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25. Feb. 2010
NEW YORK - The surprising growth of U.S. stock trading venues is set for a pruning as regulators prepare to tighten controls on so-called dark pools and as brokers, still pinching pennies, look to narrow where they send orders.
Dark pools are a type of alternative trading system, or ATS, that allow investors to anonymously trade larger blocks of stock without tipping their hand to the wider market.
At more than 40, they've exploded in the last five years to meet investors' growing demand, fragmenting and complicating the marketplace like never before.
While the U.S. Securities and Exchange Commission is worried this fragmentation could harm public prices and long-term investors, others are concerned about the mounting costs associated with routing orders to the most appropriate of many destinations.
This all suggests that some ATSs -- particularly the smaller, independent ones -- could disappear in a consolidation, marking a significant shift from the regulation-inspired explosion that has siphoned trading volume from New York Stock Exchange, Nasdaq Stock Market and other traditional exchanges.
"It makes sense and it's made some sense for a while," said Jamie Selway, managing director of institutional broker White Cap Trading, and a BATS Exchange board member.
"Potentially the operating costs go up for (ATSs) with the regulatory tightening. There is decreasing marginal return for people running these things, and an even harder market in terms of ... less money for technology projects," he said. "Budgets are tight, particularly technology and regulatory budgets."
The last industry-wide consolidation came between 2000 and 2006 with the various mergers of alternative venues BRUT, Instinet, Island, and Archipelago, which all ended up acquired by what are now NYSE Euronext (NYX.N) or Nasdaq OMX (NDAQ.O).
But new rules in 2005 known as Regulation National Market System (Reg NMS) forced exchanges to electronically route orders to the venue with the best price, sparking another growth spurt that the SEC hoped would curb exchange monopolies, and inspire innovation and diversity in the marketplace.
It certainly had the desired effect. Perhaps too much so.
"After having favored ATSs by exempting them from exchange requirements, the commission is now considering whether the success of the ATSs has had another effect of creating (unwanted) fragmentation," and whether they should be brought more in line with the requirements of exchanges, Robert Colby, former deputy director of the SEC's trading and markets division, told the Capital Markets Consortium this week.
Reg NMS has brought "significant fragmentation of orders and high search costs for large orders," said Colby, who is now counsel at law firm Davis Polk & Wardwell LLP.
DARK POOLS UNDER THE GUN
The public comment period ended Monday on the SEC's three dark pool proposals: to ban private electronic messages known as indications of interest, or IOIs; lower the threshold at which the ATSs must display quotes for a single stock; and require them to report trading in real time.
The SEC also devoted much space to dark pools in a 74-page paper on market structure and high-frequency trading that it issued last month, which also requests public comment. "Whether fragmentation is in fact a problem in the current market structure is a critically important issue ..." the SEC said.
"Undisplayed" trading accounts for about a quarter of all volume, according to the regulator. Most of that is executed in-house at banks such as Credit Suisse Group AG (CSGN.VX), Goldman Sachs Group Inc (GS.N) and other broker-dealers that "internalize" orders in their own dark pools.
Any consolidation, rather, is likely to occur among the independent or consortium-owned ATSs that have a less stable flow of orders, and that are more vulnerable to rule changes.
"If it's a fragmented dark pool with no electronic liquidity provider, then, standing alone, it may be hard for them to gain a lot of market share," said George Hessler, an industry veteran and former executive vice president at Lime Brokerage.
There are mixed signals as to whether an ATS consolidation has begun.
NYFIX, a trading technology firm bought last year by NYSE Euronext, agreed separately in November to sell its Millennium dark pool to BNY ConvergEx Group. Headed in the other direction, trading systems provider Pragma Securities launched the ONECROSS dark pool earlier this month.
Big advances in brokerages' order-routing technology is probably why consolidation has not occurred over the last few years, Whit Conary, president of dark pool LeveL ATS, said of the industry in general. "It is unlikely that regulatory changes will bring about consolidation in ATSs."
But Conary, whose Level launched in 2006 and is backed by five financial companies including Citigroup Inc (C.N) and mutual fund giant Fidelity, added that mergers could work from a business perspective if the ATS models are substantially different and can expand on the offering to the customer.
[Reuters]
24. Feb. 2010
WASHINGTON - Securities regulators are considering new short-sale restrictions with no exemptions for market makers, people familiar with the regulators' plans said on Tuesday.
The Securities and Exchange Commission is due to meet on Wednesday to vote on rules that would restrict short-selling in a company's stock if that stock fell by more than a certain percentage, such as 10 percent, the sources said.
The SEC is considering allowing legitimate hedging during the short-sale curb but no general exemption for market makers, the sources said.
The SEC was not immediately available for comment.
Short-sellers bet on a stock's decline. In a short-sale, an investor borrows stock and sells it in the hope that its price will drop. When it does, the seller profits by buying back the stock at the lower price and returning the borrowed shares.
During the financial crisis, lawmakers and corporate executives had urged the SEC to reinstate a Depression-era rule known as the 'uptick rule' to help slow the downward pressure on stocks.
Now the SEC is expected to consider a "circuit breaker" measure that would trigger a version of the uptick rule, the sources said.
The rule would only allow short-selling above the national best bid for the stock and would last for the day that the stock dropped and the day after, the sources said.
The sources requested anonymity because the SEC rule is still in flux and could change before Wednesday's meeting.
[Reuters]
22. Feb. 2010
LONDON - A tug of war between evidence of a strong U.S. economic recovery and the prospect for higher interest rates is making investors slightly hesitant in allocating their cash significantly more into stocks.
The move away from safe-haven money market funds that started last year was gathering pace in the latest week as investors pulled another $37 billion out of money market funds.
But a surprise rise in the Federal Reserve's emergency lending rate on Thursday poured cold water on to world stocks, reminding investors that cheap cash which has fueled a boom in stocks and commodities since last year will not last forever.
Just as investors started to focus on a more favorable economic outlook in the United States backed by a slew of strong corporate earnings and troubles in the euro zone, the very thought of the higher cost of borrowing could scare them.
The Fed is keen to allay fears that the hike, first rate move since December 2008, would bring forward broader policy tightening, saying that borrowing costs in the economy would stay low.
Investors are aware that sooner or later benchmark U.S. interest rates would rise but first such move is not expected until November.
Reflecting that optimism, the benchmark MSCI world equity index is on track for posting a second consecutive weekly gain for the first time since November.
"The (post-Fed) reaction... has been to regard it is an early step of de facto monetary tightening. Although the prospect of higher rates will be viewed with trepidation by the markets, it is likely that the federal funds rate will remain on hold for some time yet," said Ted Scott, equity strategist at F&C Investments.
"The move does signify that the monetary authorities have increasing confidence in the recovery in the U.S. economy. For equities this is good news for dollar earners that suffered last year with its weakness."
The dollar hit 8-month highs against a basket of currencies on Friday
DEPLOYING CASH
Data from fund tracker EPFR shows investors used the proceeds from money market funds to invest $3.69 billion into global equity funds and $3.48 billion into bond funds.
U.S. equity funds fared best in dollar terms, absorbing a nine-week high of a net $3.14 billion, while European equity funds was the only major developed market group to post outflows -- of a net $303 million.
According to Thomson Reuters data, companies listed on the S&P 500 index posted quarterly earnings growth of a whopping 212.3 percent for the fourth quarter, after a contraction of 14.7 percent in the previous three months.
They are expected to post earnings growth of 36.9 percent in the first quarter and the double-digit expansion is set to continue for the rest of the year.
Of 82 percent of S&P firms that have reported their earnings so far, more than 70 percent outperformed consensus forecasts in the final three months of the year.
"The upward momentum in the U.S. economy appears to be building a critical mass - much more so than in Europe," Cyril Beuzit, global head of interest rate strategy at BNP Paribas, said in a note to clients.
"What's clear is that the debate at the Fed about the exit strategy is moving on. The unwinding of unconventional support is ongoing. But the conditions required to prompt a conventional tightening are still some way off."
MORE CLOUDS
Next week's euro zone data on business morale could reveal the scale of a shock from the debt crisis in Greece and other debt-laden peripheral countries -- another factor which is bugging investors.
Investec is keeping its "low conviction" equity overweight due to concerns over huge fiscal deficits despite upside potential.
"There is considerably more upside in risky assets in the medium term and the downside looks limited but we don't anticipate much from the first half of the year," said Max King, the firm's strategist.
Investec said a preliminary estimate of 19 percent earnings growth and a 6 percent revenue expansion in 2011 would bring the global price earnings ratio down to just below 12.
"It is probably too early for this to impact investors' attention and it is certainly not discounted in valuations but it does illustrate the basis for a significant rally later in the year after a dull first half," he said. A weekend meeting of Group of 20 finance chiefs in Korea may also rekindle risks to the financial sector from regulation.
At their last meeting in Scotland, Britain pressed the G20 to come up with a plan to make banks pay for any future bailouts. G20 ministers launched a new framework aimed at rebalancing the global economy. Mario Draghi, chairman of the Financial Stability Board -- tasked by the G20 to supervise on new financial regulation -- told Reuters in January that global regulators are working on proposals for a central agency to manage bank failures.
[Reuters]
21. February. 2010
New York: US stocks posted mild gains at the end of a strong week Friday after inflation for January came in lower than expected despite the US recovery from recession.
Consumer prices climbed 0.2 percent, the Labour Department said. Core prices, which exclude more volatile food and energy costs, surprisingly dropped 0.1 per cent, marking the first monthly decline in the core rate since 1982.
Bloomberg News reported that stock trading slowed at 11 a.m. (1600 GMT) when star golfer Tiger Woods offered his first public apology over a series of extramarital affairs.
Stocks had opened the day lower in response to the Federal Reserve raising the discount interest rate at which it lends directly to commercial banks by 0.25 percentage points to 0.75 percent.
The rate change was made after markets closed Thursday and marked the central bank's first monetary policy shift in more than a year, though its more closely watched federal funds inter-bank lending rate was kept at a record low of near 0 percent.
Stocks pared those losses through the day amid hopes that the low inflation data will encourage the Fed to keep its federal funds rate at its record low for a while still.
The blue-chip Dow Jones Industrial Average edged up 9.45 points, or 0.09 percent, to 10,402.35. The broader Standard & Poor's 500 Index climbed 2.42 points, or 0.22 percent, to 1,109.17. The technology-heavy Nasdaq Composite Index was up 2.16 points, or 0.1 percent, to 2,243.87.
The US currency dropped against the euro on Friday to 73.49 euro cents from 74.08 euro cents on Thursday. The dollar also fell against the Japanese currency to 91.58 yen from 91.99 yen a day earlier.
[World news]
17. February. 2010
NEW YORK - A number of industries in New York state, including financial services, terminated at least 5 percent of their workers in the current recession, which has fallen harder on men, minorities and those without college degrees, a report said on Tuesday.
The financial services sector, which powers New York's economy, shed 44,200 jobs, a 6.1 percent decline in the work force, according to the report by State Comptroller Thomas DiNapoli.
Almost 60 percent of the losses were at securities companies, which sent out 26,000 pink slips, decreasing the work force by 12.5 percent. On a percentage basis, Wall Street's decline was the biggest.
Over 75 percent of those who were laid off had at least a bachelor's degree and about 14 percent of them were Asian -- about twice the statewide average, the report said.
Fewer bankers were laid off: the credit intermediation industry, which includes credit unions, cut 8,300 workers, a 4.9 percent decline.
Though much of New York's upstate region has been declining for years as manufacturers closed or left, the Democratic comptroller's report underscored New York City's pain in the latest recession:
* About 70 percent of the total of 291,900 of jobs cut from July 2008, when employment peaked, through December 2009, were axed by employers located in the city and nearby suburbs.
* A few industries that men dominate, including construction and manufacturing, had some of the heaviest losses -- the former lost 42,300 positions and the latter lost 54,000 workers.
This is one reason the recession has fallen harder on men, whose jobless rate rose to 9.8 percent through December 2009, from 4.9 percent in December 2007, when the recession began.
For women, the unemployment rate rose to 7.7 percent from 4.4 percent, partly because they tend to dominate two of the few growing fields: education and health services. If those two sectors are excluded, the total of lost jobs rises to 347,000.
Among minorities, the unemployment rate for Black or African American workers has remained at around the 14.8 percent level it hit in December 2008, up from 8.8 percent in December 2007, the report said. For Hispanics, the rate almost doubled to 13 percent from 6.6 percent in the two-year period.
The unemployment rate for workers who did not finish high school soared to 15.5 percent from 10.5 percent.
Other industries with deep job losses included professional and business services, which sliced 68,300 positions. This worked out to a 5.9 percent decline in the work force, which includes legal, accounting and employment services.
The wholesale trade sector shed 24,900 workers, a 7.1 percent decline.
In the information sector, which includes publishing, 16,200 workers lost their jobs, cutting the work force by 6.2 percent.
Transportation, warehousing and utilities companies axed 14,200 of their workers, a 5.1 percent decline. Minority workers are half of this work force, and more than one out of every six jobs lost was at courier and messenger services.
Women represent more than half of the workers in retail trade, which shed 30,600 positions, a 3.4 percent decline. The leisure and hospitality industry laid off 16,400 workers, a 2.3 percent decline.
[Reuters]
16. February. 2010
NEW YORK- Stocks rose on Tuesday as the latest batch of earnings and regional manufacturing data brightened the economic outlook and enticed investors back into equities.
Shares related to U.S. dollar-priced commodities rose the most as the greenback fell against the euro and Swiss franc. Oil futures jumped nearly 4 percent to about $77 per barrel. The CRB commodities index .CRB rose 2.7 percent, its largest daily percentage advance in three months.
Energy company Chevron Corp (CVX.N) rose 2.3 percent at $72.67.
Shares of Merck & Co (MRK.N) gained 3 percent to $38.03 after the drugmaker posted quarterly revenue above analysts' estimates.
"Earnings have been strong and people are starting to believe the recovery we're seeing in the economy is real," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets in Baltimore.
"There's more of a fear that investors will miss the next move up, as opposed to not being involved and watching the market go down."
The Dow Jones industrial average .DJI gained 115.11 points, or 1.14 percent, to 10,214.25. The Standard & Poor's 500 Index .SPX rose 13.97 points, or 1.30 percent, to 1,089.48. The Nasdaq Composite Index .IXIC advanced 21.47 points, or 0.98 percent, to 2,205.00.
Also helping sentiment, the New York Federal Reserve's gauge of manufacturing in New York state rose more than expected in February as inventories jumped.
Simon Property Group Inc (SPG.N) said it made a $10 billion offer for General Growth Properties Inc (GGWPQ.PK) , boosting optimism in the battered commercial real estate market in a combination of the two largest U.S. shopping mall owners. Simon shares rose 3.9 percent to $74.80.
JPMorgan Chase & Co (JPM.N) will buy the non-U.S. assets of commodities joint venture RBS Sempra from Royal Bank of Scotland (RBS.L) (RBS.N) and Sempra Energy (SRE.N) for $1.7 billion in cash, roughly doubling its commodities client base and making the second-largest U.S. bank by assets even bigger.
Financial stocks got a boost from Britain's Barclays Plc (BARC.L) (BCS.N), which said it nearly doubled profits in 2009 to $18.2 billion.
JPMorgan shares jumped 2.2 percent to $39.81 and the KBW bank index .BKX rose 2.5 percent.
Southern Company's (SO.N) shares rose 1.5 percent to $31.63 after U.S. President Barack Obama announced a loan guarantees of $8 billion to build the first U.S. nuclear plant in nearly three decades, saying the United States will not achieve a boost in nuclear capacity without incentives to make "clean" energy profitable.
Southern subsidiary Georgia Power received the guarantees. The Market Vector Nuclear Energy ETF (NLR.P) rose 2.5 percent to $21.66.
On the Nasdaq, shares of chipmaker Intel (INTC.O) rose 1.5 percent to $20.73 after a brokerage raised its rating on the stock.
[Reuters]
12. February. 2010
NEW YORK - Stocks tumbled on Friday after a surprise move by China to increase bank reserve requirements raised worries about the impact of monetary tightening on global growth, weighing on commodity prices and resource shares.
The hike in reserve requirements comes on the heels of a similar increase last month and raised worries that the pace of monetary tightening in China could be more swift than expected.
"We see the tightening on China's side is going to be ratcheted up, which removes liquidity from the U.S. equity market," said Steven Grasso, director of institutional sales at Stewart Frankel and Co Inc in New York.
"If we were all betting on the recovery story, that recovery might be delayed."
The news boosted the U.S. dollar and pressured commodity prices and resource stocks. Crude oil futures fell about 2.5 percent to $73.37 a barrel, while Exxon Mobil Corp (XOM.N) gave up 1 percent at $64.58.
The Dow Jones industrial average fell 126.29 points, or 1.24 percent, to 10,017.90. The Standard & Poor's 500 Index lost 11.63 points, or 1.08 percent, to 1,066.84. The Nasdaq Composite Index slipped 15.77 points, or 0.72 percent, to 2,161.64.
Shares of Ingersoll-Rand Plc (IR.N) slid 9 percent to $30.85 after it reported results that missed analysts' expectations as weak nonresidential construction hit demand for heating and cooling systems.
U.S. economic data showed a differing picture of recovery as consumer sentiment slipped in early February but business inventories fell unexpectedly in December and sales at retailers rose more than expected in January.
[Reuters]
12. February. 2010
NEW YORK: World stocks and the dollar gained on Thursday in a zig-zag session after a deal emerged to help Greece tackle its debt woes, removing some of the uncertainty lingering about a possible sovereign default.
European shares extended the week’s rally to a fourth day as stronger commodity and pharmaceutical shares outpaced a sharp decline in banks, pulled down by uncertainty over details over the rescue plan for Greece. On Wall Street, all three major indexes advanced, also buoyed by data that indicated the US labor market may be healing.
European leaders agreed to provide financial aid to Greece, but details on the package, which leaked from multiple sources, were not expected until early next week when European Union finance ministers meet.
The euro extended losses versus the US dollar, falling below $1.3600, as investors expressed concern that the plan may not be enough to pull Greece out from its fiscal crisis. “The confusion over the bailout is leaving traders a little nervous. It seems now that the EU has made a decision to help Greece, but just what that help entails is still a mystery,” said Jimmy Yates, head of equities at CMC Markets.
The pan-European FTSEurofirst 300 index closed up 0.34 percent at 990.51 points.
Shortly after midday, the Dow Jones Industrial Average was up 80.64 points, or 0.80 percent, at 10,119.02. The Standard & Poor’s 500 Index was up 7.01 points, or 0.66 percent, at 1,075.14. The Nasdaq Composite Index was up 25.36 points, or 1.18 percent, at 2,173.23. The costs of protecting against a government debt default by Greece and Portugal rose as possible obstacles for the Greek rescue plan emerged.
Five-year credit default swaps on Greek government debt climbed to 352.0 basis points from 332.5 earlier in the session, according to data from CDS monitor CMA DataVision.
“There is still some nervousness. Markets could also perhaps realize more and more that there may be a bailout but it will come at a cost and the cost is that they really have to be tough on the fiscal side,” Klaus Wiener, head of research at Generali Investments, said of expectations of what an aid package for Greece may entail.
“When we look at the pillars of growth that we had over the last months, it was really fiscal spending. Now if countries have to go into reverse, that’s not boding well for the growth momentum,” he added.
The euro was down 0.50 percent at $1.3657. Against the yen, the dollar was down 0.26 percent at 89.74. The dollar was up against a basket of major currencies, with the US Dollar Index up 0.14 percent at 80.138.
Gold rose to a near one-week high above $1,090 an ounce.
Spot gold prices rose $19.25 to $1,091.70.
[Reuters]
11. February. 2010
Reuters
Stock index futures rose on Thursday with the spotlight on a European summit that could set the blueprint for aid to debt-laden Greece, while investors awaited data on the health of the labor market.
Concern over the debt crisis in Greece has dampened confidence, and equity markets have been sensitive to statements and reports of potential aid. European Union leaders were meeting to lay the foundations for a financial bailout of Greece at a summit in Brussels, but any aid will require deep fiscal and economic adjustments by Greece.
Several key euro zone officials have reached a deal to help Greece in its debt crisis, European Union President Herman Van Rompuy said.
On the U.S. economic front, the Labor Department releases first-time claims for jobless benefits for last week at 8:30 a.m. EST. Economists in a Reuters survey forecast a total of 465,000 new filings, compared with 480,000 in the prior week.
S&P 500 futures rose 2.9 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures were up 30 points, and Nasdaq 100 futures gained 5 points.
Stocks dipped on Wednesday as worries over Federal Reserve Chairman Ben Bernanke's comments on a strategy once the economy recovers offset optimism about a possible rescue for Greece.
Highlighting the weakness of the labor market, President Barack Obama warned the country's recovery would not be complete until more people find work and the United States borrows less money.
10. February. 2010
morssglobalfinance (by: Elliott R. Morss)
In recent articles, both on this subject and on Gary Shilling’s 2010 recommendations (Gary should stick to real estate), I have argued for investments in Southeast Asia, Latin America, and South Africa. There have been two primary reasons for this position:
the heavy overload of debt in the US, Europe, and Japan, and more importantly,
the projected rapid economic growth rates of these emerging market countries.
Here, I will not repeat my detailed arguments but instead want to bring your attention to a remarkable interview Monday night (February 8th) with Eike Batista on the Charlie Rose show. The interview will be available in the next 12 hours on the Rose web site. It is one hour long. I urge you to listen to it in its entirety.
Batista’s father ran Cia. Vale do Rio Doce which is the world's largest iron ore exporter. His father would not let any of his children get involved in Vale - “no nepotism”. Batista, with his own investments in iron ore, Brazilian infrastructure, and oil, is on a growth path to be the world’s richest man in less than a decade.
But what makes his interview exceptional is his view of global growth. He points out that Brazil now has everything: a great natural resource base (offshore oil discoveries are real – he believes Brazil will shortly have proven oil reserves that will make it the 5th largest in the world, a strong manufacturing sector, and leadership that understands how to work with business. Brazil was affected in a very minor way by the Western banking collapse and the ensuing global recession. Why? In part because only 14% of its GDP is exported, and in part because of its growing middle class.
A lot of Batista’s business is with the Chinese. He is building ports and other facilities to ship iron ore, soy, and soon oil to China. He his great admiration for what is happening in China: “A billion-person middle class – they quickly became the low cost/high quality producer of everything: they are unstoppable.” But China is natural resource poor and they need to buy them from Brazil and other natural resource rich countries.
He sees Brazil, Chile, and Colombia as the solid economic countries in Latin America; he is not happy about the “populism in Argentina (too bad, such a rich country), Ecuador, and Venezuela. He is sympathetic to the revolution in Bolivia (“it had too happen – Bolivia has been exploited for 400 to 500 years”). He said Peru has to develop a greater concern for its poorer people before it will be stable politically. And he is decidedly not enthusiastic about Mexico.
I feel pretty much the same way about Latin American countries as a result of the studies I did with my students last November at the Business School at the University of Palermo in Buenos Aires on how they were dealing with the global recession. On Mexico, see my posting here.
Batista was not enthusiastic on economic prospects for the US, Europe and Japan. He believes the tremendous debt overhang will plague these countries for more than a decade. He noted that Brazil had its own problems with overspending, inflation and debt back in the 1960 - 1990s period (at one point, debt service payments exceeded 80% of exports). It took Brazil more than 10 years to break the cycle and he expects it will be the same for Western nations.
He noted that it takes a long time for investors (and the rating services) to regain confidence once it is lost.
I repeat: if you want to understand the future of the global economy, listen to Batista’s interview in its entirety.
I will post specific investment suggestions for countries in Latin America, Southeast Asia, and South Africa in the next two weeks.
10. February. 2010
Steel Guru
Steel maker shares in Asia started to show some signs of life on market expectations for higher steel prices and stronger demand for the metal, but investors should remain wary.
MarketWatch reported that steel maker shares in Asia started to show some signs of life on market expectations for higher steel prices and stronger demand for the metal, but investors should remain wary of risks associated with overproduction and the soft footing of some global economies.
According to analysts at HSBC, Asian steel demand will likely reach 1 billion tonnes by 2013 as compared with 808 tonnes in 2009. They added that "This growth will shift Asia into a tightly balanced market over the next 4 years, from a net exporter position in the past."
So recent weakness in the steel market provides an opportunity for investors to re enter the sector, as they upgraded South Korea's POSCO, Australia's BlueScope Steel Limited and India's TATA Steel Limited to overweight from neutral and upped China's Angang Steel Co Limited and Japan's JFE Holdings Inc to neutral from underweight.
Still, HSBC analysts admitted that near term risks for the steel market remain, given China's high inventories and macroeconomic concerns.
Analysts at HSBC said that they believe China's high steel inventories and macroeconomic concerns are now factored into valuations. They added that stocks under the brokerage's coverage have corrected by 14% year to date on average and have underperformed the broader market by 8%.
Still, analysts at HSBC pointed out that "With the export markets opening up, we believe the inventory risks will soon abate and the sustained economic recovery in the region shall provide demand support."
They said that China's plans to shut older, inefficient capacity will impact long steel capacity more than the shift in stimulus spending away from infrastructure to public welfare projects.
10. February. 2010
Reuters
Morgan Stanley's move to cut the firm's pay ratio followed prodding by large investors who questioned the firm's high pay levels, and the firm is preparing to take further steps to address shareholder concern, The Wall Street Journal Online reported on Tuesday.
The Journal, citing people familiar with the situation, said these investors, which it did not name, were concerned that Morgan's pay and benefits last year reached 62 percent of net revenue, the highest percentage in a decade.
A Morgan spokesman had no comment.
There are no signs of a shareholder rebellion that could lead to en masse dumping of Morgan Stanley shares or embarrassment at this spring's annual meeting, the report said.
But the company is preparing to take additional steps beyond the recent restructuring of its compensation system to show it is responsive to shareholder concerns, including a possible nonbinding say-on-pay proposal, the Journal said.
10. February. 2010
Reuters
European shares were led higher on Wednesday by financial stocks, with sentiment improving on signs the European Union may rescue heavily indebted Greece.
At 0920 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 987.67 points after gaining 0.2 percent in the previous session.
The index, which fell 4 percent last week, is up 53 percent from a record low in March 2009.
Banks were among the top gainers, with Standard Chartered, HSBC, Barclays, Lloyds, Royal Bank of Scotland, BNP Paribas and Societe Generale rising 0.5-3.6 percent.
Greek bank shares rose 6.8 percent.
But Nordea fell 3 percent after its fourth-quarter operating profit missed forecasts and the Nordic region's biggest bank by value said risk-adjusted profit would be lower this year than last.
"Maybe the market has exhausted its neurosis near term. You can't have a sell-off every day on the basis of Greece. The market is consolidating but is still in a cyclical bull phase," said Bernard McAlinden, investment strategist at NCB Stockbrokers, in Dublin.
Deteriorating confidence in the ability of Greece, Portugal and Spain to finance growing fiscal shortfalls has spooked financial markets for weeks and knocked the euro to its lowest since May 2009, just below $1.36.
European governments have agreed in principle to help Greece, German coalition sources told Reuters on Tuesday. A German government spokesman dampened hopes by saying a decision had not yet been reached.
"Bailing out Greece would be a positive move and help alleviate some of the fears that have affected the market," asked Manoj Ladwa, senior trader at ETX Capital. "But does it stop there? Who could be next to receive help with their debt levels and what point does the EU say enough is enough?"
RISK APPETITIE RISES
Investor appetite for risky assets such as equities rose, with the VDAX-NEW volatility index falling 2.7 percent. The lower the index, which is based on sell and buy options on Frankfurt's top-30 stocks, the higher the market's desire to take risk.
Energy shares were also in demand, with BP, BG Group, Tullow Oil, Repsol and Total adding 0.4-1.2 percent.
Among individual movers, ArcelorMittal, the world's top steelmaker, fell 6.1 percent. It forecast higher shipments but lower prices in the first three months of 2010 and a core profit that could fall from a fourth-quarter figure that just missed expectations.
Global miner BHP Billiton was down 0.8 percent after signaling caution over a sustained global recovery and holding off from a share buyback when reporting its weakest first-half profit in four years.
French drugmaker Sanofi-Aventis rose 0.5 percent after saying earnings should rise 2-5 percent this year as growth areas, such as vaccines, help it resist stronger competition from generic rivals.
Across Europe, Britain's FTSE 100 index, Germany's DAX and France's CAC 40 were 0.4-0.7 percent higher.
9. February. 2010
Reuters
U.S. consumer confidence fell in February to near a level seen at the beginning of the recession, as high unemployment and some stock market weakness sapped January's optimism, a research group said on Tuesday.
Investor's Business Daily and TechnoMetrica Market Intelligence said their IBD/TIPP Economic Optimism Index fell to 46.8 in February from 48.8 in January.
Readings above 50 indicate optimism, while those below 50 point to pessimism.
The index is now 1.7 points below its 12-month average of 48.5 and just 2.4 points above its reading of 44.4 in December 2007, when the recession began.
"Persistent high unemployment and a wobbly stock market dampened January's optimism," said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner.
"Optimism tends to decline in February, and over the past eight years, optimism weakened in February six times, rose once and maintained its January level once," Mayur said in a statement.
The survey's six-month economic outlook component fell 6 percent to 48.7, and is up 16.6 points from December 2007.
The IBD/TIPP surveys more than 900 adults generally in the first week of the month. The survey has a margin of error of plus or minus 3.3 percentage points.
9. February. 2010
Stockhouse (by: Chris Vermeulen)
** Successful traders trade against the prevailing market sentiment **
Understanding market psychology is crucial for a trader’s success. But so many people get caught up in the daily market volatility, media coverage and “noise” of the trading environment, it’s almost impossible to not think and trade in agreement with the majority of traders.
However, effective technical analysis allows us to use trends, patterns and other indicators to evaluate the market's current psychological state. Fortunately, this analysis can both enable us to independently forecast whether the market is heading in an upward or downward trend and do so against the grain of the majority.
It takes a disciplined trader to be able to watch and listen to the market doing one thing, filter out the noise, then do the opposite - all in a controlled manor. To this day I still find myself fighting the herd mentality at times and that is when I step away from the computer and regroup.
I have a simple rule that has saved me thousands over the years. I would rather miss a trade and learn what caused me to get confused, then to take a loss.
Rule # 1 - when in doubt, stay out!
There are two types of traders:
Herd Mentality Trader – Someone who trades off fear and greed buying near tops and panic selling out at the bottom with the masses.
Black Sheep Trader – A trader who stands apart from the masses and trades opposite to the herd during extreme levels.
Last week’s market action really allowed us to see which way the masses were moving. The extremely high selling volume and sharp price decline notified us that the market was trading off FEAR. And, last Thursday we actually saw PANIC which tells us the balance of the market (retail investors, John Does, the “Herd”) were exiting their positions.
When we see this happen, it’s generally a good time to start scaling into long positions, as most of the down side has already happened.
I have been talking about an ABC retrace pattern for the indexes and gold for some time and last week we got just that. An ABC retrace is when we have three waves which are: down, small up, then another leg down.
In short this wave breaks the uptrend of higher highs and lows, as it forms a lower low telling novice traders to sell and go short. This is what causes the high volume and sharp sell offs.
Below are a few charts showing the 2009 July lows and where we are now: February 2010:
S&P 500 – daily trading chart
S&P 500 – daily trading chart
S&P 500 – daily trading chart
S&P 500 – daily trading chart
Intraday Price Action – If you want to see some exciting intraday trading charts check out the setups last week.
Market psychology trading conclusion:
Most get involved with the stock market because it looks like something they can quickly learn and start making money from home. But it doesn’t take long before they quickly realize there is more to trading than meets the eye.
While trading looks easy from a glance, in actuality I think it’s one of the toughest jobs out there.
Why? Well, this is what you are up against:
You are trying to predict something that is unpredictable.
You are trading against millions of other highly skilled traders.
You are trading against automated computers using complex algorithms .
You are trading with your hard earned money which causes fear and greed.
You must accept losing trades as that is part of the business.
You must trade with a proven trading strategy and follow the system.
You must understand money management and apply it to every trade.
You must truly love the market because it will break you down mentally .
I don’t want to say you must be a contrarian, but in reality you must do the opposite of the masses during times of extreme price behavior.
These extremes happen on a daily basis when trading intraday charts and every 4-6 weeks when looking at daily charts. The toughest part is to pull the trigger when emotions are flying high in the market and you are looking to do the opposite. It takes several trades before you even start to get comfortable doing this.
I hope this helps shed some light on market psychology.
If you would like to receive my Trading Newsletter and Analysis please visit my website: http://www.goldandoilguy.com/
9. February. 2010
Reuters
The euro rose on Tuesday on speculation that European Union nations could bail out errant member Greece, while global stocks inched higher, lifted by emerging market shares.
Wall Street looked set to open stronger.
Expectations about a rescue for Greece followed news that European Central Bank President Jean-Claude Trichet was leaving a meeting of central bankers in Sydney early to attend a European Union leaders' summit.
EU officials later clarified that Trichet's early return to Europe from a trip to Australia had been long-planned, but it nonetheless fueled speculation of a bail out.
EU leaders will hold a special summit on the economy on Thursday in Brussels amid increasing worries that Greece and other so-called peripheral euro zone economies cannot handle their debts and deficits.
Spreads between German 10-year bonds and Greek and Portuguese equivalents narrowed, although they remained wide at 352 and 156 basis points, respectively/
Concerns about the euro zone's sovereign debt troubles have battered financial markets this year, even pressuring U.S. banks on Wall Street on Monday.
The euro was up half a percent at $1.3725 and 0.9 percent at 123.02 yen.
"We are seeing a squeeze of some short euro positions which were established at low levels as market speculation of a Greek bailout is seen as positive in the near-term," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.
The euro is down more than 4 percent against the dollar this year and more than 7.5 percent against the yen, in part because of concerns over debt.
The dollar was off a quarter of a percent against a basket of major currencies.
MIXED STOCKS
World stocks as measured by MSCI rose 0.2 percent, lifted mainly by gains of 1 percent in their emerging market component. Chinese and Hong Kong shares were generally higher, cheered by higher commodity prices.
In Europe, the FTSEurofirst 300 was flat to higher with year-to-date losses now around 6 percent.
A number of worries have hammered the market following last year's large gains.
"Investors are rightly concerned about the timing of the removal of extraordinary loose fiscal and monetary policy. The risk of default has increased and there is an uncertainty over financial regulation," said Henk Potts, equity strategist at Barclays Wealth.
Earlier, Japan's Nikkei edged down 0.2 percent to a two-month closing low.
Toyota Motor Corp, whose shares have lost about a fifth of their value since late January, rose on short-covering with investors welcoming signs it was taking steps to deal with its safety problems.
The automaker announced a recall of the Prius and other hybrid cars for braking problems.
8. February. 2010
Reuters
Wall Street followed European and Asian markets lower on Monday, as the euro fell and bond yields slid on persistent worries about the fiscal health of southern countries in the euro zone.
Upbeat results and outlooks from U.S. corporations failed to offset the broad negative sentiment about fiscal woes in Europe as Greek civil servants warned they could call more strikes to oppose the government's deficit-cutting plan.
Investors also were disappointed that the weekend meeting of the Group of Seven industrialized nations did not lead to concrete action to tackle the sovereign debt problems of countries such as Greece, Portugal and Spain.
U.S. Treasury debt prices, which move in the opposite direction of their yield, edged higher amid the unease over the fiscal soundness of highly indebted countries.
Greek government bond yield spreads over German benchmarks rose as investors fled the perceived weakness in deficit-reduction plans and avoided assets deemed risky.
"It's difficult enough for investors to digest when companies can't meet obligations. When countries can't meet their obligations, it sends more pronounced shivers through the market," said Andre Bakhos, president of Princeton Financial Group in North Brunswick, New Jersey.
"It hurts sentiment in the fact that the underlying global fundamentals remain shaky."
The Dow Jones industrial average .DJI slipped 40.43 points, or 0.40 percent, to 9,971.80. The Standard & Poor's 500 Index .SPX dipped 1.48 points, or 0.14 percent, to 1,064.71. The Nasdaq Composite Index .IXIC eased 1.83 points, or 0.09 percent, to 2,139.29.
European shares added to steep declines from last week as the sovereign debt problems weighed on banks and offset a rally in defensive sectors like drugmakers and food producers.
By 10 a.m. EST, the pan-European FTSEurofirst 300 .FTEU3 index slipped 0.1 percent at 971.27 points, after hitting a three-month low at 967.85 points earlier.
The euro hovered near an 8-1/2 month lows versus the greenback.
The euro was down 0.01 percent at $1.366, and the dollar fell against a basket of major currencies, with the U.S. Dollar Index .DXY dipped 0.13 percent at 80.333.
Against the yen, the dollar was down 0.13 percent at 89.21 from a previous session close of 89.330.
The benchmark 10-year U.S. Treasury note was off 1/32 in price to yield 3.58 percent.
Oil topped $71 a barrel, supported by the weaker U.S. dollar and as some investors viewed the previous session's decline to a near two-month low as a buying opportunity.
Spot gold prices fell 55 cents to $1,064.40 an ounce.
Earlier in Asia, Japan's Nikkei average .N225 fell 1.1 percent to a two-month closing low as exporters like Sony Corp (6758.T)(SNE.N) were clobbered by a strong yen. Asia Pacific shares outside Japan as measured by MSCI .MIAPJ0000PUS fell 0.8 percent to its lowest levels since early September.
8. February. 2010
Reuters
European stocks bucked a three-day losing run on Monday, helping stabilize global shares although euro zone sovereign debt worries remained close to the surface.
World equities as measured by MSCI were up slightly, despite losses in Japan and among emerging markets.
The main gainers were in Europe where the FTSEurofirst 300 index rose nearly 1 percent, based in part in
reaction to a late rally in Wall Street on Friday and in a bounce back from recent falls.
The European index had three consecutive days of losses last week and lost 2.1 percent on Friday, its largest daily fall in 11 months.
Markets remained skittish about Greece's financial woes and its potential to spread to other euro zone countries and even further out.
Bank of America Merrill Lynch encapsulated the concern in a note about Asia.
"(Portugal, Ireland, Greece, Spain) aren't big enough to affect the outlook for Asia," it said. "However, rising sovereign risk could become a more widespread issue, affecting market volatility and countries' ability to maintain supportive fiscal policy."
MSCI's benchmark emerging market index was down a slightly and earlier Japan's Nikkei sank 1.1 percent to a two-month closing.
Governments, in the meantime, are trying to persuade markets that all will be well.
At the weekend G7 meeting, European finance ministers said they would make sure Greece delivered on its promises to slash its budget deficit by the end of 2012.
German Finance Minister Wolfgang Schaeuble was also quoted in a newspaper article on Monday saying that members of the Group of Seven industrialized nations were confident that the European Union will sort out Greece's debt problems.
The spread between Greek and German government bond yields tightened slightly, but still remained wide.
EURO UP
The euro recovered slightly from recent weakness along with the regional share markets. The dollar was broadly lower.
"Euro/dollar and some other riskier currencies are slightly higher, so perhaps we have a little bit of consolidation for now, but it is very much open," said Johan Javeus, SEB currency analyst in Stockholm.
"The market is looking for what kind of reassurances may come with regard to the euro zone deficit situation and any statements will continue to have an impact," he said.
The euro was up 0.2 percent at $1.369, although it is down close to 4.4 percent for 2010.
Benchmark euro zone government debt yields were slightly higher.
5. February. 2010
Reuters
European shares were seen extending the previous session's sharp losses on Friday, according to financial bookmakers, as weakness on Wall Street and jitters ahead of a U.S. jobs report weighed on risk appetite.
Britain's FTSE 100 .FTSE was seen opening 0.3 percent lower, Germany's DAX .GDAXI was expected to open as much as 0.3 percent lower, while France's CAC 40 .FCHI was seen opening up to 0.2 percent lower.
The pan-European FTSEurofirst 300 .FTEU3 index on top European shares fell 2.8 percent on Thursday, its lowest close since Nov. 30 and its biggest one-day percentage fall in 10 weeks as worries over euro zone peripheral countries shook investors' confidence.
On Wall Street, the Dow Jones industrial average .DJI briefly fell below the crucial 10,000 mark as stocks suffered their worst losses in more than nine months.
Later in the session investors will eye U.S. non farm payrolls data at 1330 GMT for signs of an improvement in the country's jobless rate.
5. February. 2010
Reuters
The most promising investment opportunities are increasingly found outside the United States, yet the vast majority of Americans place little stock in overseas markets.
That is a huge mistake, considering that China, India and other emerging markets promise superior growth, said Brent Ciliano, a portfolio strategist at Goldman Sachs Asset Management, who advises brokers and financial advisers on portfolio construction.
"The world is massively global. It follows your portfolio should be what the world is," he said.
The facts should speak for themselves, Ciliano said: 70 percent of small-cap stocks are outside the United States; two-thirds of REITs are overseas; about 55 percent of global equities are outside the United States.
Yet most U.S. investors have no more than 5 percent to 10 percent exposure to foreign markets, he said.
Thanks to the slowdown in developed markets, and the expansion of Asian markets, the rest of the world will represent a bigger and bigger share of the global marketplace.
Ciliano cited Ibbotson Associates research showing the U.S. share of the world's financial markets could shrink to 30 percent by 2030, down from about 45 percent at present. It was as high as 70 percent in the 1970s.
But Ciliano said the share held by other countries is increasing at a must faster clip now, which means the U.S. share could fall to 30 percent in just five years.
"International market capitalization relative to U.S. market capitalization is increasing faster than in the past," he said. "The rate of change is accelerating."
Foreign exposure is a key part of a "core and satellite" diversified investing strategy that Goldman has promoted since the late 1990s.
The strategy calls for surrounding a core portfolio with satellite assets -- emerging market stocks and debt, U.S. and global REITs, commodities, high-yield debt and international small-cap stocks -- as well as private equity, hedge funds and private real estate investments.
Ciliano says this approach has generated higher returns with less volatile swings than the typical "balanced" portfolio of U.S. stocks and bonds.
Ciliano said satellites and alternatives should comprise 15 percent to 20 percent of the overall portfolio. Some of Goldman's largest clients have as much as 49 percent invested in satellites and alternatives, he added.
The same portfolio services have been packaged for sale to smaller investors through investment advisers and brokers.
Goldman offers several Asset Allocation Portfolio funds, which make all these asset-allocation decisions, as well as funds that just invest in the seven satellite assets. Retail investors with as little as $1,000 can buy shares.
Another key component of the Goldman approach, hedge funds, also is more accessible to retail investors through vehicles that replicate hedge fund returns. Since its debut in June 2008, the Absolute Return Tracker Fund has attracted $730 million in assets.
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