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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stocks Bounce as LIBOR Stabilizes

Stock-Markets / Stock Markets 2010 May 26, 2010 - 09:38 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleYesterday was a game of two halves. An early rout had seen stocks plunge, with the Dow down 3.1% and below the psychological 10k level. Causes include fears of the Korean crisis spinning out of control , Spanish banking woes & funding concerns for financials in general due to the dramatic rise in USD Libor. Put that lot together and you have an indigestible mix.

However, as has frequently been the case of late, all the real action of the session happened in the last few minutes. A huge short covering rally in financials saw the Dow finishing on its high of the session down just 22 on the day and back above the 10,000 level. The S&P did even better and finished the session in positive territory after US Representative Barney Frank (who will lead talks to produce a financial regulation bill) started talking out loud about how uber-harsh derivatives legislation “goes too far” Goldman Sachs rose 4.3% to help the S&P 500 Financials Index erase the earlier 3.4% freefall while Freeport-McMoRan Copper & Goldand Newmont Mining snapped back more than 2.3%.

The US housing data was working against sentiment; a weak print on the March Case-Shiller house price survey pointing to signs of a possible double dip (New York showed notable weakness). German 10 year government bond yields declined to their lowest level since 1989 as investors sought safe haven.

Today a nervy calm has returned with equities in the mood to retrace some of the recent sharp loses. Stocks showing well Wednesday include “luxury” goods maker Burberry which is ahead by 6% after comfortably beating analysts profit expectations and announcing that they would accelerating store openings. RBS & Lloyds bounced back from their recent battering on a broker upgrades over at Credit Suisse to “outperform” from “neutral”. The same house also raised Vodafone to “overweight” citing cheap valuations. Bank of America also restated their “buy” recommendation on the company. The stock is up 2% today.

Basic resource stocks / miners are also in the black today with BHP Billiton up 4% and Rio Tinto gaining 5.5% on a view that the correction in the sector (which is down 26% from the highs of April 6th) is now overdone.

AIB has recouped 9% of yesterdays heavy loses after a story that Poland’s Treasury Ministry is planning to put together a group to bid for a 70% stake in AIB’s Polish unit

Today’s Market Moving Stories

•U.S. Representative Barney Frank, who will lead congressional talks to produce a financial-regulation bill, said Senate language that would require commercial banks to wall off their swaps-trading operations “goes too far.” Frank’s comments are the latest indication that the contentious swaps-desk provision may not survive final negotiations. A separate measure in the Senate bill that would restrict banks’ proprietary trading – the so-called Volcker rule – may address concerns targeted by Senator Blanche Lincoln’s swaps-desk plan.
•Treasury Secretary Geithner’s trip to Europe today shows how his focus is shifting to global economic threats. Geithner has two days of meetings in London, Berlin and Frankfurt with leaders including European Central Bank President Jean-Claude Trichet to discuss the nearly $1 trillion rescue package aimed at stopping the Greek debt crisis from spreading.
•Support for German Chancellor Angela Merkel’s Christian Democratic Union and its Christian Social Union Bavarian sister party stood at 32% for a second week, according to a weekly poll. The combined tally for the opposition parties stood at 54%.
•Compounding the original folly, Germany is now planning on extending the ban on naked shorting to all equities listed on the countries exchanges. The impact? Minimal one would think unless the ban is extended to all countries throughout the eurozone, but France have already told us this wont be the case and the Finns think it unnecessary.
•Rating agency S&P is openly talking about double dip in the US housing market.
•Italy has approved €24bn in budget cuts – the measures will include a 3 year wage freeze for civil servants and a crackdown on tax evasion. Berlusconi and his finance minister will hold a press briefing on the plan today.
•A U.K. gauge of residential rents increased for the first time in almost two years in the three months through April as a decline in supply benefited landlords, according to a poll of brokers.
•Bank borrowing costs may climb further after reaching the highest level since July as U.S. legislation threatens the credit ratings of lenders, according to Michael Pond, an interest-rate strategist at Barclays Plc. A provision in the financial regulation bill barring the government from rescuing failing banks may mean a cascade of downgrades and a surge in interest rates lenders pay, Pond said in an interview with Tom Keene on Bloomberg Radio. “Rating agencies essentially keep two books of ratings — one with an implicit government backing, one without,” Pond said. The rate banks say they pay for three-month loans in dollars has more than doubled this year on concern Europe’s sovereign-debt crisis will impair assets used as collateral.
•In related news the WSJ writes that the Federal Reserve could cut the rate it charges the ECB for USD swaps to spur the flow of USDs to banks in Europe if strains from the European debt crisis increase.

Company / Equity News

•The demerged Cable and Wireless Worldwide business reported its first set of independent results this morning, which showed revenue flat, but EBITDA up 32% to GBP 431M. The outlook was qualitative but confident, with the Group confirming that it expected to meet market expectations for cash generation and EBITDA next year.
•Riskmetrics, an influential proxy adviser, is recommending that shareholders vote against Prudential takeover of AIA Group , the Asian business of American International Group, the Financial Times reported yesterday. Riskmetrics called the $35.5 billion cost a “full price.”
•Hewlett-Packard increased its share of global server sales in the first quarter, taking the top spot from IBM research firm Gartner said. HP had $3.4 billion in sales in the quarter, or a 31.5% share, while IBM’s share fell to 28.4%. HP is benefiting as corporate customers upgrade equipment after delaying purchases during the recession.
•Apple may have a tougher time getting advertisers to pay a premium for smartphone ads now that Google has won regulators’ clearance to buy AdMob , creating the largest mobile-advertising company. While advertisers and analysts expect Apple to make inroads in the market, they say the company may need to price its rates more aggressively.
•Nortel Networks the insolvent Canadian phone-equipment maker, may get as much as $1.1 billion for technology patents that analysts say would benefit potential bidders including Research In Motion. Peter Conley of MDB Capital Group said they would be a “natural fit” for BlackBerry maker RIM.
•British Airways cabin-crew strike may cost the carrier 1.4 billion pounds in lost sales as travellers defect to rivals. The figures come from a study by Manchester Business School who surveyed 4,300 customers and employees of 56 businesses.
•Peugeot Citroen and Volkswagen joint ventures in China will benefit from a weaker euro as it reduces the cost of components imported from Europe. Dongfeng PSA, a partnership between France’s Peugeot and Hubei-based Dongfeng Motor Group, will be the biggest beneficiary, Yankun Hou, an analyst at Nomura said in an interview yesterday.
•Seven stocks will join the Stoxx Europe 600 Index next month, index provider Stoxx Limited said in a press release. The stocks being added as of the open of European markets on June 21 are Yell, Outotec Oyj, SEB, GN Store Nord, Halfords, C&C Group and Spectris. The equities being removed from the gauge are Intercell, Befimmo Sicafi, BB Biotech, Bank of Greece, Sacyr Vallehermoso, BAM Groep and Carphone Warehouse.
•The Qatar Investment Authority, a sovereign wealth fund, has expressed interest in buying part of the US Treasurys stake in Citigroup.

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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