September 3rd, 2010
Written by Fredric Henson
Analyst at Banc De Binary
Overview
A quiet week with very thin market conditions as summer holidays slowly end and we waited for August’s US Non-Farm Payroll (a better than expected –54K). Equity indices rallied, most erasing the losses of the last two or three weeks, Jakarta (3164) to a new record and Malaysia (1,441) its best since January 2008’s peak at 1,524. Currencies were mixed, yen (83.66) and Swiss francs (1.0065) originally in demand but reversing on Friday’s numbers, the Singapore dollar setting a new record of 1.3419 per greenback as did EUR/CHF 1.2850. Benchmark yields rallied, some from record lows, the moves most pronounced in the JGB’s (10-year from 0.90% to 1.15%). Many index-linked issues set new record lows yields, then stabilised close to these points. Spot Gold at $1,245.65 is very close to its record high and Silver $19.68 not that far off 2008’s record $21.24. ICE Cotton at 91.80 cents per pound is two standard deviations above the long term mean, Pakistani floods affecting availability, likewise CME Live Cattle at 98.70 cents. Baltic Freight Rates up from depressed levels, trading around the mean of the last two years or so.
Political and Economic Developments
The European Central Bank extended its ‘emergency support’ operation to banks, rates at 1.00% for another year, the 17th consecutive month as global unemployment is estimated to have increased by 30 million since 2007. How long is an emergency and what about ‘new normal’? Looming government spending cuts in the UK, banks and building societies have had to write off 70% more consumer debt in Q2 compared to the previous one; credit cards £2.1B out of a total £3.47B, both new records. Not surprising then that lending criteria have tightened, net unsecured loans £173M in July versus closer to £2B in 2003-2005’s boom, 48% of credit card applications turned down last year. Net mortgage lending £86M in July, as low as it got in 2009 and well below 2007’s peak at £10.5B. Note that outstanding household debt at £1,456B, or £23,100 per person, is the highest among G7 countries. Lending to companies shrank again in July, the eleventh month in a row, as non-financial corporations paid back £2.0B cutting net debt by 3.1% Y/Y; some may be resorting to the capital markets and the lucky are hoarding cash. Irish PM Cowen says the immediate windup of Anglo Irish Bank could cost €70B.
Revised data show US households are saving a greater part of their disposable income, on average close to 6%, as they try to repair balance sheets, prospects uncertain as unemployment remains at 9.6%; record low mortgage rates are helping, 30-year fixed rate a record low 4.32%.
Underlying Themes
Good news from Ireland, at last. Europe’s biggest mozzarella cheese supplier Glanbia saw profits soar 51% Y/Y and upped earnings growth. Supplying fast food restaurants and pasta manufacturers, it said stubbornly high unemployment especially in the US was helping them. It suggests that people have traded down from outings to the cinema followed by a meal to a DVD, pizza delivery, and a cuddle on the sofa. A double whammy for the firm, a by-product of the process is whey which is turned into protein shakes. Vain young men have a lot more time to spend at the gym, where memberships have kept steady, working out striving for the perfect body, keeping up their self esteem and off the streets. UK pub and supermarket alcohol consumption dropped 6% this year, the largest fall since records began in 1948 and the fourth fall in five years suggesting less binge drinking and more moderation because of tight purse strings.
What to watch for next week
Monday 6th September Labour Day holidays in Canada and the US, the Bank of Japan starts a two-day rate-setting meeting, Eurozone September Sentix Investor Confidence numbers and finance ministers meet in Brussels. Tuesday Japan July Leading and Coincident Indices and German Factory Orders while the Reserve Bank of Australia decides on rates (Cash Target expected unchanged at 4.50%). Wednesday UK August BRC Shop Price Index, Japan Bank Lending and Money Supply, Bankruptcies, July Machine Orders, Trade Balance and German one too, UK and German Industrial Production, the Fed’s Beige Book and the Bank of Canada decides on rates (many expect +25 basis points to 1.00%). Thursday Japan August Consumer Confidence, UK and US July Trade Balances and the Bank of England decides on rates (expected unchanged at 0.50%). Friday Japan final Q2 GDP, UK August PPI and US July Wholesale Inventories.
Positioning and Technical Analysis
Summer over for most by the 7th and the feel is very much back to school and back to work. Many areas of finance are still not functioning properly, issues which are unlikely to be resolved between now and year-end. Changes in politics and legislation are destabilizing in themselves and concerns regarding the potential for new rules hinder long term investment decisions; yet more constraints on private industry and job creation. Positioning for year-end will begin over the next month or two as we have relegated rate hikes to the very distant future.
A quiet week with very thin market conditions as summer holidays slowly end and we waited for August’s US Non-Farm Payroll (a better than expected –54K). Equity indices rallied, most erasing the losses of the last two or three weeks, Jakarta (3164) to a new record and Malaysia (1,441) its best since January 2008’s peak at 1,524. Currencies were mixed, yen (83.66) and Swiss francs (1.0065) originally in demand but reversing on Friday’s numbers, the Singapore dollar setting a new record of 1.3419 per greenback as did EUR/CHF 1.2850. Benchmark yields rallied, some from record lows, the moves most pronounced in the JGB’s (10-year from 0.90% to 1.15%). Many index-linked issues set new record lows yields, then stabilised close to these points. Spot Gold at $1,245.65 is very close to its record high and Silver $19.68 not that far off 2008’s record $21.24. ICE Cotton at 91.80 cents per pound is two standard deviations above the long term mean, Pakistani floods affecting availability, likewise CME Live Cattle at 98.70 cents. Baltic Freight Rates up from depressed levels, trading around the mean of the last two years or so.
Political and Economic Developments
The European Central Bank extended its ‘emergency support’ operation to banks, rates at 1.00% for another year, the 17th consecutive month as global unemployment is estimated to have increased by 30 million since 2007. How long is an emergency and what about ‘new normal’? Looming government spending cuts in the UK, banks and building societies have had to write off 70% more consumer debt in Q2 compared to the previous one; credit cards £2.1B out of a total £3.47B, both new records. Not surprising then that lending criteria have tightened, net unsecured loans £173M in July versus closer to £2B in 2003-2005’s boom, 48% of credit card applications turned down last year. Net mortgage lending £86M in July, as low as it got in 2009 and well below 2007’s peak at £10.5B. Note that outstanding household debt at £1,456B, or £23,100 per person, is the highest among G7 countries. Lending to companies shrank again in July, the eleventh month in a row, as non-financial corporations paid back £2.0B cutting net debt by 3.1% Y/Y; some may be resorting to the capital markets and the lucky are hoarding cash. Irish PM Cowen says the immediate windup of Anglo Irish Bank could cost €70B.
Revised data show US households are saving a greater part of their disposable income, on average close to 6%, as they try to repair balance sheets, prospects uncertain as unemployment remains at 9.6%; record low mortgage rates are helping, 30-year fixed rate a record low 4.32%.
Underlying Themes
Good news from Ireland, at last. Europe’s biggest mozzarella cheese supplier Glanbia saw profits soar 51% Y/Y and upped earnings growth. Supplying fast food restaurants and pasta manufacturers, it said stubbornly high unemployment especially in the US was helping them. It suggests that people have traded down from outings to the cinema followed by a meal to a DVD, pizza delivery, and a cuddle on the sofa. A double whammy for the firm, a by-product of the process is whey which is turned into protein shakes. Vain young men have a lot more time to spend at the gym, where memberships have kept steady, working out striving for the perfect body, keeping up their self esteem and off the streets. UK pub and supermarket alcohol consumption dropped 6% this year, the largest fall since records began in 1948 and the fourth fall in five years suggesting less binge drinking and more moderation because of tight purse strings.
What to watch for next week
Monday 6th September Labour Day holidays in Canada and the US, the Bank of Japan starts a two-day rate-setting meeting, Eurozone September Sentix Investor Confidence numbers and finance ministers meet in Brussels. Tuesday Japan July Leading and Coincident Indices and German Factory Orders while the Reserve Bank of Australia decides on rates (Cash Target expected unchanged at 4.50%). Wednesday UK August BRC Shop Price Index, Japan Bank Lending and Money Supply, Bankruptcies, July Machine Orders, Trade Balance and German one too, UK and German Industrial Production, the Fed’s Beige Book and the Bank of Canada decides on rates (many expect +25 basis points to 1.00%). Thursday Japan August Consumer Confidence, UK and US July Trade Balances and the Bank of England decides on rates (expected unchanged at 0.50%). Friday Japan final Q2 GDP, UK August PPI and US July Wholesale Inventories.
Positioning and Technical Analysis
Summer over for most by the 7th and the feel is very much back to school and back to work. Many areas of finance are still not functioning properly, issues which are unlikely to be resolved between now and year-end. Changes in politics and legislation are destabilizing in themselves and concerns regarding the potential for new rules hinder long term investment decisions; yet more constraints on private industry and job creation. Positioning for year-end will begin over the next month or two as we have relegated rate hikes to the very distant future.
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