ index stood at 50.2 in June, ahead of the market consensus of 49.9. China’s new home prices rose 0.1% in June, the first time in ten months.