Encouraging News for Europe - page 8
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European Stocks Fall Ahead of EU Summit
The Euro lost its earlier gains from a five-day upward trend against the dollar and German 10-year bonds rose while the majority of European stocks fell ahead of tomorrow’s EU summit. Industrial metals turned out to be the leaders in growth among trading instruments. The 17-nation unified currency fell 0.2% to $1.3905 as of 8:11AM in London. Yields on 10-year German bonds dropped 2 basis points to 2.10%. Approximately two stocks fell for each stock that rose on the Stoxx Europe 600 Index; the index as a whole lost 0.2%. Futures on the Standard & Poor’s 500 Index fell 0.2%, while copper rose 1.1%, continuing its biggest two-week growth trend since 2009. Rice rose to its highest level in over a month. DT Trading analysts think that the world-wide growth in demand for products from Asian auto manufacturers is the main driving factor behind the growth in commodities prices, in spite of the market’s overall incredulity toward equity instruments and high-yield currencies. Heavy trawlers capable of transporting up to 4,000 automobiles at a time across the ocean may make serious profits next year during the global recession, since auto manufacturers have achieved record figures and the demand in emerging markets is giving a boost to cargo transport.
According to research from ABG Sundal Collier ASA, vehicle deliveries and their parts will grow 10% in 2012 to 12.7 million vehicles. According to a different branch of research from RS Platou Marktets AS, freight on 550ft. vessels will increase 36%, which translates to approximately $15,000 per day. If the research is correct, Wilh. Wilhelmsen ASA, the largest owner of heavy-duty ships in Europe, will be able to rake in profits for at least the next two years.
Tomorrow, European leaders will gather at their second summit in four days. They are expected to reach a final agreement on the EFSF, bank recapitalization, and easing Greece’s debt burden in order to avoid a spread of the “Greek contagion” to Italy and Spain. Increasing the effectiveness of the EFSF will require further negotiations with investors, since German legislators are preparing to vote on the fund’s new powers, according to a document released by the European Union.
In terms of Spain’s ability to boost its immunity to the debt crisis, DT Trading economists maintain a rather pessimistic view. Given Spain’s stalled economic growth, the 6% budget deficit level planned by the government this year will not be achieved, since it already exceeds 7%, compared to 9.2% in 2010. It seems quite likely that Spain will have to again endure the risk of reducing spending to bring its deficit back within the required boundaries. Despite the EU’s position on combating the spread of the “Greek contagion” that it expressed last weekend at the summit in Brussels, yields on 10-year Spanish bonds fell by only one basis point to 5.53% as of 10:34AM in Madrid.
Today, the markets await the publication of data on retail sales and a decision on Canada’s refinancing rate. If forecasts are predicting a growth of 0.2% in the overall figure and 0.4% for the figure excluding automobile sales, then DT Trading analysts advise not to expect any surprises from the Bank of Canada.
DT Trading Limited Analytical Department
Merkel Tries to Garner Support in Bundestag Before EU Summit
Durable goods orders might have fallen in September after the drop in orders from aircraft manufacturers neutralized the successes of such companies as Caterpillar Inc (CAT), which show increasing production thanks to their expansions to overseas markets. According to the estimates of 79 economists polled by Bloomberg, orders for equipment with three years of service life or more fell 1% after decreasing 0.1% in August. According to the same poll, orders for goods excluding aircraft (so-called business investment orders) rose 0.4%. The growth in developing countries’ economies and the 14% drop in the dollar’s value since June 2010 is accelerating American exports to record-high levels. It is also being helped by companies such as Caterpillar to defend itself from a prolonged drop in US housing construction, a major deterrent to the emerging economic recovery. The second report coming out today from the Department of Commerce might show that new homes sales did not significantly fluctuate from the six-month low. According to analysts’ predictions on the government sales report, the number of new homes purchased in September should increase to 300,000 units in annual terms, versus 295,000 in August, the weakest figure since February of this year.
The company Boeing (BA), the largest airplane manufacturer in the US, announced that it received orders for 59 aircraft in September, compared with 127 the previous month. The drop will likely be reflected in data on durable goods. DT Trading’s analytical department points out, however, that data from the companies themselves may not always coincide with government statistics from month to month. Other indicators showed that production, which accounts for about 12% of the US economy, continues to grow. The Institute for Supply Management’s Business Activity Index rose to 51.6 in September, up from 50.6 in August. Anything above 50 indicates a decisive upward dynamic. DT Trading analysts recall that, according to the Fed’s most recent publication of its “Beige Book,” industrial production rose in September on the back of growing demand for automobiles and computers.
German leaders seem poised to support the plan to increase the European Financial Stability Fund at their next extraordinary meeting. Meanwhile, the threat of the so-called “Greek contagion” spreading to Italy has prompted European leaders to also put the screws on Prime Minister Silvio Berlusconi’s government. Later today at the summit in Brussels, he is expected to bring specific proposals for his government to reform the country’s financial system. Chancellor Merkel is currently in the Bundestag, addressing legislations on the approval of a packet of measures to increase the 440 billion Euro ($612 billion) EFSF; this will be the first reading before the packet goes on for a final vote.
DT Trading Limited Analytical Department