Weekly Review - 10.15.2012

·      Starting off with Canada this week, it looks like the Bank of Canada will continue to keep interest rates low even though the housing market continues to cool off, the number of employed continues to increase, inflation remains at a historic low and business confidence remains almost non-existent. In a new report, CIBC predicted that Canadians might experience low interest rates into 2014 as economic and global conditions will probably worsen and risks will rise in the short-term.

·      Following up on last week’s update on the Venezuelan elections, now that Chavez has won another 6-year term as president, we can be confident that his country will continue to have the world’s best performing stock market until the end of the year. In the last year of his prior term as president, Chavez increased fiscal spending by 41% in real terms beating all growth expectations and making Venezuelan equities seem safer than they really are, but for how long?

·      Today the German finance minister addressed the second Bank of Thailand Policy Forum in Bangkok with an update on the situation in Europe. Wolfgang Schaeuble ruled out a Greek exit as the E.U. remains divided on how and whether to aid Greece climb its way out of the massive hole it is in right now. Spain finds itself in a similar situation as bonds slumped today. With Greek’s debt having been restructured in March, still not much has improved in the E.U. region.

·      Last quarter, the total money spent on IPO’s fell down to $21.3 billion. This is the second-lowest this number has been at since the market crash of 2008. One of the biggest contributing factors for the above is the poor performance of Facebook’s stock since its IPO in May. The Facebook stock has lost half of its value since then as its major growth instrument, the smartphone, is still the principal risk to its stock. The pessimistic global growth forecasts are of course another reason for the declining numbers of the last quarter. 

·      Ending this update with news from the United States, last week the national debt dropped to a six-year low as borrowing by homeowners and businesses both fell relative to the size of the economy. This leads us to question whether the credit rating agencies were right in downgrading the credit rating of the United States. The red, white and blue now has a GDP which is 30 percent of the nation’s debt.

Ali Kazerani

Weekly Review - 10.07.2012

 

• The most important figure of the past week came out on the last day of the week – U.S unemployment numbers.  The jobless rate declined from 8.1 % to 7.8% (12.1M/ (115.6M+27.3M+12.1M) as 114,000 jobs were added.  This definitely boosts Obama’s campaign one month before the election, especially after his poor debate with Romney. Romney on the other hand disputed that the lower unemployment rate is only due to a decrease of the workforce as a result of discouraged workers who stop looking for employment.

• The markets responded favourably as share prices increased to the positive four year low unemployment data, while safe heaven securities such as Treasury notes tumbled.  Gold retreated by 0.6% to $1,777 an ounce given the positive news.  However gold will most likely remain a top commodity choice as the possibility of a “fiscal cliff” approaches.

• Another election campaign coming to an end south of the border is that of Hugo Chavez Venezuela’s president and Henrique Capriles Radonski – the opposition candidate who has a lead in the polls. This could  bring a lot of change to Venezuela’s currently nationalized financial institutions and utilities/steel companies.  If Capriles takes office, he will decentralize control and dismantle policies such as currency and price controls while allowing more foreign direct investment to boost the economy.  

• On the other side of ocean, European markets also rose as the European Central Bank reinforced its willingness to buy Spain’s bonds if it requested aid. Europe’s move to a more unified union be it monetary or fiscal continues as France, Malta, Spain, Italy and Portugal released a joint statement to push the European Council in establishing a single European banking supervision system in which states would jointly back their banks.

• Europe’s debt crisis has also affected China, a large trade partner with Europe, who is preparing to show weaker earnings in the third quarter.  Technology and materials companies originate a big portion of their revenues from China which could be potentially putting them at disappointing third quarter performance. The Chinese index is trading at its cheapest since 2008 which is attractive for investors while the Republic struggles to reduce the economy’s dependence on exports and boost consumption. China along with the other three emerging markets (the BRICs) have shown signs of a slow down. Last year $5.4 billion investments flowed out of the BRICs.   
• Goldman Sachs has moved beyond the Big Four. The  latest emerging market acronym is MIST – Mexico, Indonesia, South Korea and Turkey. Mexico’s benchmark IPC Index climbed 11 % this year, compared with a 2.8 % increase in  Brazil's Bovespa. Mexico continues to compete with China for manufacturing as costs are climbing in the Asian nation.  Turkeys ISE National increased 28 % and  Indonesia's Jakarta Index gained 7.4%. Out of the MISTs, Turkey stands out with a 8.5% growth in the economy last year.

Happy Thanksgiving and stay tuned for next week's review!

Hugo Chavez and Henrique Capriles Radonski

Anna Nepravishta