Today’s Market Moving Stories

The rally drum continues to beat its relentless tattoo as yesterday was yet another one of those “better than expected” days beloved of the newswires and soundbite TV. But this time it was new homes sales rather than massaged “earnings” which offset some mediocre numbers from Aetna (AET) and Verizon (VZ). Homebuilders such as Beazer (BZH), Pulte (PHM) and Hovnanian (HOV) were the stars of the show yesterday. Thus far this earnings season, companies have beaten the (lowly) expectation by a ratio of 5:1 allowing the Dow Jones its best fortnightly performance since 2000 as the risk aversion trade continues to unwind.

Today’s Market Moving Stories

• It’s worth keeping an eye on the old Greenback today as the Euro trades above $1.43 for the first time since early June. The US Dollar index has fallen to fresh 2009 lows of 78.315 as the market frets over the huge volume of debt issuance from the US and China’s ever changing moods towards the embattled Dollar.
• Asian stocks were steady this morning, as investors took a breather after lifting shares some 16% in the last two weeks, though the profit-taking urge was contained by a jump in US new home sales and hopes for solid corporate results in the region.
• Investors in mainland China await the debut of China State Construction Engineering Corp on Wednesday. With expected proceeds of $7.3bn it will be the biggest IPO this year. The IPO market in China has heated up to the point of increasing fears of a stock market bubble, only months after the worst of the financial crisis has passed. Sichuan Expressway tripled in price on its first day of trade on Monday, though it was down 10% on Tuesday. Merrill Lynch economists raised their 2009 Chinese GDP growth forecast to 8.7% from 8%, and said winding down measures to boost the economy will happen in 2010. As I’ve said before there is more than a whiff of 1999 about all this. Once monetary policy is tightened Asian shares may experience freefall.
• But in the meantime China is getting the cheque book out. Reuters reports that China National Offshore Oil Corp (CNOOC) said that it would ratchet up its efforts to acquire more energy assets abroad in the upcoming months. Chinese energy majors have been snapping up overseas assets in recent months to secure oil supplies for the world’s second-largest energy user, taking advantage of the global financial crisis and a fall in oil costs. The overseas oil major announced last week that it would form a 50-50 venture with Sinopec to purchase a 20 percent stake in an oil block offshore Angola from Marathon Oil for $1.3 billion. CNOOC was also reported to be jointly planning bids with PetroChina for a stake in Canadian oil firm Interoil Corp’s natural gas project. Sources told Reuters early this month that CNOOC was battling with CNPC, China’s biggest state-owned oil firm, for approval to bid for YPF, the Argentine unit of Repsol-YPF, in a deal that could be worth around $17 billion.
• Some unhelpful hawkish sounding noises from central bankers overnight as Australia’s Central Bank (RBA) governor Stevens said the RBA “doesn’t have to wait for unemployment to peak before raising rates” and that “the downturn we are having may turn out not to be one of the more serious ones of the post-War era”.
• The Philly Fed’s Plosser (not currently a voting member and a proto hawk) said the Fed may need to hike rates in the “not-too-distant” future. This seems very much at odds with what his boss B Bernanke said the other day.
• So much for derivatives spreading risk (as Greenspan often lectured us about).
• A wonderful and insightful clip of the irrepressible Hugh Hendry on China.
• More investment bank bashing along the lines of what’s good for Wall Street sucks for Main Street.

GDP Growing Pains
It’s early days yet, but Q2 GDP statistics are starting to roll in around the world, showing that Asia is doing better than the west and confirming that Q4/Q1 was the worst point for world activity. China was first off the mark, a publishing feat that always raises doubts about the quality of the statistics, with annual growth accelerating from 6 to 8% (the PBoC has reportedly said that the quarterly increase was 15%, up from 4%!!). Korea has also bounced, up 2% in Q2, while Singapore was up 5%. In the west, the UK has disappointed with GDP falling further in Q2, contracting by 0.8%.

This week, the highlight will be US GDP, where I expect a smaller-than-consensus decline of 0.7%. This is an annualised estimate, so the actual fall is quite small. That said an recovery will be much more muted than past upturns given banks are unlikely to be able to lend at the same rate as in recent years and policy-makers will have to wind back the extraordinary stimulus currently in place. There are those who feel the potential longer term growth rate has been permanently lowered.

Equities

• European banking stocks may get a lift today from better than expected numbers posted by Deutsche Bank (despite huge loan loss provisions) and Spain’s BBVA. BP also beat Street estimates while drug maker Sanofi-Aventis may find favour after a recommendation from Morgan Stanley. LVMH may see some downside pressure after an earning miss. It seems we are not buying as much champers or 5k Tag Heuer watches. Bloomberg reports that, to date this European earnings season, 43 of the 78 companies in the Stoxx 600 that have reported have done so with “better than expected” EPS but with profits down 30%.
• There was a positive article in an international financial Newspaper regarding Ghana signing a development deal with International Oil Firms. The Jubilee field, which Tullow is a stakeholder, is expected to produce 120,000 barrels a day by H2 2010. The IMF estimates that oil production could bring Ghana $1bn a year in revenue by the end of 2010. A positive read through from ongoing speculation regarding the sale of Kosmos’s stake should provide some support for the Tullow’s share price in the short-term. Success here could open material upside as Ngassa has the potential to treble Tullow’s Ugandas net oil exposure.

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