Weekly Stock by Edmund Brandt Investment Director J.P. Morgan Asset Management Market Report 13 – 19 February 2010 US EUROPE Investors take discount rate hike in their stride Eurozone ministers raise the pressure on Greece – US equities rose the most since November as positive economic data – European stocks enjoyed strong gains as the European Union and strong earnings helped investors to shrug off policy action from the increased the pressure on Greece to tackle its budget deficit. The Federal Reserve. In a week shortened by Monday’s public holiday, the MSCI Europe Index returned 4.1%. Dow Jones returned 3.0%, while the broader S&P 500 gained 3.1% and the tech-biased NASDAQ rose 2.8%. – Among the major markets, France’s CAC 40 was the strongest performer, rising 4.7%, followed by the UK’s FTSE 100 and the Swiss – On Thursday, the Fed raised the discount rate (the rate at which it provides SPI, both of which rose 4.2%. The German DAX ended 4.0% higher, emergency funding to commercial banks) from 0.5% to 0.75%, taking the while Italy’s S&P/MIB was up 3.5%. spread over the main fed funds rate, currently set at 0% to 0.25%, to a more normal level. It also reduced the maximum maturity of loans back to – European policymakers remained reluctant to provide details on the overnight, closing the 30-day facility introduced in August 2007. form a Greek bailout would take, following the prior week’s assurances that support would be given if needed. Instead, they – The move, which had been signalled by the central bank’s chairman, Ben maintained a focus on the need for Greece to deal with its own Bernanke, in his address to Congress earlier in the month, initially problems in the first instance. unsettled markets. However, investors gained comfort from the Fed’s reassurance that the increase does not constitute a tightening of policy – At a meeting in Brussels, eurozone finance ministers told Greece it or even a change in the monetary policy outlook must introduce more spending cuts and revenue-raising measures next month if it appeared unable to meet its pledge to cut its deficit by four – Benign inflation data also supported the view that the fed funds rate percentage points to 8.7% of gross domestic product this year. may remain low for some time. The core consumer price index – the However, the Greek finance minister, George Papaconstantinou, argued Fed’s preferred inflation measure, which excludes energy and food – fell that more explicit support from the European Union was required. 0.1% in January, the first monthly decline since 1982. – Concern also mounted over the UK’s public finances as the country – Manufacturing data also boosted sentiment. The Philadelphia Fed’s recorded a budget deficit in January for the first time since monthly factory gauge, which measures regional manufacturing activity, data began in 1993. The Office for National Statistics said expanded for a sixth consecutive month in February as orders rose to government spending exceeded revenue by GBP 4.3 billion as the the highest level in five years. Industrial production nationwide rose recession shrank the amount collected in the biggest tax-payment 0.9% in January, following a 0.7% increase in December. month of the year. – The data pushed industrial stocks to the strongest gains among the ten – UK retail sales also disappointed, falling more than twice as much as industry groupings in the S&P 500. Homebuilders, meanwhile, were expected in January as snow and freezing temperatures kept buoyed by news that housing starts increased 2.8% in January to an consumers at home. annual rate of 591,000. – Eurozone data was mixed. The German ZEW index of investor – Concern persisted over the consumer as Wal-Mart, the world’s largest sentiment fell for a fifth successive month in February, while retailer, reported fourth-quarter sales that fell short of its forecast after eurozone consumer confidence dropped for the first time in almost a it cut prices on groceries and electronics to attract customers. year in January. – However, earnings releases largely maintained their positive trend. With – However, Europe’s service and manufacturing industries expanded 423 of the companies in the S&P 500 having reported, 73.5% have beat for a seventh consecutive month in February. The composite analysts’ estimates, according to Bloomberg. purchasing managers’ index was unchanged at 53.7 as rising export orders helped to offset sluggish domestic demand. A reading above – PC manufacturer Hewlett-Packard rose after its quarterly earnings beat 50 signals expansion rather than contraction. expectations and it raised its 2010 sales forecast for the second time in three months. Elsewhere in the technology sector, Microsoft and Yahoo – Equities were also supported by strengthening commodity prices and both rose on news regulators had approved their planned internet positive corporate earnings. Financial stocks rose after the UK’s search partnership. Barclays said full-year profit for 2009 more than doubled, lifted by strong earnings at its investment bank and the sale of a fund management unit. French bank BNP Paribas, meanwhile, recorded its fourth straight quarterly profit as it reduced its provision for bad loans. Insight + Process = Results PACIFIC EMERGING MARKETS Markets tepid due to Chinese New Year closures Rising inflation expectations fuel Brazil interest rate speculation – The MSCI Pacific Index was static as many markets were closed at least – The MSCI Emerging Markets Index rose 0.8% over the week, boosted by temporarily due to the Chinese New Year celebrations. strong performance across all regions. – Japan’s economy grew faster than expected for the last three months of – Emerging Europe was buoyed by news that the European Union would 2009 with GDP for the period rising at an annual rate of 4.6% thanks support Greece in its battle to avoid a damaging debt default. The mainly to strong export growth. This strong economic news prompted Czech PX climbed 3.3%, Hungary’s BUX added 2.9% and Poland’s WGI analysts to upgrade a slew of Japanese companies on prospects that edged ahead 1.9%. corporate earnings will continue to recover. – An unexpected slowdown in Poland’s job losses in January suggested – Also in light of the positive fourth-quarter GDP report, the Bank of consumer demand may yet help drive a rebound in the Polish economy. Japan decided not to expand its lending and asset purchase Meanwhile, speculation that the Czech Republic’s economy is programmes. However, the Japanese central bank maintained the recovering was reinforced by news that local car giant Skoda had benchmark interest rate at 0.1%, with deflation still posing a large increased registrations by 29% in the year to January. threat to the economic recovery. – Russia’s central bank trimmed its benchmark interest rate for the – Meanwhile, Toyota’s woes continued as the car company announced it eleventh successive month to a record low 8.5% in a bid to boost may add the Corolla (the world’s biggest selling model) to the list of lending growth. Domestic demand remains shaky due to a shortage of vehicles it has recalled over safety fears, with company president Akio credit, hindering a prolonged rebound. With oil prices also rebounding, Toyoda to appear before a US congressional hearing this week. The the RTS jumped 4.3%. TOPIX dipped 0.3%. – In Latin America, Brazil created a record number of jobs in January, – An Australian index of leading economic indicators climbed to the adding 181,419 to the workforce. A central bank survey predicted that highest in more than a year in December, rising 0.5% from the previous inflation this year will outpace the government’s target, thereby month, suggesting the outlook for the Australian economy remains heightening the prospects of an interest rate increase in March or April. strong. The All Ordinaries gained 1.5%. The BOVESPA ended the week 2.6% higher. – Hong Kong’s Hang Seng, meanwhile, shed 1.8%. Unemployment – The Mexican government, meanwhile, raised its estimates for GDP remained at an 11-month low, while the chairman of Hong Kong growth this year to 3.9% (up from an earlier 3%) on signs of a recovery Exchanges and Clearing Limited, the operator of the Hong Kong stock in internal and external demand. The central bank kept interest rates exchange, said he was cautiously optimistic that more funds would be unchanged for a sixth straight month. The IPC was up 3.8%. raised in public offerings this year than 2009. – In South Korea the KOSPI remained flat. Data suggested growth is accelerating, with demand for industrial electricity rising the most in 34 years in January due to rising production of cars and steel. Elswhere, Singapore’s Straits Times slipped 0.1%. Source for information: JPMorgan Asset Management, Datastream, Financial Times. The opinions expressed in this document are those held by the author at the date of publication. The views expressed herein are not to be taken as an advice or recommendation to support an investment decision. The information included in this document has been taken from source considered as reliable; JPMAME cannot however guarantee its accuracy. Issued by JPMorgan Asset Management (Europe) Société à responsabilité limitée, European Bank & Business Centre, 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000.
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