Market Week Wrap-up

Trade The News Weekly market update: Market Week Wrap-up

  • The dreaded month of September and the fourth quarter came to a close this week after four weeks of sustained equity rally. All in all, the S&P500 had its best September in seventy years and leading equity indices are near their best levels since mid- May low trading volume remains disappointingly low. In a telling sign, gold has pushed out to fresh all-time highs both this week and last, despite the mild risk-on environment, closing out this week just shy of $1,320. On the data front, the focus was on mixed views of the global recovery offered by September industrial performance reports. In the US, four reports offered a mixed view of manufacturing, the very sector that has led the flawed recovery forward over recent months. Two glum regional Fed manufacturing surveys offered a negative take early on in the week: the Dallas and Richmond manufacturing indices both missed expectations by wide margins (the former has been weak for a while and the latter had been relatively strong in recent months). On the other hand, the Chicago PMI and the ISM Manufacturing Index met or beat expectations, and sustained the prior strong readings seen over the summer. China's September Manufacturing PMI beat the upper end of analyst forecasts helping to push industrial commodity prices higher on Friday. In Europe, September PMI readings hit troubling multi-month lows, while Spanish September PMI indicated contraction. As investors debate the validity of the so-called "Bernanke put," Fed governors continue their public tug of war over the Fed's next steps. This week Dallas Fed President Fisher questioned the efficacy of more asset purchases and Philadelphia Fed President Plosser warned that another round of Fed buying would be unlikely to have an impact on jobs, saying he would only support renewed quantitative easing (QE) if deflation arrives. The New York Fed's Dudley countered these remarks by stating that more Fed action to support the economy is likely (and also said no one should assume that more action will come at the November FOMC meeting). Major indices were more or less flat on the week, with the Nasdaq down 0.4%, the DJIA slipping 0.3% and the S&P500 off 0.2%.

  • The big banks were back in the news this week after a relatively quiet summer season. Banking analyst Meredith Whitney went on CNBC on Thursday to reiterate here bearish view on the banking industry as a whole, reiterating many of her well-known positions and also adding a new wrinkle, warning that fiscal challenges facing US states are a major risk the regional banks due to issues with state budgets. In a separate story, it was reported that G20 members are considering a proposal to set capital standards 2-3% higher for the world's largest banks at the upcoming G20 meeting in November. The proposal comes in response to criticism that the recent Basel III bank capital rules did little to deal with the 'too big to fail' issue. Citigroup rose higher than the other leading banks after the Treasury disposed of another chunk of its holdings in the bank.

  • Walgreens came in ahead of expectations in its Q4 report, with comps looking fairly decent. Western Union provided an update on its Q3 results. It noted that revenue was up 1% in the quarter and reaffirmed its 2010 guidance. Prepared foods name McCormick beat earnings targets but fell short on revenue, and slightly increased its 2010 outlook. MetLife warned that the firm could see a $0.20/share impact on FY11 earnings if interest rates remain at the extremely low current levels (note that MetLife has not offered FY11 guidance as of yet, and won't do so until early December). Consultancy Accenture offered Q4 results that were slightly ahead of expectations and raised its semi-annual dividend. Company executives said that the demand environment shows even more momentum than they had hoped for at this point.

  • Tech investors focused on three key stories this week. First off was Research in Motion's new Playbook tablet computer, offering a 7-inch screen and strong specs, but analysts are very skeptical of the firm's decision to launch in 2011 at the earliest, just in time to compete with Apple's second-generation iPad. On Tuesday shares of Apple tumbled around $15 just after the open, apparently on a retread of rumors that Apple COO Cook could take the helm at Hewlett-Packard. Hewlett Packard put that rumor to rest when it appointing former SAP chief Leo Apotheker to the CEO spot, disappointing some investors who were looking for another "rock star" chief executive to replace the disgraced Mark Hurd. Recall that Apotheker lost his job running SAP earlier this year after he didn't live up to expectations. Earlier in the week, H-P offered an initial look at its FY11 guidance at an analyst event, with targets just a bit higher than the Street's expectations.

  • Dealmaking has continued apace, with deals in the airline and beauty industries. In one of the larger transactions, AIG agreed to sell to Asian units to Prudential Financial for $4.8B. Southwest Airlines landed AirTran for $1.4B in cash and stock, valuing the shares at a premium of 69% over the prior day's closing price. European consumer products giant Unilever checked out beauty care name Alberto Culver for $3.7B in cash.

  • Government bond markets ended the week little changed as investors acclimatized to the prospect of QE2. Bond yields in both the US and UK are not far from the lows of the summer. The US 10-year yield is holding near 2.5% following a week that included $100B in coupon auctions. The UK 10-year GILT yield slipped back below 3% after the Bank of England's Posen suggested inflation could fall well short of targets without additional quantitative easing.

  • Weak dollar sentiment continued this week, goaded on by more QE2 speculation. An article in the Wall Street Journal suggested that the Fed may engage in small-scale buying on an ad-hoc basis rather than announcing a large asset purchase program up front, which pressured the greenback against riskier currencies. The euro rallied steadily on a stream of moderately positive economic data and in spite of resurfacing European peripheral debt woes. Early in the week, Moody's downgraded Anglo Irish Bank's subordinated debt, briefly pushing EUR/USD down to weekly lows under the 1.34 level. Gaming the anticipated costs of the Anglo Irish bailout was a major sideshow, but it hardly got in the way of euro strength. The Irish government said the bailout would cost €34.9B in the worst case scenario, only slightly below S&P estimates of more than €35B. The news may have been grim (the costs amount to nearly 35% of Irish GDP) but markets had largely anticipated them. On the plus side, China offered supportive rhetoric for Eurozone debt, pledging to buy Greek paper, while the ECB stepped in and bought Irish bonds. Encouraging German confidence data out mid-week further buoyed the single currency while peripheral spreads narrowed following new austerity measures from Portugal.

  • Competitive currency devaluation has come into focus in the weeks following Japan's dive into FX markets. On Monday Brazilian Finance Minister Mantega offered unambiguous commentary on the state of currency markets, warning that the world is engaged in an international "currency war" and reiterated that Brazil will not allow the Real to over appreciate. Evidently the London Telegraph's Ambrose Evans-Pritchard feels Mantega's pain. In a column this week, Evans-Pritchard commented that considerable amounts of stimulus spending and easy money from industrialized Western countries is flowing into emerging markets, forcing emerging market nations to set up direct capital controls in order to slow inflows and keep their currencies from strengthening. Meanwhile, after the US House of Representatives passed a bill seeking to punish China for its weak renminbi, Treasury Secretary Geithner tried to calm the waters by stating the US will not engage in currency war or start a trade war with China.

  • Sterling was mostly stable, with trading pivoting around the 1.5820 level as UK economic data was mixed but low-impact. Cable reached weekly highs around 1.5902, just before being knocked down to its lows on the week at 1.5670 as BoE Gov Posen offered very dovish commentary, noted that monetary policy must remain aggressive and pledged his support for more QE. The Aussie was capped at the 0.9725 after having reached multi-year highs at 0.9733.

  • The yen gradually strengthen all week, with USD/JPY bottoming out around 83.1499 at post-intervention lows (recall that the initial BoJ intervention on Sept 15th came after the yen traded below the 83 level). In typically candid comments, former MoF official Sakakibara (aka Mr Yen) declared Japan's currency intervention unsuccessful and noted that the greenback would fall below ¥80 regardless of any action by the MoF. The BoJ will meet next week for its October policy meeting and is expected to announce additional easing steps that will not include intervention.

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Oct 2, 2010 - 4:53pm
Jorgé, what's your opinion? Comment below:

Good stuff and yeah, plus 1 on posting weekly.

People like Coldplay and voted for the Nazis, you can't trust people Jeremy
Oct 3, 2010 - 11:58pm
MissingNo., what's your opinion? Comment below:

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Still not sure if I want to spend the next 30+ years grinding away in corporate finance and the WSO dream chase or look to have enough passive income to live simply and work minimally.
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