Weekly Trading Update
20.07.12 Friday Morning
The focus of the markets centred on Ben Bernanke this week as he reported to the US Senate and House of Representatives with rumours of short term easing promptly quashed by the Fed Chairman. Bernanke cited ‘frustratingly slow’ labour market improvements to justify holding rates at current levels until at least 2014. Unemployment claims showed a 19K increase in those out of work. Bernanke states that the Fed’s efforts, which has included two rounds of easing and the use of ‘Operation Twist’ to bolster growth, have worked but that the economy still remains weak ahead of the upcoming election. With the election in mind, it would have been a brave move to signal another round of easing to sugarcoat short-term problems but cause markets to sink deeper into a depression over the long term.
Growth-sensitive assets are ending a consistent-rise week on a slow note as Spanish 10-year borrowing costs jumped 8bp to 7.11%. However with the Dow Jones advancing back towards 13000 despite poor global economic consensus, it is not all doom and gloom. Much of the reason for the week's 1.5% increase has been in response to well received second-quarter earnings reports. Microsoft announced its first ever loss but said it was in strong shape to deal with new challenges and reported unearned revenue of $20.1 billion, a yardstick for future sales. The loss was due to its acquisition of aQuantive and its failure to challenge Google who said second-quarter revenue surged 35% after it bought Motorola Mobility Holdings and more users clicked on advertisements.
The US financial sector failed to keep pace with the technology sector. Morgan Stanley shares fell 5.3% and Bank of America dropped 3.6%. Morgan Stanley’s second-quarter profit dropped as the investment bank saw a double-digit decline in revenue with weak performance from its institutional securities business. Bank of America on the other hand posted earnings that beat consensus estimates. But investors weren’t too impressed by its profit margin, which was mainly boosted by smaller loan-loss reserves.
Open (Monday)
5676
Close (Thursday)
5713
Change
0.65%
High
5727
Low
5619
Open (Monday)
12757
Close (Thursday)
12937
Change
1.41%
High
12990
Low
12642
Open (Monday)
1.5588
Close (Thursday)
1.5722
Change
0.86%
High
1.5735
Low
1.5517
Open (Monday)
1592.2
Close (Thursday)
1581.3
Change
-0.68%
High
1598.8
Low
1567.3
As the Olympics approached, the FTSE currently struggled to bridge the 5700 mark, which is proving a major resistance level. Employment figures were aided by seasonal jobs created by the forthcoming games. The unemployment rate dropped by 0.1% in June. The BoE chiefs faced ministers over the Libor rate with newly published emails revealing that the BoE urged those responsible for the contested Libor rate for "greater energy" in overhauling the lending benchmark, thus showing that they were aware of the manipulation going on. It was also revealed on Friday that a group of European banks are looking for a group settlement with regulators over the scandal. Societe Generale and Credit Agricole are not accused of any wrongdoing.
Borders and Southern shares dived 75% Monday after they revealed they were unable to reach lower targets on their Stebbing Well due to anomalous pressure conditions. Shell withdrew their offer for Cove Energy with PPT the only remaining suitors looking to offer around the 240p mark for the oil exploration company. Tethys announced that it has received a Tajikistan resources upgrade covering an area of approximately 35,000 sq. km offering potentially 27.5 billion barrels of oil equivalent.
Next Friday sees the Olympics finally return to London, prior to that though we have an abundance of reports from Pace, Man Group, Imperial Tobacco, Carpetright, BT, Unilever and GlaxoSmithKline but to name but a few. Economics news centres on the preliminary UK GDP figure and advanced US GDP figure.
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