Friday, October 20

Daily Commentary: Oct 20

Good morning.

US Treasury
  • 10 year UST fell to 3-week low at 100 24/32 (4.78%, +0.02%) on inflation concerns. Reason: Philly Fed new order index climbed to +13,4, vs -1.3 last month, and the initial jobless claims fell to 299K, below the psychologically important 300K level.
  • Please note that 2 yr and 5 yr UST are to be launched shortly and traders are thought to push down the overall UST price now for better performance later. Could this be the real reason?

FOREX

  • Euro broke through the 1.2580 key resistant level and hit a high of 1.2642, almost touching the next resistance at 1.2650. The Euro strength is likely due to the weaker than expected stats from Leading Indicators and Philly Fed index of business conditions in the US.
  • Meanwhile, Yen is quiet because the market is see-sawing between the Japanese importers (e.g. oil companies, wanting to push down Yen) and Japanese exporters (e.g. trading companies, to push up Yen). As a result, Euro/Yen is also relatively quiet.

US Stocks

  • The Dow finally closed above 12,000 for the first time, thanks to a wonderful result from Coca Cola (KO) with14% growth in its 3rd quarter (haven't had double-digit quarterly growth for years). This is partly due to increased China sales, which is great, but also due to a one-off effect from the World Cup. Therefore, I would not expect the double-digit growth story to continue.
  • The story isn't as happy for commercial banks. Citigroup (C) fell 0.32 to 49.87. Similar to JP Morgan (JPM) yesterday, the actual results beat forecast's but the core commercial bank business is experiencing slight negative growth, which is a worrying sign. Wachovia and Bank of America (BA) seem to have the same issue in 3rd quarter. Meanwhile, brokerages e.g. Merrill Lynch (MER) and Lehman Brothers (LEH) are doing well.
  • In tech, Dell fell 6.4% to 23.12 while HP (HPQ) rose 1.4% to 39.56 as HP reclaimed the title as the world's top PC market after 3 years.

Japanese stocks

  • Sony's stock price dropped closer to its recent bottom level after warning its profit will drop to the lowest level in 5 years. Reason? Playstation 3 price cut and recall of millions of computer batteries... Tech business is a tough one to be in!

Hong Kong stocks

  • The ICBC IPO, the world's largest so far, has broken many records including the highest number of retail subscribers (~1m), highest subscription fund held in deposits (HK$420bn / US$54bn), largest number of warrants launched for IPO (40), etc. It is almost certain to be priced at the top of the range. Hearing grey market price at $3.45. Trading starts next Friday.
  • Interestingly, stocks of ICBC peers e.g. China Construction Bank and Bank of China rose despite the huge hold-up of capital, whereas stocks of non-China-theme banks e.g. Standard charter fell.
  • By now, the overall valuation of China banks is considerably higher than the venerable global banks such as HSBC and Citigroup. I wonder if people know that these Chinese bankers were not even fit for IPOs just one year ago? Don't get me wrong -- they have a bright future as an attractive business operating in an attractive part of the world, but when things get way overvalued we have to be careful.

European stocks

  • Nokia announced its earnings yesterday, falling almost 6% intra-day and ended up falling 3.4%. Reason: they are selling more phones with lower margin in China and India. Sounds like this is a big trend -- expect Nokia's stock price to stay at this range before any positive news.

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