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The Financial Markets - 12 November 09

• Comments from the ‘Group of IMF’ economists that the crisis has “brought to the fore” the long-standing concerns about a system based on a single core currency issued by one country and that the USD-based system “suffered inherent weaknesses”. As alternatives to the USD, they propose moving to a system in which the USD shares its leading role with a few other currencies such as the EUR and, possibly, the CNY.
  
  
• US Treasury Secretary Geithner says that the challenge “right now” is to restore growth and most countries see the need for more government support. He singled out Asia as the region to lead the global recovery. He also reiterated that it’s very important to have a strong USD.
  
  
• Japanese wholesale prices, as measured by the corporate goods price index, fell 6.7% yoy in October, easing from an 8.0% slide in the year to September and a record 8.5% fall in the preceding two months. The decrease was nonetheless larger than the consensus forecast of -6.0%.
  
  
• Japanese Ministry of Finance official Furumoto said that Japanese domestic demand is in a severe condition, the jobless rate is a pressing issue and the corporate earning outlook for 2009/10 is ‘gloomy’. He says exit policies can’t be considered yet.
  
  
• WTO Director General Pascal Lamy said that “I think the biggest threat [to free trade] is in the deterioration of the jobs market where unemployment is rising hard, then inevitably protectionist functions appear”. He added that “the violence of the crisis has triggered protectionist reactions here and there. There has been slippage, countries with a bit of buy local, a bit of increasing the tariffs, a bit of anti-dumping, a bit of safeguards”.
  
  
• In its quarterly report on monetary policy, the People’s Bank of China said it would orient its exchange rate policy towards “capital inflows and major currency movements”, a not too subtle hint that the country is currently subject to massive Dollar inflows as the US currency weakens. Pressure has been building up on China to do something about the exchange rate, most recently from the IMF, according to the FT, which said the Renminbi was extremely undervalued.
  
  
• Flash estimates of Chinese imports in October show that unwrought Copper imports fell by 34% to 263kt, which is the lowest level since January and 45% below their June peak. Lower Chinese imports, reactivation of idled capacity and the end of various auto scrappage schemes are likely to limit further price gains for base metals into the end of 2009.
  
  
• Euro area industrial production rose a smaller than expected 0.3% mom to -12.9% yoy, slightly weaker than expected. However, the August prints were revised up to 1.2% mom and -15.1% yoy.
  
  
• Compared with the previous round conducted in July, the ECB Survey of Professional Forecasters revised their inflation expectations down by 0.1% to 0.3% for 2009 and up by 0.1% to 1.2% for 2010. 2011 was unchanged at 1.6%. Growth expectations for 2009 were revised significantly upwards by 0.6% to 3.9% in 2009. 2010 and 2011 were revised upwards by 0.7% and 0.1% respectively tot 1.0% and 1.6%.
  
  
• The mystery of the rising stock market. If the economy’s stagnant, why are stocks up? The answer is disturbing.
  
  
• The anti-swine flu holy water dispenser. An Italian inventor has combined faith and ingenuity to come up with a way to keep church traditions alive for the faithful without the fear of contracting swine flu — an electronic holy water dispenser.
  

• After the bell yesterday, the big M&A story was of course HP’s $2.7bn offer for 3Com. In other M&A news United Tech is to acquire GE Security for $1.82bn.
  
  
• AB InBev, which recently sold Tennents to C&C, reported Q3 results 11% better than consensus on cost cutting and price increases. Within its global operations the business continues to experience declining beer markets (-3.3% in western Europe, -7% in Germany) amid the recession. The company says demand trends remain soft although it sees a better volume performance in Q4. Any evidence of stabilising demand for beer and/or rising prices would be positive for C&C’s new beer unit.
  
  
• BT issued a reasonably positive Q2, with EBITDA (adjusted) at £1,436m marginally ahead of consensus expectations. The statement also raised guidance for 2009/10 free cashflow from £1bn to at least £1.6bn, whilst there was also a positive revision for overall cost savings. There was no specific update on the pension fund situation. The stock is up 4.5% today.
  
  
• AIB’s Polish subsidiary Bank Zachodni WBK reported a 7% increase in net profit year on year, in results released for Q3 this morning. Profits came in at 263.7 million Zloty, compared to 247 million Zloty a year earlier. The results are well ahead of expectations.
  
  
• The proposed takeover of Dragon Oil by Enoc suffered a setback in recent days as the deal has upset a number of shareholders. Firstly, Bailie Gifford, Dragon’s second largest shareholder with a 4.2% stake said the deal understated the fundamental and strategic value of the company and would vote against the takeover deal. Noster capital a hedge-fund with a smaller 0.12% stake called Enoc’s move opportunistic and inadequate. Shareholders representing 75% of Dragon’s shares not owned by Enoc must vote in favour of the takeover for the deal to go ahead. These developments do open up the possibility of an improved offer. However, with many shareholders unhappy and a 75% shareholder approval required, the takeover may take longer to be completed than originally suspected.
  
  
• In brief, Peugeot is up 6% today after upping its full year profit forecast on a quicker than expected recovery in the auto market. They said they’d break even in the H2 lowering the full year loss by almost 20% on the end Sept forecast. The move buoyed the sector in general with BMW and Daimler finding buyers.
  
  
• Finanzas.com is reporting that Iberia has accepted the terms proposed by BA to complete the merger of the two airlines. Both stocks are up strongly.
  
  
• Trinity Mirror is also well bid for the 4th day in a row (up 5% today) after stating that they are confident their full year will be inline with expectations.