Weekly Stock Market Report
15-21 August 2009 US
Bernanke sees global economy ‘emerge’ from recession – Wall Street regained its momentum after the previous week’s reversal, as encouraging economic news and strong quarterly earnings reports buoyed sentiment. The Dow Jones climbed 2.0% and the technologybiased NASDAQ was up 1.8%, while the broad S&P 500 rose 2.2% to its highest level since last October. – Second-quarter earnings reports remained positive for the market, with better than expected profits posted by home improvement store chain, Home Depot, and discount retailer, Target among others. – Sentiment was further lifted by comments from AIG’s new chief executive that the insurance group would rebuild its businesses to help it pay back USD 182 billion in bailout funding to the US government. – It was economic news, however, that provided the biggest boost to investor confidence as a series of data releases suggested the economic recovery was gaining momentum. – Surveys in New York and Philadelphia showed that the manufacturing sector in both states had returned to expansion in August following many months of contraction. – The better manufacturing data reflect the boost to the economy from restocking as companies across America try to boost stockpiles of goods after reducing inventories at a record pace at the height of the economic downturn. Car makers have also ramped up production following a boost to demand from the ‘cash for clunkers’ car scrappage rebate scheme. – Further ‘green shoots’ were seen in the Conference Board’s Leading Economic Indicators Index, which rose for the fourth consecutive month in July, and also from the housing market, where a report from the National Association of Realtors showed a 7.2% year on year rise in existing home sales. – A stabilisation in the housing market is particularly important as falling house prices have sapped consumer confidence. But rising unemployment is also having a detrimental impact on consumer demand. Therefore, the latest weekly jobless claims report was disappointing, showing a 15,000 increase in claims to 576,000 in the week ending 15 August. – The consumer makes up around 70% of US gross domestic product, so investors are concerned that rising unemployment will constrain consumption growth and hinder the sustainability of the economic recovery. – Nevertheless, Federal Reserve (Fed) chairman Ben Bernanke commented at a central bankers’ conference during the week that the global economy is now ‘beginning to emerge’ from recession. With a drop in US wholesale prices in August suggesting no inflationary concerns are on the horizon, the Fed is expected to maintain its accommodative monetary policy and nurture the nascent economic revival.
by Edmund Brandt Investment Director J.P. Morgan Asset Management
EUROPE
German investor confidence at highest in more than three years – The MSCI Europe Index rose 2.8%, aided by positive earnings figures and a flow of upbeat reports and confidence-lifting surveys. – Among the major markets, the French CAC 40 was up by 3.4%, both Germany’s DAX and the UK’s FTSE 100 gained 2.9%, Spain’s IBEX and the Swiss SPI rose 2.4%, while Italy’s S&P MIB posted a 1.6% gain. – Investor sentiment was boosted by a number of well received corporate reports, including better than expected quarterly earnings from Holcim, the world’s second largest cement maker, and from Ahold, the biggest Dutch food retailer. Europe’s biggest toymaker, Lego, revealed first-half profits had jumped 60%. – A further boost to sentiment came from regional economic data, as the German ZEW investor confidence survey jumped to its highest level in more than three years in August. Expectations for growth in Germany have risen as government stimulus packages and rising exports help to pull Europe’s largest economy out of recession. – More positive news emerged from the German services purchasing managers’ index (PMI) and the French manufacturing PMI, which unexpectedly returned to growth in August, signalling a pick-up in domestic demand in both economies. – Meanwhile, two reports indicated that the UK economy may also now be starting to emerge from recession. Government data showed that UK retail sales had risen for a second consecutive month in July, while mortgage approvals by the six biggest UK banks climbed to the highest level this year, according to the Bank of England. – The UK consumer price index also remained stable in July, rising 1.8% year on year for the second successive month. The fact that inflation did not fall further, as many had expected, suggests that the actions taken by the Bank of England to ward off deflation are working.
Insight + Process = Results
PACIFIC
Japan returns to growth in second quarter – In contrast to the gains in Europe and the US, the MSCI Pacific Index fell 3.0% on speculation global economic growth will falter once governments complete their stimulus spending. – Japan’s TOPIX slipped 2.7%. This was despite Japan’s economy emerging from its deepest post-war recession thanks to a rise in exports and consumer spending. Japanese gross domestic product expanded 3.7% at an annual pace in the three months to 30 June, following five successive quarters of contraction. – However, with US consumer spending still under pressure and with fears emerging over Chinese growth, many investors questioned whether Japan’s recovery is sustainable. Uncertainty also continues to hit the Japanese market ahead of a general election on 30 August in which the ruling Liberal Democratic Party may lose power to the opposition Democratic Party of Japan. – Meanwhile, Taiwan’s TWSI fell 2.0% despite the island raising its economic growth forecast amid signs of a global recovery. Reconstruction spending after the recent typhoon may further improve the economy’s performance. – Hong Kong’s Hang Seng declined by 3.3% on fears that Chinese economic growth will fail to meet investors’ expectations. Confidence was further dampened as China Mobile, the world’s largest mobile phone company by market value, warned that profits would fall. – Australia’s All Ordinaries recorded a 3.6% fall, despite home loan approvals rising in June for a record ninth month in a row as borrowing costs and government cash handouts stoked demand among first-time buyers. – Elsewhere, Singapore’s Straits Times dipped by 3.3% and Korea’s KOSPI was 0.7% lower.
EMERGING MARKETS
China growth concerns hit markets – The MSCI Emerging Markets Index was down 1.0% over the week amid mixed news for the world’s emerging economies. – Leading the drop was the MSCI China Index (-4.5%), as concerns rose over China’s growth outlook as the Chinese authorities look to rein in bank lending and prevent the economy from overheating. A decline in foreign direct investment added to investor concerns. – Concern over China’s outlook also hit India, where the BSE fell 1.1%, despite a report from ICICI Prudential suggesting that India’s economic growth rate would overtake China’s growth next year. – In contrast, Turkish equities surged higher, with the ISE National 100 up 6.5% as the country’s central bank cut interest rates by half a percentage point to a record low of 7.75%. – The Polish WIG (+5.9%) was also up sharply on prospects for economic recovery. The market was boosted in particular by better economic data from Germany, which is Poland’s largest trading partner. Also in central Europe, Hungary’s BUX was up 0.8%, but the Czech PX 50 fell 2.7%. – In Latin America Brazil’s BOVESPA rose 1.9% as an unexpected drop in the unemployment rate led to hopes for a further jump in consumer demand. Sugar producers also rose after an industry body suggested next year’s harvest would be ‘bumper’. – In Mexico the BOLSA gained 1.6%, boosted by stronger US economic data (America accounts for around 80% of demand for Mexican exports). The rise came in spite of weak second-quarter gross domestic product data, which showed that the Mexican economy had contracted at its fastest pace in more than 25 years. – Meanwhile, Argentina’s MERVAL was 2.0% higher as concerns over a potential debt default eased further as a spokesman said that the Argentine government was seeking a debt swap deal with creditors and was also looking to start talks with the International Monetary Fund.
The Weekly Report will be on holiday next week (31 August), but will return on 7 September.
Source for information: JPMorgan Asset Management, Datastream, Financial Times. Any forecasts or opinions expressed are those held by JPMorgan Asset Management at the date of this document and are subject to change. The views expressed herein are not to be taken as advice or recommendation to sell or buy shares. This material should not be relied on as including sufficient information to support an investment decision. The information in this document is based on our understanding of law and regulation at the date of this document. Issued in the UK by JPMorgan Asset Management Marketing Limited which is authorised and regulated by the Financial Services Authority. Registered in England No: 288553, Registered address: 125 London Wall, London EC2Y 5AJ.