Sunday, July 11, 2010
On Sunday, July 11, 2010 Asian markets began by showing a moderate rise with mixed signals and market movements. The Nikkei slipped lower after last week's gains. China reported seeing a surge in their trade surplus and exports, beating market expectations. The U.S. Dollar index began trading in the 83.95 - 84.02 range. Gold and silver remain steady, and copper began a modest rise ahead of European market open.
China exports for June were up 43.9% on the same month last year, while the $20bn (£13.2bn) trade surplus was the largest this year.
Analysts said the negative effect of the European debt crisis had not been as bad as feared.
The trade surplus and export figures both beat market expectations.
Exports were worth $137.4bn in June, up 43.9% on June 2009, while import growth was around expectations at 34.1%.
Liu Nenghua, an economist with Bank of Communications in Shanghai, told Reuters: "Exports were better than expected because the negative impact from the European debt crisis was not as serious as the market had feared."
There have been expectations of a slowdown of growth in China and analysts believe that will still happen, although not as sharply as originally feared.
The strong trade figures for June might spark calls for the yuan controls to be relaxed further.
The yuan has gained just 0.78% since China's announcement, fueling Western demands for more action.
A stronger yuan would dampen Chinese exports and boost home consumer spending on cheaper imported products.
Tom Orlik, of Stone & McCarthy Research Associates in Beijing, told Associated Press: "A resurgent trade surplus will clearly strengthen the argument for rapid appreciation of the yuan.
"But with the global recovery on slippery sands, the outlook for China's exports is not as stable as the last two months of data suggest."
Friday's Market WrapStocksU.S. stocks climbed, putting the market on pace for its best week in nearly a year thanks to improving expectations for the second-quarter reporting season beginning Monday. "The earnings are expected to again beat expectations as they have the past couple quarters, but what they're looking for is the guidance," said Roy Williams, chief executive of Prestige Wealth Management. "That will be the big indicator."
U.S. stocks on Friday finished with their best weekly gains in nearly a year, boosted by hopes for the global economy and optimism over the upcoming second-quarter earnings season. The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 10,198, +59.04, +0.58%) gained 58.73 points, or 0.6%, to 10,197.72. The S&P 500 index /quotes/comstock/21z!i1:in\x (SPX 1,078, +7.71, +0.72%) rose 7.68 points, or 0.7%, to 1,077.93. The Nasdaq Composite /quotes/comstock/10y!i:comp (COMP 2,196, +21.05, +0.97%) rose 21.05 points, or 1%, to 2,196.45. For the week, the Dow gained 5.3%, the S&P 500 gained 5.4%, and the Nasdaq advanced 5%, marking the best weekly performance for all three measures since July 2009.
Crude oil futures settled higher Friday, capping the biggest weekly rally since May.
TreasurysTreasury prices dropped Friday, posting losses on the week, as stocks rose and as market participants geared up for another round of government note and bond auctions in the coming week.
ForexThe euro fell against the dollar as the common currency's rally lost momentum, but still ended the week strongly ahead. Riskier assets have benefitted recently from better-than-expected data out of Australia, Canada and the U.S., along with an absence of negative debt-related headlines out of Europe, but investor sentiment deflated somewhat heading into the weekend.
The Week AheadThe second-quarter earnings season begins Monday with a report by Alcoa Inc. (AA), the first blue-chip company to detail results through June.
Little to no signs of inflation are expected when the U.S. government issues its June producer price and consumer price indexes Thursday and next Friday, respectively.
U.S. Treasurys may not yield much at the moment, but that isn't likely to put a damper on investor demand for these low-risk securities at next week's auctions.
Faced with the prospect of a weak and uneven recovery and lingering concerns over Europe's fiscal problems, investors continue to see plenty of reasons to buy traditionally safer government securities.
The financial reform bill could go to the whole Senate for a vote next week as Congress returns from its recess.
The Federal Reserve will hold a conference Monday on financing for small businesses. Chairman Ben Bernanke is scheduled to make opening remarks. The Fed is sponsoring the event to discuss
strategies to improve access to credit for small businesses.
The financial-overhaul bill could come to the Senate floor as soon as next week, when the Senate returns from a one-week recess.
The US Government's sale of $69 billion of three-year notes, split into $35 billion each, $21 billion in previously sold 10-year notes, and $13 billion previously sold 30-year bonds.
"We're not in the camp that thinks the Treasury market has become overvalued," said Chris Diaz, a portfolio manager at ING Investment Management.
"The reaction that we've seen [in the last several weeks] has been logical based on the weaker-than-expected data," he noted, adding that in this environment, he would be a buyer.
Diaz and others don't expect much in the way of good news from the data due next week--meaning Treasury yields may even have room to fall further.
Economists don't see any large changes to consumer and producer price indexes, meaning inflation--the main risk to the fixed returns on longer-dated bonds--will remain muted. Retail sales, jobless claims, and a series of manufacturing data should all point to a long haul ahead in the recovery.
"We're not going to get many numbers that will challenge forecasts of low economic activity," said Lou Crandall, chief economist at Wrightson ICAP.
Sentiment could be shaped by the minutes of the Federal Reserve's June meeting, Deutsche Bank economists said. These should shed more light on how concerned policy makers are about developments abroad hurting the U.S. economy.
Companies' 2Q Results Seen Improving
Second-quarter results are likely to show companies continue to mend their bottom lines while struggling with cautious consumers, tougher comparisons and unfavorable currency fluctuations. Aluminum giant Alcoa reports Monday afternoon, followed later in the week by semiconductor maker Intel Corp. (INTC), search-engine giant Google
Inc. (GOOG) and conglomerate General Electric Co. (GE). Also scheduled to report are large banks J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C) and Bank of America Corp. (BAC).
Semiconductor makers Intel and Advanced Micro Devices Inc. (AMD), which report Tuesday and Thursday, respectively, likely benefited from a continued recovery in demand for computers and other electronic devices in the latest quarter. Analysts predict both companies will swing to second-quarter profits as they compete to increase their market share.
The CPI is expected to show little inflation. Economists expect no change in consumer prices while wholesale prices may have inched up 0.1% in June, according to forecasts for the Consumer Price Index, due next Friday, and Producer Price Index, out a day earlier.
The trade deficit for May, to be released Tuesday, also is seen flat with April's. It has been at about $40 billion since February.
The government will report on June retail sales and May business inventories Wednesday, when the Federal Reserve releases minutes from its latest meeting on interest rates. June industrial
production figures are due Thursday, the same day that the New York and Philadelphia Feds will report on regional manufacturing activities. A preliminary reading of the Reuters/University of Michigan consumer sentiment index for July will be out next Friday.
NYSE Beefing Up Floor GovernorsThe New York Stock Exchange is beefing up the ranks of "floor governors," trading veterans who help the market run smoothly during its bumpiest times.
With new regulations coming into effect, parent company NYSE Euronext (NYX) wants to task more veteran traders with resolving floor disputes and overseeing trade when stock prices start to swing.
The exchange already is in the process of adding more floor governors to its current roster of 17, NYSE spokesman Ray Pellecchia said, following a filing with the Securities and Exchange Commission.
Floor governors, who often wear suits and can be identified by the green stripe on their badges, serve essentially as referees on the court of the trading floor. One of their newest roles is to help
reopen trading in stocks temporarily halted by new circuit breakers implemented after the "flash crash" of May 6, a measure aimed at preventing share prices from rising or falling too quickly.
Financial firms that find themselves in trouble in the future won't get a second chance, according to U.S. Treasury Secretary Timothy Geithner who said, in remarks clearly aimed at ending the notion that some firms are too big to fail Friday.
US Inventories Rise As Sales DropU.S. wholesale inventories rose in May as warehouses were restocked with machinery and other durable goods, the government said.
The report showed sales fell for the first time in 14 months, a point of concern as the economic recovery shows signs of slowing. Yet year over year, sales were up 15.1%.
May wholesale inventories rose 0.5% from the prior month to a seasonally adjusted $398.81 billion, after increasing by a downwardly revised 0.2% during April, the Commerce Department data said. Originally, April inventories were estimated to have registered a 0.4% gain.
The latest buildup of inventories matched Wall Street analysts' expectations.
Sales of U.S. wholesalers decreased 0.3% to a seasonally adjusted $350.65 billion after a revised 0.9% jump in April, the data showed. Originally, April sales were estimated to have climbed
0.7%.
Mortgage Delinquencies SlowDelinquencies on loans in commercial mortgage-backed securities, or CMBS, rose by the smallest amount in 11 months in June, according to Fitch Ratings, although it expects the rate to accelerate again.
Such mortgages have been among the worst performers in the real-estate sector for more than a year as the recession and financial crisis have pressured rents and occupancy levels, and thus property owners' ability to keep current on their borrowings.
Fitch said its CMBS delinquency index rose to 8.14% in June from 7.97% the prior month. The hotel sector continued to have the highest delinquencies, although the rate was flat at 18.6%. Office remained the property type with the lowest rate, although it rose to 4.84% in June from May's 4.59%. Multifamily, retail and industrial properties all saw delinquency rates rise as well.
A fork in the road for markets?Fidelity Viewpoints — July 09, 2010 Excerpt
By Jurrien Timmer, Director of Investment Research, Co-Portfolio
Manager of Fidelity Dynamic Strategies Fund Timmer argues that more quantitative easing is needed from the Fed and/or the European Central Bank before stocks are likely to advance.
Why have stocks and commodities been in correction mode since late April? Well, I believe we are at a fork in the road, and potentially a big one at that. Not only has the U.S. economy hit a
soft patch, but at the same time the PIIGS (Portugual, Ireland, Italy, Greece, Spain) crisis is threatening to infect our financial system in the same way sub-prime did in 2007.
There are two issues here. One is the systemic contagion of impaired European balance sheets and fiscal austerity spilling over to the U.S. and the rest of the world. This has already happened to some degree, which is why the dollar has been strong against the Euro, and liquidity measures have weakened. In my view, a strong dollar is a bad sign at this time, for it is symptomatic of tightening financial conditions.
The more serious issue is whether we could become the next Greece. This is what Harvard professors Niall Ferguson and Ken Rogoff have been writing about. The issue is that the U.S. government has compensated for the deleveraging in the household sector by re-leveraging the public balance sheet through classic Keynesian deficit spending. If they had not done so, many believe it could have been the Great Depression all over again. Instead, we only got a Great Recession.
I think these deficits are no longer just cyclical (as Keynes had intended), but structural. Why? I think it’s because we are an aging society with entitlement programs that have not been fully
paid for, at least not yet.
The debt to gross domestic product (GDP) ratio in the U.S. already is at a post World War II high of 83%, and according to the Treasury’s own estimates it could rise to 119% in the next few
years. That would be higher than the World War II extreme of 116%.
To read the entire article visit:
https://guidance.fidelity.com/viewpoints/jurrien-timmer-july-9?print=true
European MarketsEuropean banks are taking advantage of better sentiment in bond markets to raise money after sovereign bond market volatility limited issuance in May and June.
Greece's first Treasury bill auction since its bailout in May will add some flavor to the glut of government bond supply scheduled in the euro zone next week, writes Emese Bartha.
European Union and Balkan leaders held talks Friday to discuss the region's integration into the bloc and the challenges it faces due to the global economic crisis.
"All of us here are striving for the same goal -- eventual integration of southeastern European countries in the Euro-Atlantic political and security framework," Croatian Prime Minister Jadranka Kosor said on opening the two-day meeting.
About 15 prime ministers and foreign ministers from the region and the European Union gathered in the southern Adriatic resort of Dubrovnik, the Croatian foreign ministry said.
Croatia hopes to conclude membership talks with Brussels by the end of the year and become a full-fledged EU member by 2012.
U.K. mortgage rates fell to a new record low in June, indicating an improvement in credit availability, data from the Bank of England released show.
French industrial production rebounds well above expectations, rising 1.7% in May after a 0.5% fall the previous month, national statistics agency Insee says. The market was expecting a 0.3% rise, according to a Dow Jones Newswires survey of economists.
IMFLipsky: No Resolution Of Too-Big-To-Fail Banks By Nov G-20 MtgThere is no prospect of an international agreement on how to wind down complex systemically-relevant financial institutions by the next summit of the Group of 20 industrial and developing nations in Seoul, a top International Monetary Fund official said Friday.
John Lipsky, deputy managing director of the IMF, told a central banking conference that he sees nothing like the necessary degree of consensus on how to coordinate the work of national insolvency procedures, seeing "a basic mismatch between global institutions and national resolution mechanisms."
The issue of how to ensure an orderly exit from the market of a complex, multinational financial institution in the event of its failure has been one of the core elements of the G-20 agenda for the last two years, a recognition that no one legal jurisdiction can effectively cope with the vast complexity of a major international bank failure, such as that of Lehman Brothers Inc.
"Institutions act global but die local," Lipsky noted.
The European Central Bank's exit from its extensive support measures for the euro zone's banking system will probably have to be pushed back at least until next year, a document seen by Dow Jones Newswires suggested Friday.
"The beginning of the exit strategy is currently not conceivable, but will come, once market developments will allow for it," the protocol of a consultation between Germany's central bank, the Deutsche Bundesbank, and the German central credit board said. The consultations were held Monday.
The board, known as ZKA after its German initials, is an umbrella organization of the country's banking lobby. Against the backdrop of unfavorable market conditions, an exit in the fourth quarter would be unlikely, the document said.
U.K. factory gate prices fell in June for the first time since November 2008, while the annual rate of increase slowed, signaling that inflationary pressures are gradually moderating and increasing the likelihood that interest rates will stay low.
While Friday's figures from the Office for National Statistics will provide some relief at the Bank of England, they still highlight the fact that price pressures are easing more slowly than was previously expected, which will keep policymakers on their toes.
Output producer prices slipped 0.3% on the month in June--their biggest fall in 19 months.
Brazilian real closed slightly strongerThe Brazilian real closed slightly stronger against the U.S. dollar Friday on overseas bond placements by Brazilian companies.
The real closed at BRL1.760 to the dollar. Thursday's close of BRL1.767.
Brazil's Banco Mercantil (BMEB4.BR) placed $200 million in overseas bonds Friday while BM&FBovespa (BVMF3.BR), the company that operates Brazil's financial exchanges, placed $612 million in bonds.
Traders said other Brazilian companies were also preparing overseas bonds issues, which will bring more dollars into the market in the next few months.
Trading Friday was extremely thin, however, because of a holiday in Sao Paulo state, Brazil's financial hub. Trading was limited to over-the-counter and interbank transactions, with little
volatility. Chile Stocks End At 3rd Straight Record High,Tracking US Markets. Mexico's May Industrial Output Seen Up 7.3% On Year.
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