US Futures, Stocks Advance After Sell-Off; ECB Buoys Euro

U.S. Futures, Stocks Advance After Sell-Off; ECB Buoys Euro Share Business ExchangeTwitterFacebook| Email | Print | A A A By Stephen Kirkland

June 30 (Bloomberg) -- U.S. index futures rose as equity markets rebounded from the biggest sell-off in 14 months. The euro strengthened and European stocks rallied after central bank figures suggested reduced funding pressure for lenders.

Futures on the Standard & Poor’s 500 Index added 0.7 percent, and the Stoxx Europe 600 Index jumped 0.4 percent at 10:49 a.m. in London. The euro appreciated from the weakest level in more than eight years against the yen as the European Central Bank said it will lend banks 131.9 billion euros ($161.5 billion) for three months as a landmark year-long loan expires.

“Lower demand for ECB cash is an indication that funding stress is not as high as was feared, contributing to a recovery of risk appetite,” wrote Christoph Rieger, co-head of fixed- income strategy at Commerzbank AG in Frankfurt, in a research note. “Risk aversion stands a chance of retreating from its elevated levels in coming weeks.”

More than $7 trillion has been erased from the value of global equities since the April 15 peak, on concern the economic recovery will slow. The MSCI World Index of 24 developed nations sank 3.2 percent yesterday, the biggest decline since April 2009, after U.S. consumer confidence unexpectedly dropped and a Chinese economic index was revised lower.

The gain in futures signaled the S&P 500 will rebound from its lowest since Oct. 30. Investors will watch the ADP National Employment Report today as an indication of what a monthly release on non-farm payrolls may show July 2. The ADP report, a measure of private employment, is due at 8:15 a.m. New York time. The Institute for Supply Management-Chicago Inc. releases its business barometer at 9:45 a.m.

Bank Refinancing

Banks led gains in European stocks as the Stoxx 600 rebounded from the biggest drop yesterday in six weeks. EFG Eurobank Ergasias SA, Greece’s second-biggest bank, climbed 4 percent, and Banco Santander of Spain rose 4.3 percent.

Euro-region banks need to repay 442 billion euros ($540 billion) tomorrow after the ECB lent the biggest amount ever a year ago in its efforts to fight the financial crisis last year.
The euro strengthened 0.7 percent against the yen, and climbed 0.6 percent versus the dollar.

European bonds fell. The futures contract on 10-year German government debt for September settlement erased earlier gains, declining 0.12 point to 129.31, while the yield on the 10-year note rose 2 basis points to 2.57 percent.

Commodities rose, with copper gaining 1.1 percent to 6,565 a metric ton on the London Metal Exchange to $1,779.75 a metric ton. Gold gained 0.2 percent to $1,245 an ounce and New York- traded crude oil for August delivery rose 1.1 percent to $76.74 a barrel.

----With assistance from Mark Gilbert, Andrew Rummer, Michael Patterson and Daniel Tilles, Steve Voss and Alexis Xydias in London. Editors: Stephen Kirkland, Mark Gilbert

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net;

Last Updated: June 30, 2010 05:58 EDT

Huddle Time

Will post my comments soon regarding sell-down.

Netherlands vs Slovakia, Brazil vs Chile

Netherlands, traditionally the "Brazilians" of Europe. They are a delight to watch. Strong on the air, technically gifted, visionaries in midfield. They can play rough with van Bommel in command. They can play pretty with Arjen Robben and van Pierse in attack. But in the past, they've had problems with players not getting along, just like the current French squad. Charges of racism. This time round, they seem very harmonious.

The Slovaks play a counter attacking game. None of them look like they can do extraordinary things with the ball. But they beat the Old Italians. That must come for something. The Dutch to beat Slovakia by 2 goals.

Brazil. Ahhhh, every football neutral since 1950 loves Brazil. The way they dance, caress the ball, such delight. The problem has always been their lack of discipline and defence. But not anymore. Carlos Dunga, whom I felt was the "most intelligent player in 1994 World Cup" is a disciplinarian. He has left out troublemakers like Ronaldinho and Adriano. The squad is full of thugs, tacklers, rough players. Only Kaka is the playmaker.

Last Friday wasn't the real Brazil. They couldn't care if they lost to Portugal. All they wanted was a draw. This match is for real. It won't be pretty because Brazil will be very defensive. They have the best goalkeeper in the world from Inter Milan. One of the best defenders in Lucio. A very good midfielder in Maicon. A so-so striker in Luis Fabiano. They will go far. Brazil to win by one goal.

Observations of the World Cup

I watched the South Koreans lose 2-1 to Uruguay yesterday. The South Koreans and Japanese have improved a lot. They (1.79m average height) are taller than the southern Europeans, e.g. Spain and Italy (1.77m average height). The Japanese are very well organised. Sadly, the Koreans weren't. Otherwise, they'd have beaten Uruguay. Technically, they are better than many European teams. In set pieces, they were superior. If my memory serves me correct, the Koreans scored once, and the Japanese twice from direct free kicks. The Koreans scored twice and the Japanese once from corners. The area that is lacking is the lack of pace and power. In the next 10 years, we could see Asian teams regularly featuring in the 2nd round and quarter finals of the World Cup. There has been a increase in experience in Asian players because more of them ply their trades in European leagues.

Now for England vs Germany, it is half time and England is trailing 2-1. I foresee England losing. For all their hype, the English players' technical ability is still lagging behind. Pele said that "English players' first touch is so poor that their second touch is often a tackle". I'm observing the same symptoms here. The Germans have better control, better organisation, pass better. My money will be with Germany, even though I respect Fabio Capello greatly.

I don't think Spain will win the World Cup because they don't have a Marcos Senna this time. All their players are technical ones. No one to tackle. The lack of heigh also robs them of an important aerial option when attacking. Also, their ability to defend set pieces will be compromised.

Brazil, Argentina, Germany and Holland look like the real deal at this stage.

Markets Turn Defensive Ahead of Fed

My comment: Have a look at asset correlations over the recent event. You should try to hold those assets that rose in value in times of uncertainty if you already hold bucket loads of equities.

Markets turn defensive ahead of Fed
By Arthur Hill
Market Indicators
The PerfChart below shows the performance for five intermarket related ETFs over the last two days. Stocks and the oil are down as money moved out of risk ahead of Wednesday's FOMC policy statement. Conversely, bonds, gold and the Dollar are up as money moved into relative safety. These are the relationships to watch going forward.

Q2 Resale Home Prices Rise: DTZ

Published June 25, 2010

Q2 resale home prices rise: DTZ
Freehold condo units in districts 9, 10 and 11 fetching record prices
By UMA SHANKARI


PRIME freehold condo units in districts 9, 10 and 11 are fetching record prices in the resale market - more than they went for during the last peak in the fourth quarter of 2007 - says a new report.


Property firm DTZ said yesterday that the average resale price of freehold non-landed homes in the three districts rose 2.6 per cent quarter on quarter to $1,493 per sq ft (psf) in Q2 this year. This is 0.7 per cent higher than the previous record of $1,483 psf in Q4 2007. (My comment: Don't forget District 1 as well, the "new" District 10. D1 encompasses The Sail, MBS, Clarke Quay).

But resale prices of more upmarket homes - classified by DTZ as those that sell for more than $2,500 psf - are still 7.6 per cent below the Q4 2007 peak.

The average price of freehold luxury non-landed homes rose 3.5 per cent quarter on quarter in Q2 to $2,588 psf. In Q4 2007, they were selling for $2,800 psf.

Outside the prime districts, prices of freehold non-landed resale homes climbed 2.9 per cent to hit the previous peak of $747 psf last achieved in Q4 2007.

And resale prices of leasehold homes outside the prime districts - that is, suburban mass market homes - rose 4 per cent quarter on quarter to $648 psf (My comment: be wary of HDB supply from 2011 onwards. Government is building 12,000 HDBs from 2011 onwards).

While prices climbed in all the categories tracked, DTZ said that the rate of increase slowed in Q2 as resistance to high asking prices and uncertainty in the stock market hit buying interest in the property market. The only exception was in the mass market segment, where prices of resale leasehold condos rose more than they did in the previous quarter. The 4 per cent climb in Q2 was higher than the 2.1 per cent increase recorded in Q1.

The comparatively higher prices of new developments and aggressive bids for government sites in suburban areas have had a cumulative effect in raising the prices of homes in the secondary market, DTZ said (my comment: there is little GLS in central areas).

But looking ahead, developers are likely to 'tone down' their land bids in view of the unprecedented high number of suburban sites due to be sold in the second-half 2010 government land sales programme, said DTZ's head of South-east Asia research Chua Chor Hoon. This will keep a check on the prices of mass market homes, she said.

Analysts are still most bullish on the freehold luxury market, as prices there are still significantly lower than during the 2007 peak.

Kim Eng Research analyst Wilson Liew said that China's recent move to allow the yuan to appreciate gradually may spur more purchases of Singapore properties by high net worth Chinese nationals as their purchasing power improves. He said that as an asset class, high-end properties in Singapore are still attractive.

Published June 25, 2010

FedEx numbers tell of better days ahead
CEO sees very good 2011, forecasts solid growth in the firm's European business


By ANDREW MARKS
NEW YORK CORRESPONDENT


SOME 100 years ago, Charles Dow, the founder of Dow Jones & Co, said that if railways are busy 'it's a good sign for the economy and for the stockmarket'.


Good bellwether:

US-based FedEx, the world's largest commercial transport firm, derives more than 25 per cent of its income from foreign operations
And if global courier giant FedEx is the 21st-century version of the railroad behemoths of Mr Dow's time, investors wondering how the economic recovery is faring and which way the seesaw market will ultimately tip in the coming weeks should take heart in the bullish message to be found in one of the best leading indicators of the market.

The positives in FedEx's fiscal fourth-quarter earnings report released on Wednesday were largely ignored by a market still fixated on headline-driven worries.

But the market has begun the slow, grinding shift away from those headline-driven fears of a global economic slowdown and a double-dip recession for the US economy lately. And the numbers in FedEx's report have many of Wall Street's sharpest minds looking forward to the day when investors re-focus on the economic and profit numbers that ultimately drive markets.

Why is FedEx such a good bellwether? Not only is it a giant in the United States, it also derives more than a quarter of its income from foreign operations - hello, eurozone, hello fears that China's attempts to muzzle runaway growth will hurt the global economy.

When the economy is in the doldrums, FedEx has to cut employee benefits and mothball aircraft. But when things are humming, it revs its engines to accommodate the need to ship ever larger quantities of parcels, envelopes and boxes.

Well, the world's largest commercial transport company put more planes in the air, increased employee benefits and registered a big increase in sales worldwide in Q4 to May 31. And FedEx Express president and CEO Dave Bronczek said FedEx has seen rises, rather than falls, in overnight shipping from Europe - despite the region's economic crisis.

Avondale Partners analyst Don Broughton wrote: 'We are impressed with the company's outlook (which includes non-cash pension headwinds) and would use any opportunity to purchase shares at these levels.' He noted that FedEx projects US gross domestic product (GDP) growth of 3.2 per cent, worldwide GDP growth of 3.1 per cent and a 5 per cent increase in US industrial production.

'International airfreight load factors are higher than they have been since 2000,' he said. 'Re-stocking has begun.'
If FedEx's earnings and outlook can be considered an outlier for the rest of the S&P 500, before the Q2 earnings-reporting season kicking into high gear in three weeks, investors should have good news to look forward to in mid-July.

'The message for the financial markets from FedEx is a very positive one,' said Hugh Johnson, chief investment strategist at Johnson Illington Advisors, pointing to a strong balance sheet and a huge jump in revenue that blew away consensus estimates. 'The fact that it wasn't received very positively by investors just shows how much other issues continue to overwhelm fundamentals.'

Indeed, shares of FedEx fell 6 per cent following the company's report, which narrowly beat Wall Street earnings estimates - by a penny - and a cautiously worded outlook from FedEx chairman and chief executive Fred Smith.

Investors focused on an operating loss at FedEx Freight and rising operating expenses incurred as business picks up, such as higher aircraft maintenance expenses to get mothballed aircraft flying again to meet rising demand for its services, rather than a 20 per cent rise in revenues.

FedEx offered cautious but optimistic guidance, and investors chose to focus on the caution rather than the many positives. Even the rising costs numbers are bullish.

Companies have to spend more when they ramp up business. These are expenses that come with a recovery, and the fundamental point in FedEx's report is that the recovery remains on track.

Indeed, during the company's conference call, Mr Smith said he anticipates a very good 2011, forecasting solid growth in the group's European business.
'FedEx's numbers confirm for me the positive story I see for the economy in the second half of the year,' said Mr Johnson, who anticipates a 10 per cent rise in the market over the next six months. 'We've never expected a powerful, 'V'-shape economic recovery, but certainly a 'U'-shape one, and that's what we're getting and what the economic data and FedEx's result and outlook are telling us to expect,' he said.

The Value of Gold as an Asset Class

Since 2007, it has been increasingly clear that gold IS a separate asset class, apart from equities, even apart from other commodities. If you check the performance of other precious metals like Platinum, Palladium and Silver, their prices move almost in lock step with stocks. But not gold. In 2008, as stock markets plunged over 50%, gold fell only around 200USD/oz or 25% to around USD690/oz. This year, gold shot up by another 10% whereas stock markets are lower now than at the start of the year.

Published June 25, 2010

The value of gold as an asset class


THE resurgence of gold sends mixed signals to investors. Traditionally, gold is seen as a store of value and hedge against inflation, a safe haven in turbulent times. Increasingly, it is seen as a currency in itself, the ultimate hedge against the collapse of paper currency. The paradox is that the escalation of the gold price suggests a collapse of the financial system as we know it - surely a dire outcome. To date, the trajectory of gold has been impressive. Since 2000, gold has delivered annualised returns of over 16 per cent in US dollar terms, resoundingly beating the S&P 500's minus 0.91 per cent return and the STI's 5.16 per cent. It is, of course, not coincidental that its ascendance has occurred in a decade awash in extreme volatility, crisis and unprecedented action by central banks. Stock and bond prices have swung wildly between expectations of deflation and inflation; and major currencies - the US dollar and now the euro - have weathered substantial declines.


Through all this, gold has been a relative haven, and that must have lent weight to its status as an alternative asset worth consideration - when it was dismissed by most advisers just a decade ago. But the questions of valuation, timing and price of entry must surely puzzle investors, particularly those who recall gold's long fallow period in the 1980s and 1990s. At the current price of US$1,236 per ounce, does it present good value? Perhaps one of the more persuasive arguments would be the inflation-adjusted price of gold. As UBS points out in a recent report, the price of gold at about US$1,200 would have to rise 90 per cent to reach its 1980 peak of US$850 in real, inflation-adjusted terms. In contrast, the US dollar has lost some 30 per cent of its purchasing power over the last 30 years.

For now, uncertainty about the sustainability of an economic recovery is providing a tailwind for gold that is set to continue over the next few months, particularly as Europe muddles through its debt crisis and the euro suffers the fallout. For investors, the opportunity cost is supportive as interest rates are expected to remain low. Sentiment is likewise conducive as investors, with the crisis of 2008 still fresh in their minds, welcome an asset that does not quite behave in lock-step with stocks and bonds. To be sure, the entry of institutions and pension funds is yet another anchor in terms of price. In April, gold-backed exchange-traded products shot up, and Barclays notes that interest has proved more 'sticky' and longer term in nature.

For investors, the key is moderation and a portfolio context. While gold has indeed been rewarding, it has been volatile in the last 18 months, dipping below US$700 in mid-2008. While it is liquid, gold has no income or coupon to cushion price falls. Strategists reckon a prudent allocation at between 10 and 15 per cent. That is higher than the standard advice five years ago to invest no more than 5 per cent. Gold in this context is a form of insurance against a doomsday scenario that one hopes will never arrive.

What to Make of the Correction in Last 3 Days

We are into the 3rd day of the market correction. Nerves are starting to fray. Some friends and people began to call me for my views. Experts are divided into 2 camps. The bear camp is getting bigger.

View from the Bears:
1. Austerity measures by the EU countries mean the tepid recovery may lose its steam.
2. PIIGS are likely to default on one of the bonds. THe ECB and IMF will delay on their rescue plans. European banks will collapse, causing Financial Crisis Part II.
3. Technical analysts say that the Dow Jones Industrial Index has fallen below the 200 day moving averages yet again.
4. Economic data from the US lately has not been good. Housing starts tumbled. Retail sales down. Corporate earnings weaker than expected.
5. LIBOR - OIS spreads are still very high and stubbornly refuse to fall.

Some sell-side analysts are recommending a "SELL ON STRENGTH" screaming on the front page of their reports.

View from the Bulls:
1. Yield curve is still very steep. But we have to watch carefully the 10yr spot rate because it is falling to a new low of 3.13%, less than the 4% average. Short term rates are "not natural".
2. Valuations are about 1 standard deviation below the 10 year mean for emerging markets. This is a strong point.
3. There are signs of fund flows back to Asia. I noticed property counters like Keppel Corp shooting past 3.95 today. Small cap stocks like Goodpack are rising again. Tech stocks like Sunningdale and Armstrong are holding strong, with high volume on positive days.
4. Strong economic growth in Emerging Asia.
5. Non investment grade credit spread is still on a downward momentum.
6. Vix is still below 30.

I belong to the bullish camp. Usually, when the consensus is bearish, it is easier to surprise on the upside. Vice versa, when the consensus is bullish, it is easier to disappoint on the downside. We shall see.

Funds are Flowing Back to Emerging Markets Asia

On Wednesday, I sent out a report, part of which talked about funds flowing into Asia and Emerging Markets. From March 2009, funds started flowing into Asia, Latin America and Emerging Markets, but ironically, instead of flowing into equities, they flowed into bonds. Nevertheless, stock markets rallied by between 70 - 140% that year.

At the beginning of 2010, they started to flow back to the US and EU, which led to a 15 - 20% correction in Asia, Emerging Markets and Latin America. Lately, they flowed back to Asia and Emerging Markets. And, this time, it's into equities. Does this mean that the bull rally will continue?

I will discuss this more in my next posting.

Several people actually asked me whether asset allocation important? My answer is, "yes, unless you can time the market 100% of the time". Let me get this straight, if any adviser tells you that he/she can catch the highest and lowest point of the market, be very wary. Why be an adviser when you can make infinite amounts from investments personally? The truth is, if your timing is less than perfect, say, 60% of the time right, which is better than 90% of the people, then asset allocation is very important. The good ol' Harry Markowitz says that we should invest along the efficient frontier, according to our risk profile. A typical moderate portfolio is 60% equities, 40% bonds. You can adjust according to your risk appetite, and believes in the future performance of each asset class. But you should always diversify. No ifs, no buts. You need bonds, stocks, alternatives, commodities and property in your portfolio. No one is exempted. Diversification reduces your portfolio volatility by a larger proportion than the reduction of your returns

Singapore Property Caveats Lodged Down 41% in May

The group stage of the World Cup is almost over. I've been telling my teams that transaction volume is always lowest during the group stages, when all 32 teams are still in contention and the number of games per night is daunting. I've witnessed my colleagues coming to work bleary eyed and sleeping during my sessions!!! Haha...

But as the knock-out stages commences, 16 teams will be left, by first week June, 8 teams left, by 15 June, only 2 teams. Stock markets in the country that loses will generally fall for a week or less, and markets in the country that wins will rise for the same period. But trading volume returns to normal about one week after the World Cup.

Although it sounds like a simple strategy, buying at the start of the tournament, I must caution that studies on this phenomena collected data only over 4 World Cups, hardly a big enough sample.

The article below addresses the "plunge" in caveats lodged. It is normal to expect this. Perhaps it's best to look for homes during the World Cup / European Cup?



Property caveats lodged down 41 percent in MayJun 22, 2010 -

http://www.propertyguru.com.sg/property-management-news/2010/6/27905/Property%20caveats%20lodged%20down%2041%20percent%20in%20May

The private residential property market in Singapore cooled significantly last month, with the total caveats lodged dropping 41 percent on-month to 1,979, according to the latest figures released by the Singapore Institute of Surveyors and Valuers.

Still, several property analysts are not expecting foreign investor's appetite for home units to be dampened.

Industry data indicated that district 4, which includes Telok Blangah, Keppel Bay and Sentosa areas, saw a 76 percent decline, the biggest drop in caveat numbers, while districts 1 and 2 (Marina Bay and Shenton Way) also fell by as much as 75 percent.

Caveat numbers in all districts across the country dropped on-month, ranging from 57 percent for the Orchard area to a 24-percent drop for District 5 at Pasir Panjang and West Coast.

Several analysts attributed last month’s steep drop in sales to fewer new launches by developers. They said that homebuyers were also holding back their purchases, while waiting for prices to fall.

"A lot of buyers today feel that prices are too high so there's no need to buy. So when the buyer takes a wait-and-see attitude, that's when the number of transactions come down," said Chris Koh, director of Dennis Wee Group. "Those who wanted to buy would have bought during the last one year when they saw prices escalating and they want to jump in and buy."

Coupled with the World Cup event in South Africa, market observers expect caveats for July and August to stay at up to 2,400 units a month. That is about 21 percent down from the 3,053 caveats lodged three months ago.

Despite the caution in the real estate market, Sentosa Cove made the headlines recently after a bungalow was purchased at a record of S$36 million ($2,400 psf) by a Chinese national.

Industry players are not expecting the cooling sales volumes to affect the demand for high-end properties such as Sentosa Cove.

Mohamed Ismail, PropNex CEO, said: "In fact, a neighbouring property at Sentosa went above 2,300 per square foot. In other words, there are real investors willing to put their money to invest in Singapore. Because they do believe in the long-term appreciation of the property."

According to PropNex, the current cost of landed properties in Sentosa is nearly S$2,000 psf on average. However, the company expects prices to drop to S$1,800 to S$2,000 psf due to the World Cup fever.

Pre 21 June 2010 Posts

Can be found in jeffreyghong.tumblr.com/

My First Blog

I've decided to switch to this blog. Please read this in future. Thanks.