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Weekly Wrap Up TRADETHENEWS.COM STAFF
Spain Edges Toward Bailouts; US Data Disappoints; China Provides More Stimulus September 24 - September 28
- A turbulent week closed out the third quarter of 2012. In Europe, both Spain and Greece outlined fresh austerity measures to secure more funds from Europe and placate markets as their citizens rioted in the streets. In Asia, China's PBoC opened the cash spigots by pouring a record amount of liquidity into local markets in reverse repo operations just a day after the Shanghai Composite closed at its lowest level since late Jan 2009, just above 2,000. Meanwhile, both South Korea and Taiwan joined China in sparring with Japan over various barren island chains. Toyota and Nissan, among other Japanese firms, are freezing or reducing production in China as a result, which prompted Japanese PM Noda to acknowledge that the dispute could contribute to further economic weakness. In the US, the data was largely negative with, the third and final reading of Q2 GDP was unexpectedly revised lower, the September Chicago PMI index saw its first sub-50 reading in three years and the August durable goods data looked dire (although this was mainly due to a large and likely temporary drop in defense and civilian aircraft orders). FX trading was highly volatile thanks to the back-and-forth between peripheral developments in Europe and data drops in the US. EUR/USD came into the week around 1.2975 and tested as low as 1.2829 in the latter half of the week. For the week the DJIA lost 1.1%, the S&P500 dipped 1.3% and the Nasdaq dropped 2%, but for the quarter stocks were still up significantly, with the S&P posting a 5.8% gain.
- The situation in Spain dominated headlines all week, as the government outlined its 2013 budget plans and disclosed stress test results designed to assess the needs of its banking sector. These deliberations were contrasted with video of police using rubber bullets and teargas to contain violent anti-austerity protests in the streets of Madrid. Following the release of the stress tests, a government official suggested that Spain would only request around €40B in aid for its banking system from the €100B made available by its European partners (with another €20B or so to be raised privately by the banks themselves). Earlier in the week, a joint statement by the finance ministers of Germany, Finland and the Netherlands seemed to suggest that any banking recapitalization funding Spain receives would remain public debt, a position backed up by ECB's Weidmann in subsequent comments. Many analysts suggested that the move showed that northern Europe's leaders still do not have the will to break the negative feedback loop between public and private liabilities. Yields on Spanish 10-year debt spiked briefly back above 6.0% in the wake of the comments, their highest levels since the ECB outlined its new bond buying program.
- Spain unveiled its budget plans on Thursday, including €39B in spending cuts and tax increases. A broad menu of spending cuts, salary freezes (public sector salaries are to be frozen for the third year in a row) and other reforms will deliver the savings. The government asserted that its new plans would reduce the budget deficit from the projected 2012 figure of 6.3% of GDP to 4.5% of GDP in 2013. France unveiled €30B worth tax hikes and spending cuts in its 2013 "combat budget" on Friday, with the central objective to achieve the mandated 3% deficit target, although analysts say the plan offers few structural adjustments. Analysts noted skeptically that both plans are based on excessively optimistic economic forecasts: France's plan assumes the domestic economy will grow 0.8% in 2013, while Spain's sees the economy only contracting 0.5%. Private-sector economic forecasts predict far worse conditions for the two nations and the rest of Europe for the year.
- Caterpillar became the latest big corporate name to cut its outlook ahead of earnings season. Caterpillar widened its FY12 forecast, calling for $8-10/share versus the $9.60 figure it offered back in early September. Micron's Q4 loss and poor metrics offered an unflattering assessment of the semi industry. The company is getting squeezed from two directions: both NAND and DRAM prices fell sharply while demand for both categories fell sequentially. Staples announced a major restructuring, with many store closings and a big international pullback. Nike's headline Q1 results beat expectations, however there were worries about its forward-looking orders, notably from China, where orders fell for the first time in years.
- Apple had a rocky week as it dealt with the fallout from a rare misstep involving its new mobile maps app. Released with iOS 6, the new app was designed to replace Google's map app and secure a lucrative source of possible advertising for Apple, however the new maps have been derided for being riddled with mistakes and errors. CEO Tim Cook apologized to users for the problems and even suggested that they rely on third-party apps. The company also took some flack for "only" selling 5M new iPhone 5s in the first weekend of sales, below some estimates, though the shortfall appeared to be on the supply side rather than on a lack of demand. Meanwhile, shares of former smartphone titan Research in Motion were up as much as 25% on the week at one point after the firm's Q2 loss was much smaller than expected and unit shipments were better than expected in the quarter.
- The situation in Spain dominated headlines all week, as the government outlined its 2013 budget plans and disclosed stress test results designed to assess the needs of its banking sector. These deliberations were contrasted with video of police using rubber bullets and teargas to contain violent anti-austerity protests in the streets of Madrid. Following the release of the stress tests, a government official suggested that Spain would only request around €40B in aid for its banking system from the €100B made available by its European partners (with another €20B or so to be raised privately by the banks themselves). Earlier in the week, a joint statement by the finance ministers of Germany, Finland and the Netherlands seemed to suggest that any banking recapitalization funding Spain receives would remain public debt, a position backed up by ECB's Weidmann in subsequent comments. Many analysts suggested that the move showed that northern Europe's leaders still do not have the will to break the negative feedback loop between public and private liabilities. Yields on Spanish 10-year debt spiked briefly back above 6.0% in the wake of the comments, their highest levels since the ECB outlined its new bond buying program.
- Spain unveiled its budget plans on Thursday, including €39B in spending cuts and tax increases. A broad menu of spending cuts, salary freezes (public sector salaries are to be frozen for the third year in a row) and other reforms will deliver the savings. The government asserted that its new plans would reduce the budget deficit from the projected 2012 figure of 6.3% of GDP to 4.5% of GDP in 2013. France unveiled €30B worth tax hikes and spending cuts in its 2013 "combat budget" on Friday, with the central objective to achieve the mandated 3% deficit target, although analysts say the plan offers few structural adjustments. Analysts noted skeptically that both plans are based on excessively optimistic economic forecasts: France's plan assumes the domestic economy will grow 0.8% in 2013, while Spain's sees the economy only contracting 0.5%. Private-sector economic forecasts predict far worse conditions for the two nations and the rest of Europe for the year.
- Caterpillar became the latest big corporate name to cut its outlook ahead of earnings season. Caterpillar widened its FY12 forecast, calling for $8-10/share versus the $9.60 figure it offered back in early September. Micron's Q4 loss and poor metrics offered an unflattering assessment of the semi industry. The company is getting squeezed from two directions: both NAND and DRAM prices fell sharply while demand for both categories fell sequentially. Staples announced a major restructuring, with many store closings and a big international pullback. Nike's headline Q1 results beat expectations, however there were worries about its forward-looking orders, notably from China, where orders fell for the first time in years.
- Apple had a rocky week as it dealt with the fallout from a rare misstep involving its new mobile maps app. Released with iOS 6, the new app was designed to replace Google's map app and secure a lucrative source of possible advertising for Apple, however the new maps have been derided for being riddled with mistakes and errors. CEO Tim Cook apologized to users for the problems and even suggested that they rely on third-party apps. The company also took some flack for "only" selling 5M new iPhone 5s in the first weekend of sales, below some estimates, though the shortfall appeared to be on the supply side rather than on a lack of demand. Meanwhile, shares of former smartphone titan Research in Motion were up as much as 25% on the week at one point after the firm's Q2 loss was much smaller than expected and unit shipments were better than expected in the quarter.
Copyright (c) 2012 Trade The News, Inc.
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