European Market Spread Betting News
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The Regular Update from The Mole and paddypowertrader.
The Financial Markets - 17 December 09
In a “sell the news” reaction to the snoozefest from the US Federal Reserve (FOMC), stocks retreated on profit taking to finish broadly flat yesterday.
Honeywell fell 2.1% after delivering outlook that fell shy of the Street’s expectations. Meanwhile, Intel was soft after news that it is facing antitrust charges accusing the chip maker of abuse of size to stifle competition.
Note the perkiness of the USD continues unabated this time on the back of the Greek sovereign credit downgrade, tales of unpaid bills (see below for the gory details) and the weak pricing of Citibank’s secondary offering.
Gold is back at $1,125 as liquidity dries up.
The US FOMC announcement was the anti-climax of the day as the market waited with bated breath for a statement that was unchanged in most respects.
The key sentence which everyone was watching “likely to warrant exceptionally low levels of the federal funds rate for an extended period” was unchanged.
Aside from an entirely expected upgrade of the US economy, we also got no change in the inflation outlook and a winding down of the liquidity facilities the Fed had put in place.
Market moves are becoming more and more random as participants keep on unwinding positions and the early birds are leaving for their well-deserved Christmas vacation after what has been another challenging year in every aspect.
Stocks seem to be able to defend their positive sentiment into the Christmas vacation without displaying decisive upside breaks yet.
Notable US earnings reports due today from FedEx (expected EPS $1.05), Rite Aid (-$0.18), Oracle ($0.36), Palm (-$0.32), Nike ($0.71) and RIMM ($1.04). Homebuilder Hovnanian may be in the firing line after reporting a big EPS miss late yesterday (-$3.21 versus an expected loss of -$1.75).
Stocks on the move this European morning include the troubled sports retailer JJB Sports, down 5% after reporting that sales at stores open longer than one year are down an alarming 29%.
To the upside we have estate agents Savills (+4%) after announcing that full year earnings will “significantly” exceed their earlier forecasts. Banks are underperforming on Euro Bourses today on the Citibank story (see below).
Nothing But Greece To Write About
S&P cut the Greek sovereign rating to BBB+ and kept Greece on ratings watch negative.
The FT didn’t help the Greek case, covering Greece in a full page article detailing €7bn in unpaid health-care bills to the private sector, the PM’s charm offensive and Trade Union protests, all of which add to pessimism on the situation.
Greece’s spread i.e. what they pay to raise debt versus where Germany can fund has widened 0.3% today alone.
The Greeks will not easily appease the agencies or the markets (unless they put the Parthenon up for sale or something…) and they continue to have a tough job ahead of them.
We all know Greece is in poor fiscal shape. However, now not just one but two agencies have it rated BBB+ and they might downgrade it further. This shows that they are further sending the message that the recent round of government’s announcements is not quite serious enough.
We are nearing the year end and people have pretty much put their books to sleep until next year, so there might be little fresh risk-taking engagement around. But, the way things are boiling is certainly not looking very good.
And For A Few Drachma More
Europe’s leading healthcare companies have complained to Brussels over the non-payment of debts on drugs and other medical products they say total almost €7bn by the Greek public health system.
We have learned only this week that there is no such thing as double-entry booking in Greek hospitals for example. It’s only 700 years odd since the Venetian’s invented it I suppose.
Last spring, the Greek government actually asked the drug companies for further loans to tide them over, rather than offer repayment.
The moves come as Greece struggles to raise funds on international markets to finance its swollen budget deficit and public debt in the face of credit rating downgrades.
George Papandreou, the prime minister, singled out corruption in public hospital procurement this week as being “in urgent need of rooting out” as he launched a campaign to eliminate graft in the state sector.
The Socialist government said when it took office in October that settling outstanding hospital debts, which it estimated at between €2.5bn and €3bn, would be a priority. But Yiannis Chryssopathis, legal counsel at the Hellenic Association of Pharmaceutical companies, said the debt was significantly larger than the official statistics.
He said drug and device companies were cumulatively owed €5.2bn by the end of last year and by this summer the total had reached €6.5bn. No regular payments have been received from the Greek health ministry since 2005, when a settlement was reached on outstanding bills from earlier years
Sell EUR/USD
UBS have a research note out today recommending a contrarian sell EUR/USD at $1.4405, target $1.39, stop at $1.46.
I did pen a piece some time back talking about a non consensus USD rally into year end making many of these points.
- The US Federal Reserve yesterday signalled the end of liquidity programs.
- More ratings downgrades due in the Eurozone soon.
- Reserve managers who have been buying EURs on dips will have to reassess their positions as the EUR has fallen through key support at $1.4450-1.45.
- There is now increased focus on US yields, and this is giving support to the Dollar against other major pairs like USD/CHF and USD/JPY. Bring about a broader Dollar move.
- Sentiment remains negative for the Dollar generally. Note that selling EUR/USD at present is a non-consensus view.
- Into year-end market investors will need to take profit on short USD positions and will start to chase this move lower in EUR/USD.
- The US data UBS track shows US investors have become strongly positioned in foreign assets again this year, and are vulnerable to reversal.
Company News
- Travis Perkins’ trading update shows underlying sales trends have continued to improve at the group since the last update in late September. Total revenues for the first 11 months of this year are down by 8.5%, an improvement on the -11.0% previously reported for the 9 months to the end of September. They report that overall trading in last 2 months has been “a little ahead” of its expectations with management now expecting FY09 earnings to be the at upper end of market expectations. Despite this the group remains cautious on its FY10 outlook with no change to management’s view on the current market consensus which calls for a lower year on year earnings performance.
- UK homebuilder Tomkins has been the subject of a couple of speculative reports in the market report sections of the English press. The Daily Mail has linked Tomkins as a target for a bid by Magna International whilst the Daily Telegraph links Johnson Controls as the more likely bidder. Both these reports are fairly low quality but there has been some noise around the name over the last week.
- Deutsche Bank has emerged as a key bidder for Royal Bank of Scotland’s stake in Sempra Commodities. The deal, which would cement Deutsche Bank’s expansion into commodities as part of its investment banking build-out, could be worth about $3 billion.
- US life insurers, a group led by MetLife and Prudential Financial, may post $10 billion in losses tied to commercial real estate over the next three years, Moody’s said. Defaults on property loans and declines in commercial mortgage-backed securities will “dampen earnings,” the ratings firm said. The loss estimate was increased from $7 billion earlier in the year, Robert Riegel, managing director at Moody’s, said.
- Citigroup, recipient of the biggest US bank bailout, declined in extended US trading after CNBC reported that the lender will price shares in a secondary offering to repay the government at $3.15 each, an 8.7% discount to Wednesday’s closing price. The lender’s shares fell 14 cents, or 4.1%. The US government, which intended to offer as much as $5 billion in shares of Citigroup that it owns, won’t sell its stake because the price is below the amount it paid.
UK Housing Defying Gravity
UK house prices continue to defy the economic backdrop.
Having risen for the last seven months, house prices are now 8% higher than the trough seen early in the year on both the Halifax and Nationwide measures.
Some have argued that this is merely a London phenomenon due to demand from foreign buyers in response to the weaker Pound, but the RICS survey shows prices rising in nine of the ten regions of the UK.
UK price increases are coming through on very little volume and some are speculating that an increase in supply next year will lead to a further leg-down in prices.
If this increase in supply were due to rising foreclosures then this might prove true. However, with Interest Rates still low and employment now rising, an increase in supply is more likely to be households choosing to sell, which is a very different scenario from being forced to sell.
I’m of the view that this will contain further gains, rather than prompt house prices to fall, so my central expectation is that houses prices stagnate whilst volumes pick up slightly over the course of 2010.
The most significant news over the month comes from the recent labour market release which showed that employment increased on both the claimant count and broader ILO measure.
Given the number of firms reporting problems finding skilled staff before the recession, it’s not particularly surprising that firms would be inclined to hoard labour in the downturn. And outside of the public sector workers have been more willing to accept weaker pay in order to remain employed.
Nevertheless, coupled with low Interest Rates, there is further evidence that arrears and repossessions are falling.
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The above comments do not constitute investment advice and neither paddypowertrader nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
"European Market Spread Betting News" last update by The Mole, 17-Dec-2009
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