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25/10/2010
Hanuman Morning Report
US Market
Change
% Change
Value
- 14.01
- 0.13%
11,132.56
S & P 500
+ 2.82
+ 0.24%
1,183.08
NASDAQ
+ 19.72
+ 0.80%
2,479.39
WTI Crude Oil
+ $1.13
+ 1.38%
$81.69
Gold Futures
+ $3.00
+ 0.26%
$1,328.45
+ 0.0073
+ 0.74%
0.9850
Dow Jones
Commodities
Currency
AUDUSD
U.S. Overnight Market Commentary
U.S. stocks rallied for a third straight week as earnings and forecasts at companies from CocaCola Co. to Boeing Co. beat estimates and traders speculated the Federal Reserve will purchase
debt to stimulate the economy. Coca-Cola, Boeing and Travelers Cos. helped lead gains in the
Dow Jones Industrial Average, rising more than 1.6 percent. More than 85 percent of Standard &
Poor’s 500 Index companies that have posted third-quarter results since Oct. 7 topped the average
analyst profit projection. Massey Energy Co. surged 13 percent, the most in the S&P 500, amid
takeover bets. The S&P 500 advanced 0.6 percent to 1,183.08 this week. It closed at 1,184.71 on
Oct. 18, the highest level since May 3. The Dow increased 69.78 points, or 0.6 percent, to
11,132.56. Both measures have risen in seven of the past eight weeks. “Earnings, for the most part,
have indicated the economy still remains very healthy,” said Robert Stimpson, a money manager at
Oak Associates Ltd. in Akron, Ohio, which oversees $US800 million. “The companies that make up
the market are doing pretty good. Then there’s the idea of additional quantitative easing coming
from the Fed, so the combined effect has been good for investors.” U.S. companies are poised to
report the fourth straight quarterly earnings increase as speculation that the Fed will inject more
money into the economy boosted investor confidence and offset uncertainty about global currency
markets. The Fed said Oct. 20 that U.S. economic growth showed little sign of acceleration last
month, bolstering speculation the central bank will act to stimulate growth.
25/10/2010
U.S. News
The economy in the U.S. probably grew at a faster pace in the third quarter, reflecting a pickup in
consumer spending that bodes well for the recovery’s staying power, economists projected a report
this week will show. Gross domestic product rose at a 2% annual pace, up from a 1.7% rate in the
previous three months, according to the median estimate of 67 economists surveyed by Bloomberg
News before an Oct. 29 Commerce Department report. Other data may show business investment
remains a mainstay of the economic rebound, while housing is mired in a slump. The pace of
growth would still not be strong enough to give the 14.8 million unemployed Americans hope of
finding work soon, one reason why Federal Reserve policy makers may be about to pump more
money into the economy. Wal-Mart Stores Inc. and Target Corp. are among retailers likely to gain
as discounts lure budget-conscious shoppers during the year-end holidays. “There’s no question
about the sustainability of the recovery now,” said Chris Rupkey, chief financial economist at Bank
of Tokyo-Mitsubishi UFJ Ltd. in New York. “But unless we grow faster, we don’t have a shot at
bringing down unemployment significantly. Improvement in consumer spending is a sign the holiday
season will be better than in the past couple of years.”
Payrolls dropped in 34 US states in September, led by California and New York, showing job losses
were dispersed throughout the country. Employers in California cut 63,500 jobs last month, figures
from the Labor Department showed today in Washington. New York followed with a loss of 37,600,
while employment in Massachusetts decreased by 20,900 and by 20,200 in New Jersey.
The labor market has been slow to improve as state and local governments cut staff to repair
budget shortfalls and companies wait for an increase in sales. The government said earlier this
month that US companies added 64,000 jobs in September, less than economists forecast, and
total payrolls dropped by 95,000. Corporate job gains are ``weaker than we'd all like, barely enough
to keep unemployment constant,'' Kurt Karl, chief US economist at Swiss Re in Armonk, New York,
said before the report. ``The economy needs to strengthen more for businesses in general to hire.''
Nevada's jobless rate held at 14.4 per cent in September, the highest in the US. Nationally, seven
of eight employment categories showed declines in payrolls, led by a loss of 83,000 government
jobs and a 45,000 drop in construction. Financial services had a gain. More than half of California's
decrease, 37,300, reflected cutbacks at government agencies, which may include reductions due to
the winding down of the decennial census and schools.
Regulators on Friday shut down a total of seven banks in Florida, Georgia, Illinois, Kansas and
Arizona, lifting to 139 the number of U.S. banks that have fallen this year as soured loans have
mounted and the economy has sputtered. The Federal Deposit Insurance Corp. took over the
banks, the largest of which by far was Hillcrest Bank, based in Overland Park, Kan., with $US1.6
billion in assets. A newly chartered bank subsidiary of Boston-based NBH Holdings Corp. was set
up to take over Hillcrest's assets and deposits. The new subsidiary is called Hillcrest Bank N.A. The
FDIC and Hillcrest Bank N.A. agreed to share losses on $US1.1 billion of the failed bank's assets.
Its failure is expected to cost the deposit insurance fund $US329.7 million. Also shuttered were First
Bank of Jacksonville in Jacksonville, Fla., with $US81 million in assets; Progress Bank of Florida,
based in Tampa, with $US110.7 million in assets; First National Bank of Barnesville in Barnesville,
Ga., with $US131.4 million in assets; Gordon Bank of Gordon, Ga., with $US29.4 million in assets;
First Suburban National Bank in Maywood, Ill., with $US148.7 million in assets; and First Arizona
Savings, based in Scottsdale, Ariz., with assets of $US272.2 million. The 2009 total of bank failures
was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009
failures cost the insurance fund more than $US30 billion. Twenty-five banks failed in 2008, the year
the financial crisis struck with force; only three succumbed in 2007. The growing bank failures have
sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its
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deficit stood at $US15.2 billion as of June 30. The number of banks on the FDIC's confidential
"problem" list jumped to 829 in the second quarter from 775 three months earlier, even as the
industry as a whole had its best quarter since 2007, making $US21.6 billion in net income. Banks
with more than $US10 billion in assets -- only 1.3% of the industry -- accounted for $US19.9 billion
of the total earnings. The FDIC expects the cost of resolving failed banks to total around $US52
billion from 2010 through 2014.
President Barack Obama says consumers would lose if Republicans regain power in Congress and
try to roll back his hard-won Wall Street overhaul. He says the GOP's promised repeal of the law
would mean the return of a financial system whose near-collapse led to the worst recession since
the Depression. "Without sound oversight and commonsense protections for consumers, the whole
economy is put in jeopardy," Obama said Saturday in his weekly radio and Internet address. "That
doesn't serve Main Street. That doesn't serve Wall Street. That doesn't serve anyone." The law
passed despite nearly unanimous Republican opposition. It sought to rein in a financial system that
had sped ahead of outdated rules, allowing banks, traders and others to take increased risks.
Separate legislation tackled bank overdraft fees and abuses such as retroactive interest rate
increases on credit card balances. The financial overhaul law came in the wake of a $US700 billion
bank rescue passed in the final months of George W. Bush's presidency. While the bailout is
credited with providing stability, it's deeply unpopular with voters angry of taxpayer money being
used to help prop up huge banks.
Natural gas futures fell to a 13- month low in New York, capping a fifth straight weekly decline, as
mild weather crimped demand, boosting a surplus of the heating fuel. Gas declined after the Energy
Department reported yesterday that 93 billion cubic feet of gas were added to U.S. storage in the
week ended Oct. 15. The five-year average gain for the week is 54 billion. Above-normal
temperatures are likely across most of the eastern U.S. through Oct. 31, according to MDA Federal
Inc.’s EarthSat Energy Weather in Rockville, Maryland. “We have no significant weather, so the
market’s drifting lower on your typical shoulder-month situation,” said Tom Saal, a broker with
Hencorp Becstone Futures in Miami. “Some of the forecasts for the winter are showing abovenormal temperatures.” Natural gas for November delivery fell 3.6 cents, or 1.1%, to $US3.332 per
million British thermal units on the New York Mercantile Exchange, the lowest settlement price
since Sept. 15, 2009. Gas fell 5.7% this week and has declined 40% this year.
KKR & Co.’s A$1.75 billion ($US1.72 billion) bid for Perpetual Ltd. doesn’t reflect fair value, the
Australian asset manager said as it agreed to provide financial information and enter talks with the
private equity group. “Shareholders’ interests are best served by conducting exploratory
discussions with KKR,” Sydney-based Perpetual said in a statement today. “These discussions
should allow the board to establish if an offer that would deliver acceptable value to Perpetual’s
shareholders is likely to be formulated.” New York-based KKR offered last week to pay as much as
A$40 a share for the company to tap expanding wealth in the world’s fourth-biggest pool of
managed funds. The purchase of Perpetual, whose shares had slumped almost two-thirds from a
peak in 2007, would be the biggest acquisition of an Australian fund manager in a decade. “As part
of the exploratory discussions, Perpetual is prepared to provide KKR with limited financial
information,” today’s statement said. “Perpetual will advise shareholders as to the outcome of the
discussions with KKR as soon as is practicable,” and the process may take “some time,” it said.
25/10/2010
Europe’s Overnight Market Commentary
European stocks ended slightly lower on Friday as worries over the outcome of the G20 meeting
prompted investors to book some profits, after key indexes hit six-month highs in the previous
session. The FTSEurofirst 300 .FTEU3 index of top European shares closed 0.4 percent lower at
1,089.45 points, but eked out a gain of 0.4 percent on the week, its third consecutive weekly gain.
The Euro STOXX 50 .STOXX50E, the euro zone's blue-chip index, ended 0.3 percent lower at
2,873.74 points. "Earnings have been pretty good and a lot of stocks rose this week on the back of
this, so people are using the excuse of currency tensions with the G20 meeting to cash in profits,"
said David Thebault, head of quantitative sales trading at Global Equities in Paris. On the first day
of a two-day meeting meant to smooth the path for a G20 summit in Seoul on Nov. 11-12, the
United States struggled to win backing for its proposal of setting targets for external imbalances as
a way of pressing surplus countries such as China to let their exchange rates rise. The three
benchmark indexes have climbed around 13 percent since late August, lifted in part by mounting
expectations of further quantitative easing from the U.S. Federal Reserve, which have also dragged
down the dollar and boosted commodity prices. "Further quantitative easing has been priced in by
the market so, going into the Fed meeting in early November, the risk is on the downside if (Ben)
Bernanke doesn't deliver what he is expected to," said Dominique Netter, head of strategic asset
allocation at La Compagnie Financiere Edmond de Rothschild in Paris. "Stocks will manage to
break above their April highs at some point this year, but I think they won't rise much higher." The
recent rally has lifted European stock valuations to levels not seen in nearly three months. Shares
in the FTSEurofirst 300 trade at an average 13.4 times reported earnings, a level not seen since
early August.
European news
U.K. economic growth slowed in the third quarter to a third of the pace in the previous three months
as consumer spending faltered, a survey of economists showed. The economy expanded 0.4
percent in the period, down from 1.2 percent growth in the second quarter, according to the median
forecast in a Bloomberg News survey of 35 economists. The Office for National Statistics will
publish the data at 9:30 a.m. on Oct. 26. The GDP report will matter “quite a lot” for the Bank of
England’s next decision as officials mull whether to add stimulus, former policy maker Charles
Goodhart says. Finance minister George Osborne this week gave details of the biggest fiscal
squeeze since World War II, and anticipation of the announcement may have sapped Britons’
confidence. “There was so much talk in the run-up to the spending review that consumers may
have become more inclined to delay purchases until they saw how they were affected,” Scott Corfe,
an economist at the Centre for Economics and Business Research in London, said in an interview.
“It’s going to be a long and slow recovery.” Data for September show claims for unemployment
benefits rose the most in eight months, while Lloyds Banking Group Plc’s Halifax unit said house
prices fell the most on record. The case for adding stimulus is not “cut and dried,” Goodhart said in
an Oct. 18 interview. “It will depend quite a lot on what the first estimate of third quarter GDP is” and
“on what the reaction to the spending review itself is.”
25/10/2010
France's Senate approved President Nicolas Sarkozy's bill to raise the retirement age by two years
as labor unions promised to maintain their protests for an eighth week against the measure.
Lawmakers in the Sarkozy-controlled upper house of Parliament voted 177-153, clearing the way
for final passage. A comparable version of the legislation was approved by the National Assembly
on Sept. 15. A committee comprising members of both chambers is scheduled to meet Oct. 25 to
merge the bills. ``It's not by looking back at the past that we'll be able to maintain our social model,''
Labor Minister Eric Woerth told senators as the debate closed today. ``One day, adversaries will
look up to Nicolas Sarkozy's performance.'' Senate passage of the bill won't quell opposition to the
plan to raise the retirement age to 62 from 60 and the age for a full pension to 67 from 65. Protests
have disrupted transport and shut oil refiners, leading to fuel shortages. ``We will never accept it,''
Jean-Claude Mailly, secretary general of Force Ouvriere, said today on RMC radio. ``Just because
a law has been voted through doesn't mean we just say: `Oh, too bad.''' Sarkozy has refused to
retreat from the plan that would bring France closer to Germany and the US, which are moving
toward setting 67 as the full-retirement age, according to the Organization for Economic
Cooperation and Development.The retirement overhaul is needed to balance the pension system's
budget by 2018, Sarkozy says. The changes are part of his effort to reduce the total deficit. This
year, the gap will stand at 7.7 per cent of gross domestic product and Sarkozy plans to cut it to 6
per cent next year.
The Federal Reserve’s push toward easier monetary policy is the “wrong way” to stimulate growth
and may amount to a manipulation of the dollar, German Economy Minister Rainer Bruederle said.
Fed Chairman Ben S. Bernanke yesterday gave Group of 20 finance ministers and central bankers
meeting in Gyeongju, South Korea an overview of the U.S. central bank’s efforts to jumpstart the
world’s largest economy. His strategy, which investors expect will soon include greater asset
purchases, drew criticism at the talks, said Bruederle. “It’s the wrong way to try to prevent or solve
problems by adding more liquidity,” Bruederle told reporters yesterday, saying that emergingmarket officials were among the critics. Bruederle, a member of the Free Democratic Party, the
junior partner in Chancellor Angela Merkel’s government, stepped in for hospitalized Finance
Minister Wolfgang Schaeuble at the meeting. The debate over the Fed’s strategy comes as the G20’s advanced nations sought to alleviate concerns over big swings in capital flows to emerging
markets by promising to be “vigilant against excess volatility” in exchange rates. The U.S. central
bank completed purchases of about $US1.7 trillion of debt in March to support the recovery. The
policy-setting Federal Open Market Committee next meets Nov. 2-3. Bill Gross, Pacific Investment
Management Co.’s co-founder and manager of the world’s biggest mutual fund, said Oct. 8 on
Bloomberg TV the central bank may buy about $US100 billion in government debt a month, or
$US1.2 trillion over the next year. “Excessive, permanent money creation in my opinion is an
indirect manipulation of an exchange rate,” Bruederle said. The minister has taken a pro-market
stance in his first year in office, criticizing state intervention in cases such as providing aid for
General Motors Co.’s German Opel unit.
25/10/2010
Russia, once the world’s third- biggest wheat exporter, extended a ban on overseas sales of grain
until July 1 to ensure domestic supply after drought damaged crops, Prime Minister Vladimir Putin
said. More than a third of Russia’s grain crop was ruined by the worst drought in at least a half
century, prompting the government to impose a grain-export ban on Aug. 15. It was originally
scheduled to be reviewed Dec. 31. “The stability of our internal food market and the feed for
livestock must be the priority,” Putin said today during a government meeting in Roston-on-Don,
which was broadcast on state television. He signed the extension yesterday, he said. Wheat prices
in Chicago as much as doubled since June as Russia’s drought, flooding in Canada and parched
fields in Kazakhstan and Europe decimated crops. Ukraine, once the world’s biggest barley
exporter, introduced export quotas this month after a smaller-than-expected harvest. Russian
farmers reaped about 60 million metric tons of grain this year, and the country has enough supply
to meet domestic demand, Putin said. Winter-grain plantings totaled about 13.2 million hectares
(32.6 million acres) as of Oct. 20, almost 4 million hectares less than a year earlier, the prime
minister said. Winter-grain plantings are almost 30 percent below forecasts and “this lag will be
impossible to overcome,” First Deputy Prime Minister Viktor Zubkov said at today’s meeting.
Russian wheat exports are forecast to slump to 3.5 million tons in the 12 months ending in June
2011, compared with 18.56 million tons a year earlier, according to the U.S. Department of
Agriculture.
French luxury goods group LVMH said on Saturday it was buying a minority stake worth €1.45
billion ($US2 billion) in family-controlled handbag maker Hermes but would not seek to take over
the group or influence its strategy. The move will see LVMH -- which owns champagne brand Moet,
Hennessy spirits and leather goods brand Louis Vuitton -- eventually hold a 17.1 percent stake in
Hermes, which is known for its high-end leather handbags and silk scarves. "The objective of LVMH
is to be a long-term shareholder of Hermes and to contribute to the preservation of the family and
French attributes, which are at the heart of the global success of this iconic brand," LVMH said in a
statement on Saturday. LVMH said it had bought 15,016,000 shares of Hermes, or a 14.2% stake.
Once it converts certain derivative instruments of Hermes shares, LVMH said it would hold a total of
18,017,246 shares, or a 17.1% stake.
Sources: AFR, Bloomberg, CBS, CNN, Dow Jones News Wires, Financial Times, Reuters, Pulse and Wall
Street Journal.