My Diary 646 --- Weekly Global Market Review (July 23, 2010)

Weekly Global Market Review (July 23, 2010)

 

On the weekly basis, MSCI World was up +2.53% with +3.53% in US, +3.15% in Europe, +0.2% in Japan and +3.42% in Ems, on the back of BTE US Housing data and expectation on China’s consumption stimulus in 2H10. Elsewhere, UST moved up from the multi-year low on Wednesday with 2yr edged up 2bp to 0.58% and 10yr up by 7bp to 2.99%. 1MWTI oil closed up $2.62/bbl to $78.98/bbl, a 11-week high. EURUSD closed flat at 1.292, while USDJPY strengthened 1.06% to 87.46.

 
Headline news was dominated by the US data (Housing in particular), earnings, Bernanke and the stress test. Housing data in the US finally came in slightly BTE with existing home sales in June at 5.37mn rate (cons 5.1mn) and FHFA house price rising 0.4% in may (cons -0.3%). Bright spot is Housing permits, which add +2.1% mom to 586K, which hints that a bottom may have been reached. However, initial jobless claims kept rising 37K to 464K last week. In Europe, PMI data was BTE with German manufacturing PMI rose to 61.2 from 58.4. In UK, retail sales was BTE at +1.0% (cons +0.6%). This perhaps explains the recent strength of Euro and the change in focus from EU problem to US data. In Asia, Taiwan’s export orders dropped to 22.48% in June from 34.03% last month and industrials production declined to 24.33% in June from 30.99%, indicating the peak of Asian growth may have passed.

Micro wise, earnings have grown 55% for the 124 companies in S&P500 that released Q2 results so far and 85% have beaten the average analyst earnings estimate, according to Bloomberg. In particular Caterpillar,  the world’s largest maker of construction equipment raised its full-year earnings forecast (to $3.15 - $3.85 a share, up from its April forecast of $2.50 to $3.25) on higher demand in developing countries for mining, energy and rail equipment. As widely expected, BoC hiked an additional 25bps, while RBA stays on hold with a baseline view of solid growth in Asia and more trend-like gains in the rest of world.

Policy front, Bernanke reassured Congress that rates will be held very low for an extended period of time, given the views that "the economic outlook remains unusually uncertain". The Fed Chairman also said that such withdrawal of liquidity is not imminent and certainly will not happen while unemployment remains high and inflation low. In all, there were no major surprises from his prepared statement.

Away from the US the key European even is the banks stress test results. Friday, the European regulators claimed that only 7 banks need to raise a combined EUR3.5bn ($4.5 bn) of capital. The street said the stress tests may not have been strict enough as the stress test ignored the majority of banks’ holdings of sovereign debt, but only the potential losses on the banks’ trading books. Also the key will be whether market appetite for sovereign debt remains robust. Recent successful sovereign debt auction in Spain suggest the demand is still there but at the elevated yields.