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WEEKLY COMMENTARY
18 JULY 2005
Global Weekly
Overview
• In the US Producer prices were unchanged in June, while core prices (excluding food and energy)
fell by 0.1%, survey evidence points to a further marked decline in producer price inflation.
• The US Michigan consumer confidence index improved to 96.5 in July, from 96.0, despite higher
gasoline prices. The consensus forecast of 95.0 is an illustration that the markets expected
those higher gasoline prices to dampen the consumer's enthusiasm a little.
• The latest data brought further signs of a softening of both activity and inflation pressures in
the UK labour market. Claimant count unemployment rose by 8,800, in line with expectations
of a rise of 8,000, making it the fifth monthly rise in a row.
Pan-Europe
• Centrica (UK) - released plans regarding both investing in upstream assets and further back
office job cuts as part of the business transformation programme.
• BBVA (Spain) - saw Unipol engage further in an attempt to stop its drawn out attempt to gain
control of BNL (Italy).
• Mothercare (UK) – Released trading update which reflected that the UK business continues to
be tough and its international business has continued to grow strongly therefore it has helped
offset the tougher trading conditions in the UK.
US
• Whirlpool Corp. the largest US appliance maker has offered $1.35bn in cash and stock for
Maytag Corp. topping bids from Haier Group and a consortium led by Ripplewood Holdings LLC
and raising possible antitrust concerns.
• IBM may say today that second-quarter profit dropped 11% after the sale of its personalcomputer business
• Crude Oil prices rose for a second day after Mexico shut offshore fields, where ¾’s of the
country’s 3.4 million barrels a day of oil is pumped, as Hurricane Emily approached the
country’s Yucatan Peninsula.
Far East including Japan
• Japan: The market rose, led by export-related stocks on hopes that the weaker yen will boost
earnings this year.
• China/Hong Kong: In full-year earnings news, shoe manufacturer Kingmaker Footwear posted a
14.7% fall in profits, as the tight labour market, power shortages and higher raw material prices
squeezed margins.
• Singapore: Malaysian tycoon Quek Leng Chan’s investment vehicle, Guoco, made a general offer
for BIL, which owns the Thistle hotel chain.
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WEEKLY COMMENTARY
18 JULY 2005
Global Weekly
Economic data
Monday
Euro Zone CPI (year-on-year)
Tuesday
Germany, Producer Prices (year-on-year)
ZEW Survey, economic sentiment
Euro Zone Industrial Production (Year-on-year)
ZEW Survey, Economic Sentiment, Germany
US housing starts
Wednesday
Bank of England Minutes
UK, M4 money supply (year-on-year)
Italy, Industrial Orders (year-on-year)
US, Greenspan Report on Economy & Fed Policy
Thursday
France, Consumer Spending, Year-on year
UK Retail sales, Year-on-year
US Initial Jobless Claims
US Continuing Claims
Friday
UK GDP, (Year-on-year)
Expected
Previous
Jun
2.1%
2.0%
June
July
May
June
June
4.6%
20.0
0.2%
22.0
2050k
4.1%
16.7
0.9%
19.5
2009k
June P
May
11.7%
1.9%
11.6%
0.1%
June
May
Jul 16th
Jul 9th
1.2%
0.8%
327k
2603k
2.5%
1.3%
336k
2617k
1.7%
2.1%
Q1, 2nd
Economic news
• In the US Producer prices were unchanged in June, while core prices (excluding food and energy) fell by
0.1%, survey evidence points to a further marked decline in producer price inflation. The Empire State
manufacturing index rebounded to 23.9 in July, from 10.5. This is the highest reading this year. New
orders and shipments also rebounded strongly, although the employment index actually fell. Roughly
half of the increase in industrial production in June was accounted for by a weather-related 5.3% surge
in utilities output. Nonetheless, there was also a healthy 0.4% rise in manufacturing output, led by a
jump in motor vehicle production. The downside to this report, however, is that the increase in
production pushed capacity utilisation up to 80.0%, from 79.4%. This is the highest reading since
December 2000 and not far from the 15-year average of 80.6%. The Empire State survey illustrates
that capacity constraints are not causing upward price pressures just yet, but that will not always be
the case as spare capacity dwindles further.
• The US Michigan consumer confidence index improved to 96.5 in July, from 96.0, despite higher
gasoline prices. The consensus forecast of 95.0 is an illustration that the markets expected those
higher gasoline prices to dampen the consumer's enthusiasm a little. The expectations index improved
again, but the current conditions index deteriorated a little.
• The latest data brought further signs of a softening of both activity and inflation pressures in the UK
labour market. Claimant count unemployment rose by 8,800, in line with expectations of a rise of
8,000, making it the fifth monthly rise in a row. This was the first time in recent months that higher
unemployment was driven by falling employment rather than an expanding workforce. Indeed,
employment fell by 72,000 in the three months to May against the previous three, the biggest drop
since 1993. Meanwhile, average earnings growth softened too. The headline growth rate including
bonuses dropped from 4.6% in April to 4.1% in May, as February’s bonus-related jump dropped out of
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WEEKLY COMMENTARY
18 JULY 2005
Global Weekly
the three month comparison. But annual growth fell too. And excluding bonuses, both the headline
and annual growth rates dropped from 4.1% to 4.0%.
Pan-Europe
Good week for all the main European markets with the exception of the UK which was modestly down
on the week. The UK markets were down main due to falls in the prices of the large oil stocks.
Additionally the mining stocks performed poorly due to continuing weakness in the London Metal
Exchange's base metal index.
• In an otherwise quiet week in the sector truck and industrial engine maker Volvo (Swe.) released news
of a significant contract win for its aerospace division. The business has secured orders to supply Pratt
& Whitney (US) with components for the F-35 Joint Strike Fighter.
• Centrica (UK) - released plans regarding both investing in upstream assets and further back office job
cuts as part of the business transformation programme.
• BBVA (Spain) - saw Unipol engage further in an attempt to stop its drawn out attempt to gain control
of BNL (Italy).
• Provident Financial (UK) - released a trading update indicating that across most divisions business
was in line with expectations, with the exception of Yes Car Credit which continues to disappoint.
• Unite (UK) - produced a trading update indicating positive underlying demand trends for student
accommodation and financial results in line with expectations.
• Pilkington (UK)- entered into an agreement to acquire the US assets of Autostock Distribution, a glass
distributor with 21 locations in the US, which is a further step to its stage 3 of its Cash for Growth
strategy.
• Mothercare (UK) – Released trading update which reflected that the UK business continues to be
tough and its international business has continued to grow strongly therefore it has helped offset the
tougher trading conditions in the UK.
• Kesa (UK) – has signed a new committed €800m five year revolving credit facility which will reduce
its cost of borrowing and enhance the maturity profile of the group’s debt.
• Pernod (France) –to sell Seagram’s vodka business in the US to focus on Stolichnaya vodka, which it
will acquire with the purchase of Allied Domecq.
• Diageo (UK) – The refinancing of Burger King debt brings to an end the guarantee ($850m senior and
revolving credit facility) that Diageo has provided for BKC since the disposal of the business in 2002.
Repayments of $266m will be made which will reduce Diageo’s net debt.
• Associated British Foods (UK) – Agreed to buy Littlewoods stores for £409m to expand its discount
clothing business, Primark. ABF will keep around 25-40 stores and intends to sell the rest to other
retailers.
• Premier Foods (UK) – trading outlook for the year remains in line with the company’s expectations
and are looking forward to an improved second half when a number of its new products will be
launched into the market place.
• McBride (UK) – Previous Group Finance director, Miles Roberts, has taken up the role of CEO, after
Mike Handley stepped down and the recruitment of a new FD is currently underway.
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WEEKLY COMMENTARY
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Global Weekly
• British American Tobacco (UK)– plans to close plants in the UK and Ireland costing in the region of
600 jobs in a bid to reduce costs. Higher costs in Western Europe and the increasing trend towards
local production has had a negative impact in the UK and Ireland’s manufacturing operations. The
company will begin negotiations within the next 24 months to resolve the matter.
• BP's (UK) Thunderhorse deepwater operating platform was damaged by hurricane dennis, leaving it
listing at an angle of 20-30 degrees. It is unclear at this stage how extensive the damage is, but
production from what is one of BP's most significant wells, will almost certainly be delayed.
• Shell (UK) announced that costs at its Sakhalin field may double to $20bn as metal prices, contractor
fees and the weak US$ all contribute to rising costs.
• Novartis (Switzerland) reported pretty decent second quarter numbers, with good sales numbers
across the divisions, though once again aided by the weak US$.
• Deutsche Lufthansa (Germany) released steadily improving passenger numbers, with long haul flights
to Asia, Africa and the Middle-east underlying the improved capacity utilisation.
US
The Trade Balance was reported at -$55.3bn, below both the previous level and the forecast of -$57bn
respectively.
Advance Retail Sales came in higher at 1.7%, well ahead of the prior level of -0.5% and the surveyed
level of 1.0%.
Initial jobless Claims were reported at 336K which was above both the prior level and the survey of 319K
and 322K respectively.
Industrial production was 0.9%, above the 0.4% prior level and 0.4% forecast.
During the week, performance was led by info tech, consumer discretionary and consumer staples stocks
whilst energy, utilities and health care were the worst performing sectors.
58 of the S&P 500 have now reported their second quarter 2005 earnings. Earnings are running about
0.2% below consensus estimates. 65.5% of companies have reported positive surprises, 19.0% have been
in-line and 15.5% have disappointed.
• Whirlpool Corp. the largest US appliance maker has offered $1.35bn in cash and stock for Maytag
Corp. topping bids from Haier Group and a consortium led by Ripplewood Holdings LLC and raising
possible antitrust concerns. Whirlpool would assume $969 million in debt, said yesterday it would
decide by Aug. 9th whether to make a formal offer for Maytag.
• IBM may say today that second-quarter profit dropped 11% after the sale of its personal-computer
business. Profit likely fell to $1.78bn, or $1.03 a share excluding costs for firing workers and a gain
from selling its PC unit, from $1.99bn or $1.16 a share.
• Crude Oil prices rose for a second day after Mexico shut offshore fields, where ¾’s of the country’s 3.4
million barrels a day of oil is pumped, as Hurricane Emily approached the country’s Yucatan Peninsula.
• The US economy is growing at a ‘solid’ pace, causing inflation pressures to mount, according to a
quarterly survey by the National Association for Business Economics of its members. 60% of the
surveyed economists said GDP will expand by more than 3% in this year’s second half. At the same
time, an index of prices charged by member companies rose to a nine-year high.
ABLE
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WEEKLY COMMENTARY
18 JULY 2005
Global Weekly
Australia
The recovery in the domestic housing market, which started in mid-2004, appears to have stalled, as
reflected in the latest data on new home loans, which slid 3.7% year-on-year in May. The bulk of the
decline came from investment properties, which fell 6.8% year-on-year, while loans for owner-occupied
homes slipped 1.5% year-on-year.
Consumer sentiment, meanwhile, took another battering in July, on worries over the soft housing market
and the recent terror attack on London.
The National Australia Bank survey showed business activity staying resilient in June, after May’s surprise
upturn. Business conditions were underpinned by improved trading conditions, while profits were steady.
However, labour market indicators continue to point towards a moderation in the second half of the
year.
• The stock market rose 1.5% last week, led by the financials sector, as investors bought defensive stocks
ahead of the results season. The energy sector lagged the market as oil prices retreated. Corporate
news was thin, as companies focused on the results season, which starts at the end of the month.
• Foster's started to streamline the headcount at its wine division, as it assimilated the Southcorp Group
following its recent take-over of the company, which was finalised in June.
• Woolworths is considering the sale and lease back of its A$1bn chain of 11 national distribution
centres in an aim to cut debt. This follows the recent acquisitions of Foodland and Australian Leisure &
Hospitality.
Fixed Interest
Bonds continued to spiral lower last week on the back of easing crude prices, a rally in US stocks, and
bullish comments by a Fed official.
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WEEKLY COMMENTARY
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Global Weekly
Emerging markets
Strong consumer spending, tame inflation data for June and a number of strong earnings reports helped
US markets rise for a third straight week. Emerging markets also made solid gains, with South Africa and
South Korea taking top honours.
In Brazil, retail sales grew by a weaker than expected 2.7% year-on-year in May, with sectors sensitive to
the domestic labour market remaining sluggish.
Chile raised interest rates by a further 0.25%, citing inflation concerns and stronger economic growth.
The latest hike also helped to support the peso last week.
China reported a 30.6% year-on-year surge in exports for June, while imports rose by 15.6%. This helped
boost the trade surplus to US$9.7bn. Meanwhile, foreign direct investment growth slowed in the first
half by 3.2% year-on-year to US$28.6bn, suggesting that capital inflows may be leveling off.
Columbia’s defence minister Jorge Uribe resigned a year before the official end to his term, citing
personal reasons.
The Malaysian government maintained its full-year GDP growth target of 5-6% for 2005, despite high oil
prices.
Taiwan’s main opposition Kuomintang Party elected a new leader, Taipei mayor Ma Ying-jeou, who is
reputed to be reform-minded as well as popular.
Thai investors welcomed the government’s measures to pump prime the economy, including a pay raise
for civil servants and a hike in the minimum wage.
• Brazil: Low-cost airline Gol, which we hold, added another leg to its distribution channel by signing on
to Amadeus, a global travel reservation system.
• Chile: LAN Airlines reported strong passenger traffic in June. The low-cost airline also continues to
expand its fleet, with its board approving the purchase of 25 short-range Airbus aircraft.
• India: MphasiS BFL, posted strong sales growth but suffered a fall in profit margins. Meanwhile, Tata
Power said it may set up of a hydroelectric power plant in central India.
• Israel: Pharmaceutical company Teva lost an appeals court decision that had upheld the validity of Eli
Lilly’s patent on antidepressant drug Sarafem.
• Korea: Steel-maker Posco plans to buyback US$642m worth of shares, which it will offer as depository
receipts on the Tokyo Stock Exchange in December. Meanwhile, LG Electronics and Philips plan to
each sell about US$400m worth of LG Philips LCD shares in a US$1.2bn ADR issue. In earnings news,
Samsung Electronics remained optimistic in its 2005 earnings outlook, despite a 46% year-on-year
fall in second quarter profits.
• Malaysia: Bursa Malaysia got the nod to liberalise the Central Depository System account structure,
which should make it cheaper and easier to trade. The authorities also approved a hike in the
maximum clearing fee payable per contract, more than doubling it from 200 ringgit to 500 ringgit per
contract.
• Oman: Oman Oil posted a 34.7% year-on-year increase in first quarter results, while revenues grew
by 15.9%. In other news, Port Services Corporation said it was exploring the feasibility of setting up
a small-medium scale ship repair facility in Muscat.
• Russia: Oil producer Lukoil filed a US$256m counterclaim against PetroKazakhstan, accusing it of
obstructing the decision making process at their joint venture, Turgai Petroleum.
• South Africa: There was good news in the retail sector, as they continue to benefit from the
favourable low interest rate environment. Truworths announced an 14% year-on-year rise in
comparable store sales, while Edgars reported an 25% increase in sales in its first quarter. At the
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Global Weekly
AGM, shareholders agreed to the proposed 10-for-1 share split and voted in favour of placing 10.6%
of the company’s equity in the hands of black employees.
• Thailand: PTT Exploration & Production’s shares rose after Moody’s upgraded its credit ratings and
on prospects of further gas field acquisitions.
Far East and Japan
Strong consumer spending, tame inflation data for June and a number of strong earnings reports helped
US markets rise for a third straight week. Asian markets rose in tandem with US markets.
China’s foreign direct investment shrank 3.2% year-on-year in the first half of 2005 to US$28.6bn,
suggesting that capital inflows may be levelling off. Meanwhile, inflation for 2005 was revised down
from 3.9% to 2.2%, relieving some pressure for the removal of the currency peg.
The Bank of Japan has become more optimistic about the domestic economy, with the central bank
governor saying that it may be emerging from the doldrums, although weaker-than-expected May
industrial production data highlighted the still uneven recovery.
Singapore’s GDP grew 3.9% in the second quarter and surpassed the market consensus of 2.5%,
according to flash estimates.
The Malaysian government maintained its full-year GDP growth target of 5-6% for 2005, despite high oil
prices.
Taiwan’s main opposition Kuomintang Party elected a new leader, Taipei mayor Ma Ying-jeou, who is
reputed to be reform-minded as well as popular.
Thai investors welcomed the government’s measures to pump prime the economy, including a pay raise
for civil servants and a hike in the minimum wage.
• Japan: The market rose, led by export-related stocks on hopes that the weaker yen will boost earnings
this year. On the corporate front, Mitsubishi Heavy Industries, showed interest in buying British
Nuclear Fuels’ stake in US nuclear plant maker Westinghouse Electric for US$2bn.
• China/Hong Kong: In full-year earnings news, shoe manufacturer Kingmaker Footwear posted a
14.7% fall in profits, as the tight labour market, power shortages and higher raw material prices
squeezed margins. Meanwhile, fast food restaurateur Café de Coral reported a 10.4% rise in profits
despite steady losses at its North American joint venture, while rival Fairwood recorded a nine-fold
surge in profits on the back of a recovery in operations and a property sale. Elsewhere, airport operator
Beijing Capital International Airport (BCIA) announced a 24% year-on-year rise in June passenger
volumes. Separately, CNOOC said it may raise its bid for Unocal by US$500m to US$19bn.
• Indonesia: Car distributor Astra won its bid for a 54% stake in toll road operator Marga Mandala
Sakti. Separately, Astra’s car sales dipped in June but first half sales were still 28% higher year-onyear. Meanwhile, Telkom met its US SEC filing deadline for its 2004 accounts, after earlier worries of a
delay. Elsewhere, major shareholder Sari Dasa Karsa will sell a partial stake in Bank Buana at 2.6times book value to Singapore’s United Overseas Bank (UOB), giving it a 53% stake.
• Korea: Steel-maker Posco plans to buyback US$642m worth of shares, which it will offer as depository
receipts on the Tokyo Stock Exchange in December. Separately, Binggrae also plans to buyback 1% of
its outstanding shares, which it will cancel. Meanwhile, LG Electronics and Philips plan to each sell
about US$400m worth of LG Philips LCD shares in a US$1.2bn ADR issue. In earnings news, Samsung
Electronics remained optimistic in its 2005 earnings outlook, despite a 46% year-on-year fall in
second quarter profits.
• Malaysia: Bursa Malaysia got the nod to liberalise the Central Depository System account structure,
which should make it cheaper and easier to trade. The authorities also approved a hike in the
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WEEKLY COMMENTARY
18 JULY 2005
Global Weekly
maximum clearing fee payable per contract, more than doubling it from 200 ringgit to 500 ringgit per
contract.
• Philippines: Ratings agencies Standard & Poor’s and Fitch last week cut their outlooks for the nation’s
credit ratings, citing the ongoing leadership crisis, which may derail the much needed budgetary
overhaul.
• Singapore: Malaysian tycoon Quek Leng Chan’s investment vehicle, Guoco, made a general offer for
BIL, which owns the Thistle hotel chain. In earnings news, defence contractor ST Engineering posted a
17% year-on-year rise in second quarter profits, with strong contributions from its aerospace,
electronics, and marine arms. Local media group Singapore Press Holdings (SPH) posted a 73% yearon-year fall in third quarter profits. In the previous period, profits were boosted by the sale of its
Belgacom stake and the Times House site.
Asian Fixed Income
Asian dollar-bond yield-spreads tightened last week after Standard & Poor’s upgraded the ratings outlook
of 17 Asian financial institutions, while, separately, Moody’s upgraded more than 20 government-related
Asian issuers, following an assessment under its new “joint-default analysis” methodology.
For more information
Alex Boggis
Mable Chan
Betty Yau
Aberdeen International Fund Managers Limited
Room 3102-3, 31/F., Alexandra House
16-20 Chater Road
Central
Hong Kong
Tel: +852 2103 4700
Fax: +852 2827 8908
www.aberdeen-asset.com.hk
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or analysis used to derive, or in relation to, the above information has been procured by Aberdeen International Fund Managers Limited (“AIFML”) for its
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on for AIFML’s own purpose.
AIFML does not warrant the accuracy, adequacy or completeness of the information herein and expressly disclaims liability for any errors or omissions.
The information is given on a general basis without obligation and on the understanding that any person acting upon or in reliance on it, does so entirely
at his or her own risk. Any projections or other forward-looking statements regarding future events or performance of countries, markets or companies
are not necessarily indicative of, and may differ from, actual events or results. AIFML reserves the right to make changes and corrections to the
information, including any opinions or forecasts expressed herein at any time, without notice.
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