Early optimism fades as Cypriot solution remains unclear

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Europe

European indices picked up the torch from their Asian counterparts to start the week in the green this morning, after weekend negotiations saw a deal agreed in principle to avoid the collapse of the Cypriot banking system. Full details of the agreed terms remain sketchy, giving way to equity market weakness this afternoon, but it appears likely that savers with less than E100k on deposit will be protected. The fact that such a decision had to be made at all shows how far we have fallen…

Financials responded positively to the proposed bailout deal, and fund manager Aberdeen Asset Management have seen their stock trade better today as they announced a big bump in assets under management – up 10% since the end of 2012 as inflows of new client money hit £3.5bn in the last two months. JP Morgan have taken a positive view of the stock’s medium term prospects, recommending that their clients take an overweight position with a price target of 532p.

With smart phones and their component parts never far from the front pages of the financial media, ARM Holdings rarely escape the gaze of traders and analysts for long. The recent retreat in the share price represents an opportunity for value investors to add the stock to their portfolios – so say analysts at Bank Of America Merrill Lynch, who reiterated their buy recommendation and promptly sent the stock to the top of the FTSE 100 leader board.

Mid-cap engineers Kentz are also forging their way higher as traders send the shares better bid on news of improved full year revenues that fed a strong rise in pre-tax profits. CEO Christian Brown commented that the future outlook for the firm continues to be positive, with a strong order book heading into 2013.

 

US

US equities have taken a turn lower this afternoon, appearing to struggle for direction in the aftermath of the Cyprus bailout which initially saw futures markets trade positively. Negative sentiment hasn’t been helped by comments from Jeroen Dijsselbloem – the Dutch President of the Eurozone group of finance ministers – who appeared to suggest bank restructurings may well form the template for any further bailouts.

Only nine S+P 500 companies are due to report quarterly earnings this week, yet there is still much speculation around the all-time closing highs on US indices which remain firmly in sight.

Dollar General, the discount retailer, announced Q4 profits ahead of expectations which helped lift the stock nearly 5% in pre-market trading. Earnings of $0.97 per share were up from $0.85 last year beating average analyst expectations of $0.90, and were helped by the company’s focus on selling more food items and other basics.

Dell was up over 3% in early trading after it confirmed that it has received two additional offers following that made by founder Michael Dell last month with private equity backing from Silver Lake Partners. The newly tabled offers from Blackstone Group and activist investor Carl Icahn both come in higher than the original offer in per-share terms but any outcome is expected to take weeks to materialise.

Also in technology, Microsoft were the subject of a positive ruling from the International Trade Commission, who decided that the firm did not violate a patent held by Google in connection with its Xbox video game system. Despite initially trading better bid, Microsoft has been dragged lower during the US morning session.

 

Forex Trading

The Euro slipped back against most of its major peers today, as a Cypriot lawmaker claimed abandoning the single currency must be considered.  Hurried negotiations continue to try find terms acceptable to both parties before the hourglass drops its last grains of sand.  The valid argument from Papadopoulos, the chairman of the parliamentary finance committee, was that as the country plunges deeper into recession, and the prospect of growth seems bleak in wake of the impending upheaval of its banking industry, they need to explore all possible alternatives.  Cyprus’ outcome aside, this whole story has knocked the confidence of many deposit holders across Europe that policy makers will struggle to win back.

Sterling neared a six week high against the Euro, seeing increased safe haven demand as investors took risk off the table and cut long Euro bets in light of recent events.

The Japanese Yen has sold off as investors position themselves short ahead of Haruhiko Kuroda’s first policy meeting as Governor of the BOJ  tomorrow.  After months of speculation over the choice for the post and the mandate handed to the chosen candidate, we will finally get to see if he lives up to expectations of aggressive measures to end deflation and spark Japans economy back to life.

Commodities

Weekend hopes of a Cyprus agreement led to WTI Oil rising to one-month highs as the worries surrounding the Eurozone abated in early trade before rearing up to take the gloss off gains later in the session.

Indications that China may be ready to tackle its inflation (having reached a  10-month high) through interest-rate increases have caused Copper to extend its declines as traders expect a curb in metals demand, together with the fact we are up to a nine-year high on global copper inventories. Corn stockpiles however are estimated to be at their lowest level since 1996 once the next harvest is in, leading the market to be better bid to start the week