Another week, another mixed bag - 24th April

Another week, another mixed bag…
The end of a mixed week for both the political and economic landscape: No major global conferences for what must be the first time in a year, a dismal outlook to global growth by the IMF who have pointed to the resuscitation of the financial system as the only route to recovery, and a street now eagerly awaiting the results of the US stress-test. We’ve seen a total deterioration in security across near-Asia as Pakistan and Sri Lanka descend into chaos, and even Irag suffers a slew of Baghdad bombings once forgotten in a worrying shot-across-the-bows of Obama’s still warming-up administration. Tougher pay rules on financial industries across US and Europe are touted, surely affecting risk appetite and the attractiveness of the industry with directors’ pay limited to 2yrs of fixed salary. US house prices have shown a month-on-month increase for two months in a row for the first time since 2006 – green shoots of a housing recovery? Or simply an easily achieved economic release when you consider how incredibly far prices dropped in previous months? What about the latest plans to increase UK taxes to 50p on the £ – are they crazy? No further comment on that really. Chrysler may (finally) apply for Chapter 11 bankruptcy. Even mighty Microsoft that has made money since 1986 suffers the first quarterly revenue drop since then for Q1 ’09. One piece of positive news amidst the earnings debris, a recent survey indicates that the majority of investors believe the worst is over and that we should be in for a turn-around, interestingly the focus and belief in return expected from growth stocks and not value stocks.

Another election, which wife?
One cannot help but smile on a Friday when realising the major differences in life and politics between continents such as Africa and North America - whereas Obama’s most pressing issue when he won the US election was what puppy to choose to take to the White House, the newly victorious South African President, Jacob Zuma, must face a dilemma which is more human in nature – he has to make a tough choice between his two current favourite wives - being a Zulu leader, he’s entitled to more than one and has had four in the past - and promote one to the first lady of South Africa – you wouldn’t want to be in the room when he break the news to the unlucky lady!

Markets
Notice the Baltic Dry Index (BDIY) has continued its rise, 9th day in a row now, +20% in 6 days. Gold has run right back through the $900/oz level as a number of stop-losses are triggered with the sudden appreciation in the last 5 days (+5%). Oil has decided to set-up camp at the $49/brl level, seemingly content at teasing the oil-producing nations in the face of their desired price. Currencies have again seen the strength of the Euro vs US$ but other major cross-rates have maintained a pretty level-headed stance since the start of the week. There were no major economic announcement from China this week, which left the US Treasury market to rally as hot-inflows reacted to growing concern over the results of the financial stress-testing. Watch the figure for New Home Sales in the US later today (337k cons).

More bad news for our Japanese friends, as HSBC shuts down its stock-research and trading business in Tokyo. Nomura reports a 5thstraight quarterly net loss ($2.2bn), after yesterday’s disappointing negative surprise from Mizuho – again, nothing looking good for the world’s second largest economy right now. SMFG has also just announced its intention to purchase Nikko Citi. Luckily for the markets in Tokyo, Nomura’s news was released after the close, but we still saw declines across the largest listed firms and financials of course, with the Nikkei down -1.6% (it is now in negative YTD return once again, -1.7% YTD)
Rest of Asia has not done too badly this week, slight falls in China but nothing too worrying - for now. Taiwan and Korea have held onto hard-won gains and even today ASEAN nations outperforming their peers with an avg return of +1.7%. Surprisingly, despite the US’s best efforts at scaring away any investors, Pakistan has performed resiliently today, +3% on the Karachi 100.
On the tech-front, Korea’s Samsung did manage to make money this year so far, but at a far reduced pace – the guidance from the firm suggests that the consumer electronics business will continue to prove a tough environment to generate profit from. Some of the first luxuries consumers are making do without are of course those gadgets they used to buy with the disposable income they all believed they really had.

Europe is in the grip of its own Shakespearean (potential tragedy)-play as VW and Porsche, tied-at-the-hilt through long-standing family ownership and feud, the sudden reversal in Porsche’s fortunes has left it susceptible to a take-over – watch the old-adage that “you can’t choose family in life” reflect itself in all its glory on this one as the Porsche family does all it can to avoid Ferdinand Piech (VW’s Chairman and cousin) getting what he’s wanted for many years. Markets are not suffering on the back of this news, as the majors across Europe all currently appreciate around +1.3%.

In the US, where futures are currently trading slightly higher (DJIA +5pts, S&P +0.9pts) a preliminary investigation has revealed that Paulson back in December had to “threaten” BofA management into completing their purchase of Merrill Lynch – fearing the worst if another investment bank was to fail, it appears that the Fed and Treasury were adamant to avoid a reneging of the deal. Of course, many were fully aware that here had been some behind the scenes “encouragement” to get the deal-done, but it makes one sharpen their thoughts on what must be happening behind the scenes right now in the face of the awaited stress-test results.
Can you picture Geithner and Bernanke sitting in a dark-room somewhere surrounded by harangued and anxious senior investment banks managers as they shift around nervously in their seats awaiting to be called to the front of the room and pressured into picking one of their peers sitting behind them to come-up and join their team – I’m sure it’s not quite as random as that, but you get the picture.