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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Activity in Media Sector Lifts Stocks

Stock-Markets / Stock Markets 2010 Jun 15, 2010 - 11:00 AM GMT

By: PaddyPowerTrader


Best Financial Markets Analysis ArticleThis morning in Europe the big story is the bid by Rupert Murdoch’s News International for the remainder of BSkyB. The stock is up 20%. Bloomberg has posted headlines saying that BSkyB “would support a proposal delivering value above 800p” after News Corp rebuffed an initial 675p to 700p. This M&A story has sparked a more general rally in media names such as ITV (up 3.8%) and Spain’s Gestevision Telecinco which is better by 4.2%. Other stocks on the move include broker ICAP (plus 2.5%) on an upgrade at Numis from “reduce” to “add”. But Inmarsat is down 4.2% after a broker downgrade. They were cut to “underperform” from “neutral” over at BofA Merrill Lynch. Healthcare Locums has collapsed 18% after admitting that all talks about a possible takeover have ended. But Spice Plc is up 6% on news that Cinven is considering making an fresh offer. Dow futures are ahead by 60 as I write despite some disappointing numbers from Best Buy. The stock has shed 6% pre market.

U.S. stocks gave back early gains Monday after a savage four notch downgrade of Greece’s sovereign credit rating by Moody’s put a damper on sentiment reminding the market (as if we needed reminding) that the Euro sovereign debt and banking crises are far from being resolved and the S&P 500 Index failed at the 200 day simple moving average ma for the 3rd time in the last two weeks to close near the low and completed a bearish “shooting star” reversal. JPMorgan Chase and Wells Fargo lost more than 1.5% as financial shares in the S&P 500 reversed an earlier 1.1% rally. Newmont Mining Corp. helped lead raw- materials producers lower as gold fell for the third time in four days. Apollo Group, the largest U.S. for-profit university, slid 6.9% for the worst performance in the S&P 500.

Today’s Market Moving Stories

•Spanish banking giant BBVA came out with very grim comments about the interbank market in Spain: Fin Min Ocana said “indeed it is a problem” that markets are closed to Spanish companies and banks, and the country needs “the markets to open.” BBVA Chairman Gonzalez said at the same conference that international capital markets are “closed” to most Spanish companies and banks.
•El Pais has some interesting statistics showing the huge reliance of the Spanish banking system on the ECB. While Spain’s share in the ECB is 9%, Spanish banks now accounts for 16.5% of direct ECB borrowing. The amounts borrowed represent a 26.5% increase over May. The paper quotes the chairman of BBVA as saying that the country urgently needed to tackle three issues simultaneously: sustainability of public finances, growth, and financial sector reform.
•The FT writes in its coverage that what appears to have happened in Spain is that the government’s austerity plan is undermining investors’ confidence in the recovery. Spanish 10 year bond yields rose by a quarter of one percent to 4.67%, as the spread to Germany is now 200bp. The Spanish banking system is now wholly reliant on the ECB for funding.
•Four merging Spanish savings bank–Caja de Ahorros del Mediterraneo, Caja de Ahorros de Asturias, Caja de Ahorros y Monte de Piedad de Extremadura and Caja de Ahorros de Santander y Cantabria said Monday they are planning to ask for EUR1.49 billion from the country’s state bailout fund, known as FROB. In late May, the financial entities signed an agreement to merge their operations, while maintaining separate brands and corporate image. The new merged bank would have EUR135 billion in assets and 2,300 branches.
•In the US Senator Blanche Lincoln may modify her proposed rules on derivatives by giving commercial banks two years to push out their swaps trading desks into subsidiaries. The compromise proposal also would allow the Federal Reserve to provide system-wide emergency assistance to swaps dealers, according to a draft obtained by Bloomberg News and confirmed by Lincoln’s office yesterday. The changes are aimed at clarifying questions about the original language and don’t pull back from the purpose of the measure, which is to separate commercial banking from derivatives trading.
•Some potentially good news for Greece as China is allegedly eyeing investments valued at several billion euros in Greek shipping, logistics and airport projects to be discussed in the second visit to Athens in four weeks by a senior Beijing official, the FT reports. Yet, the news came as rating agency Moody’s downgraded Greek debt on Monday night by four notches to junk status.
•U.K. demolition companies are seeing their workloads revive as property developers begin to clear sites for developments, the Financial Times reported. Dave Darsey, the managing director of Erith Group, a demolition contractor that concentrates on London, told the newspaper he expects the firm’s revenue to be about 45 million pounds this year, after it fell to 38 million pounds last year from 62 million in 2008.
•A U.K. house-price gauge climbed in May to the highest level in four months as demand from homebuyers matched rising supply, the Royal Institution of Chartered Surveyors said. The number of real estate agents and surveyors saying prices increased exceeded those reporting declines by 22 percentage points, compared with 19 in April. The proportion of agents reporting more homes being put up for sale jumped to 21 percent from 11 percent. Britain’s housing market has rebounded since the economy returned to growth. While the lack of supply of properties has helped push up prices, the number of home loans approved by banks still remains at half the level seen at the peak of the housing boom in 2007.
•But in continental Europe news this morning that the June German ZEW Expectation Index saw a large fall to 28.7, from 45.8 reported for May. The outcome compares with the market’s forecast of 42.0. Ongoing investor concern about the government debt situation in the euro area, the effects from fiscal consolidation needs on growth, and recurrent strains in some interbank market segments probably dampened expectations

Ireland Turned the Corner ?

Bloomberg reports that Ireland’s economy is “set to turn the corner” after shrinking about 10 percent in the last two years, an analyst at Moody’s Investors Service said. The economy will expand 3 percent next year, almost twice the euro-area average, the Organization for Economic Cooperation and Development said on May 27. The economy contracted 7 percent last year. Irish exports will rise this year for the first time since 2007, the OECD said. “Ireland is a flexible, competitive economy, but is vulnerable to a slowdown in global growth and liquidity drying up,” Dietmar Hornung, an analyst at Moody’s said in an interview in Dublin today. “These are the big risks.” Ireland’s jobless rate rose to the highest in almost 16 years last month, curbing demand for everything from loans to alcohol. “The multinationals investing in Ireland seem to be in pretty good shape, but the domestic economy needs to expand again to achieve the growth targets,” Hornung said.“Without that, additional fiscal measures will be needed.”

Ireland’s Finance Minister Brian Lenihan has cut spending and raised taxes to contain the fiscal deficit. The government has pledged a further 3 billion-euro ($3.7 billion) “adjustment” to narrow a shortfall which amounted to 14.3 percent of gross domestic product last year.Moody’s cut Ireland’s credit rating by a single grade to Aa1 last July and assigned the country a “negative” outlook. It cited Ireland’s increasing debt burden and a “sudden and brutal economic and financial adjustment.” The difference in yield, or spread, between 10-year Irish securities and 10-year German bunds, the euro-region’s benchmark government debt, rose to 263.9 basis points today from 256.6 basis points on June 11.“The rating and outlook are appropriate,” said Hornung today. “The outlook is negative because the debt situation is still deteriorating.”

In related news this morning Ireland successfully issued another Euro 1.5bn of bonds and is now 80% funded for the full year 2010, well ahead of their European & PIGS peers.

Company / Equity News

•Societe Generale and BNP Paribas are among banks considering a bid for Allied Irish Banks Plc’s stake in Bank Zachodni WBK SA of Poland valued at about $3 billion, according to three people with knowledge of the matter. Poland’s PKO Bank Polski SA and OAO Sberbank of Russia are also interested in making an offer for the 70 percent stake, said the people, who declined to be identified because the matter is private. Indicative offers are due later this month and at least two private-equity firms are also interested in making bids, another person said.
•Research In Motion is in early stages of developing a tablet device meant to act as a companion to the company’s BlackBerry phone.
•Rupert Murdoch is moving towards full BSkyB takeover. This morning News Corp confirmed that they had made a 700p (GBP 7.8Bn) offer for the remaining 61% stake in BSkyB that they do not already own. The offer has been rebuffed but in a reflection of the close ties between the two companies the Groups are still working together on regulatory clearance. B Sky B later commented that they would support an offer of 800p which would value the stake at GBP 8.9Bn. Within these parameters leverage for the combined group would come out in the range of between 2.6x and 2.9x assuming no equity component and using forecast EBITDA for the year to June 2010 for both groups with News Corp gaining full control of BSkyB’s cashflows. Even if the groups can agree a price regulatory assurance is clearly not assured given the range of UK media assets already owned by News Corp.
•Tesco’s Q1 IMS showed that UK like for like sales (ex fuel and VAT) were up only 0.1%, slightly shy of expectations at 0.4% (FY 2009/10 was +2.6%), as food inflation continued to slow. International sales rose by 5.3% at constant exchange rates. The underlying performance in Asia was encouraging although political uncertainty in Thailand and Korea (which is diminishing somewhat) held back sales growth. Europe was mixed (up 4.3% at constant exchange rates), with Ireland rebounding, Poland suffering from a period of mourning (following the air crash involving the president) and Hungary encountering economic problems. The statement confirmed that the outlook for the year was unchanged.
•Euro autos: Car sales fell 9% in May, a slight acceleration on decline of April (-7%) reflecting the further weakening of the German and French markets. The levels are still buoyed by scrappage schemes in the UK and Spain but the impact of the UK scheme is likely to unwind very shortly. Market shares are volatile but Renault’s performance continues to stand out despite the weak state of the French market whilst Peugeot is also up on the prior year with the main losers being Fiat and GM. VW share was stable in May whilst BMW and Daimler continue to gain ground over the weak showing of last year.
•BP was the subject of a fairly shocking credit rating 6 notch downgrade from rating agency Fitch today who cut the embattled company’s rating from a very respectable AA to BBB (or junk status).
•In more bad news for BP the company Chief Executive Officer Tony Hayward is being pressed about cost-cutting that House Democrats said added to the danger of an explosion at the company’s Gulf of Mexico oil well. “Time after time, it appears that BP made decisions that increased the risk of a blowout to save the company time or expense,” U.S. Representatives Henry Waxman of California and Bart Stupak of Michigan said in a letter yesterday to Hayward. “If this is what happened, BP’s carelessness and complacency have inflicted a heavy toll on the Gulf, its inhabitants, and the workers on the rig.” Hayward’s appearance before a House Energy Committee panel on June 17 will be his first since the well exploded, setting off the worst U.S. oil spill. The letter from committee chairman Waxman and subcommittee head Stupak listed a series of “shortcuts to speed finishing” the work, quoted a BP engineer calling it a “nightmare well” and asked Hayward to respond in his testimony.
•Santander is expected to bid £1.8 billion for RBS’s 318 branches as part of the latter’s European Commission agreement on its restructuring. The Spanish bank is the last man standing in a protracted bidding process, which originally saw 5 bidders in the running for the deal. AIB’s UK assets, First Trust and AIB GB, are expected to be put up for sale as part of AIB recapitalization efforts, but the lack of interest in the RBS deal puts a question mark over the potential value that the transaction can bring. AIB has 31 branches in Northern Ireland and 48 branches in GB with a total lending book of £17 billion for the UK operations.

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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