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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market Sentiment Remains Positive

Stock-Markets / Financial Markets 2010 Mar 18, 2010 - 09:53 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleWe have seen some more negative commentary on China over the past 24 hours, including from the likes of the World Bank (which in its latest quarterly report called for a tighter monetary policy stance to combat the risk of large asset prices increases and bad debts from the financing of local government projects). Yet the overall tone of markets has remained distinctly positive, with key European bourses approaching new highs for the year, US markets making new cyclical highs and commodity prices and commodity currencies generally strengthening.

Meanwhile volatility has continued to decline, with the VIX falling to the lowest level seen since May 2008. Alcoa and DuPont led gains that sent the Dow up for a seventh straight day as the US government said producer prices decreased 0.6% in February, underscoring the Federal Reserve’s assessment that inflation is subdued. Ford rallied after Moody’s Investors Service upgraded its debt ratings

Today’s Market Moving Stories

•The former chairman of Anglo Irish Bank, Sean FitzPatrick, was arrested this morning on suspicion of committing fraud after he hid more than €70 million in personal loans from shareholders. FitzPatrick, who served as Anglo’s CEO from 1986 to 2005 and thereafter as chairman, transferred tens of millions’ worth of loans each year into the accounts of another bank, Irish Nationwide, days before Anglo published its annual accounts to shareholders. The loans would be transferred back into Anglo’s private books immediately afterward.
•The Japanese ‘Tankan’ index of manufacturers’ sentiment rose to –8 in March from -13 previously. This was the best result since June 2008.
•US ambassador to China, Jon Huntsman, stated that “we need to show real progress this year in creating new jobs and rebalancing our relationship [with China]… We hope to see more flexibility on the exchange rate… I suspect there will be many important negotiations in the weeks ahead… This isn’t just an American issue … There are many countries that feel the same way”.
•Zhang Wei, vice-chairman of the China Council for the Promotion of International Trade said that “if the CNY rises, [labour intensive] companies will face the immediate risk of going bust as their profit margin is already very narrow… So for these companies, the consequences would be disastrous.”
•Liu Mingkang, chairman of the China Banking Regulatory Commission states that banks should control the pace of their lending and be aware of the risks entailed in extending credit to the property sector and to local governments.
•Dallas Fed President Richard Fisher said that “we are aware of the risks that are out there… We are also aware that at some point language will change and policy will change, but we are not at that point yet.” He added that “we don’t want to create imbalances and we also want to make sure that we don’t tighten or give the impression we are going to tighten sooner than is required, or is practicable.” It is becoming clear that there is next to no inflationary pressure in the US economy.

Greece And Germany Nearing An Impasse
A ‘senior’ Greek official said that his government’s rift with Germany ‘is deepening’. He added that “we still want a solution within the European Union, but it doesn’t look good… If there is no clear support at the EU summit on March 25th, we will have to decide where to go next… There are a number of scenarios on the table, but the most prominent one is the IMF.”

The WSJ cites German Chancellor, Angela Merkel, as saying that “we need to have an agreement under which, as a last resort, it’s possible to exclude a country from the Euro-zone if again and again it doesn’t fulfil the requirements. The paper cites Greek Prime Minister George Papandreou response to this suggestion by saying there was a ‘zero possibility’ that Greece would leave, whether a legal barrier to exit existed or not. ECB president, Jean-Claude Trichet, also commented, saying that the notion of expelling a euro-zone member was “absurd… It is not a membership that can be adapted to suit the circumstances… It is about sharing a common destiny with other countries.”

The markets are growing increasingly concerned by the escalation of tension between the German and Greek sides. The EU summit on March 25 will be critical in that context. There is strong reluctance on the German side to go beyond the recent announcement, which has been illustrated by various news stories in recent days. On the Greek side, the Government keeps on saying that it wants some EU intervention to further lower its borrowing cost and that it does not want to borrow at the current levels, adding also that it could go to the IMF if the EU remains inactive. It is a wrong calculation because (1) lower borrowing cost can only result from a demonstration of its capacity to borrow in international market at this stage and (2) an IMF deal will not by itself lower its borrowing cost, probably the opposite actually. But it remains difficult to know whether this is just political gesture ahead of the EU summit or whether they are really ready to make the mistake of going to the IMF now.

The EU is used to tough diplomatic dispute ahead of such meetings. There is still a way out: further details about the rescue can be announced (without being activated) while the Greek government would have a try and go to the market. This is still a reasonable baseline – the EU makes slow progress, but it does seem to make incremental ones at each of these meetings. But the roll-over clock is ticking and a swift resolution after the EU summit will be necessary. In any case, still no reason to expect a formal default, but good chances that the EU determination will be tested again by the market.

Company News

•GlaxoSmithKline has rallied 2.5% today after Novartis gave up its US right to a potential rival for the British company’s best-selling drug.
•eBay has /quotes/comstock/15*!ebay/quotes/nls/ebayhas struck an agreement with China UnionPay, the mainland’s largest electronic-payment group, a deal that will allow Chinese consumers to purchase from overseas merchants using the on-line auction house’s PayPal unit. Paypal’s move present challenges eBay’s China rival, Alibaba.
•Teva Pharmaceutical Industries /quotes/comstock/15*!teva/quotes/nls/teva (TEVA 62.77, +2.83, +4.72%) agreed to acquire German generics producer Ratiopharm for nearly $5 billion.
•Apple /quotes/comstock/15*!aapl/quotes/nls/aapl (AAPL 223.81, -0.31, -0.14%) director Jerome York was hospitalized in Michigan after suffering a brain aneurysm on Tuesday. York is in serious condition but no further details were known, the newspaper said. York, 71, has been on Apple’s board since 1997.
•FedEx’s third-quarter profit rose to $239 million, or 76 cents a share, from $97 million, or 31 cents a share, a year ago. Total revenue in the quarter rose to $8.70 billion from $8.14 billion. Analysts polled by FactSet had expected the company to earn 72 cents a share.
•Nike’s fiscal third-quarter profit more than doubled to $1.01 a share as sales grew 7% to $4.7 billion. Worldwide futures orders for Nike-brand athletic footwear and apparel totalled $7.1 billion, 9% higher than orders in the year-earlier period.
•Facebook surpassed Google’s search engine in weekly hits to become the most visited Web site in the US for the first time. accounted for 7.07% of visits in the week ended March 13, topping’s 7.03%. Facebook almost tripled its visits from a year earlier, compared with 9% growth at Google.
•IBM’s Japan unit said it will appeal an assessment by the country’s tax authority, after the Asahi newspaper reported the company was ordered to pay more than $332 million in back taxes.
•ITV could be closer to seeing the removal of rules that effectively limit the amount the broadcaster can charge advertisers. The UK government does not need to pass legislation to remove the Competition Commission’s control over the so-called contract rights renewal. The rules were created in 2003 after Granada and Carlton Communications merged and advertisers feared the new company would exploit its dominant position.
Arriva, the operator of Britain’s longest rail route, jumped the most in 9 1/2 years in London trading after saying it had received a takeover approach from an unidentified bidder. Arriva rose 17%, the biggest gain since July 5, 2000, valuing the train company at £1.35 billion.

•German cement maker HeidelbergCement said net profit slumped to €168 million on weaker sales revenue in 2009. Turnover fell nearly 22% to €11.12 billion. The focus will continue to be on costs and cash flow amid increasing investor interest.
•Deutsche Telekom is still considering an IPO of its T Mobile USA business to help fund network investments and improve the competiveness of its US operation. T Mobile USA could potentially raise in the region of €4-5bn from the sale of a 25% stake.

And Finally… Bailout Money Song

Disclosures = None

By The Mole

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.© 2010 Copyright PaddyPowerTrader - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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