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Smoke is seen coming from a factory in Nanjing, capital of east China's Jiangsu Province, July 28, 2010. A powerful explosion hit the factory in northern Nanjing Wednesday, killing a yet-unknown number of people and injuring many more, witnesses and hospital sources said. Photo: Xinhua
The IMF
(International Monetary Fund') said in
a preliminary statement issued Wednesday on it
annual assessment of the Chinese economy, that
despite China's decision to adopt a "flexible"
exchange rate, the yuan/renminbi remains "substantially undervalued."
The IMF is not impressed
with the 0.7% appreciation since the ending of the
fixed peg to the US dollar on June 19th. The fixed
peg had been in place since July 2008 and the Fund
is not pushing for rapid action. Meanwhile, the
People's Bank of China has been outlining to
the Chinese public how a flexible exchange rate can
help the economy by alleviating inflation pressures
and improving the effectiveness of monetary policy.
The Fund said several Directors agreed that the
exchange rate is undervalued. However, a number of others disagreed with the
staff’s assessment of the level of the exchange rate, noting that it is based on
uncertain forecasts of the current account surplus. Many directors stressed
that, over time, a stronger renminbi would help facilitate a shift from exports
and investment to private consumption as the principal driver of economic
growth. A number of Directors pointed to signs that a structural shift in the
balance of payments is already underway, reflecting the reforms already put in
place to strengthen consumption.
The Fund commended China’s proactive and decisive
policy response to the global economic crisis. Growth is expected to continue to
be robust, while the inflation outlook appears benign. The policy challenge now
is to calibrate the pace and sequencing of exit from the fiscal stimulus and
credit expansion, while making further progress in reorienting the economy
toward private consumption. Directors commended the Chinese authorities for
their commitment to the G-20 framework for strong, sustainable, and balanced
growth.
Rally in Irish government bonds extends: Davy chief economist, Rossa White, comments -- "Ireland's government bonds increased
sharply in price yesterday (July 27th). Its ten-year spread versus
Germany has tightened by almost 50 basis points in ten days. There
are a number of reasons for this. Sentiment has steadily improved
towards the euro area and the periphery in particular. Specific to
Ireland is the confirmation that its banks passed the stress test.
In addition, healthy macro data flow from the euro area is giving
the lie for now to (external) concerns about a lurch towards
recession.
Yesterday, Ireland's spreads over Germany narrowed by more than
20 basis points. That was the biggest one-day move (perhaps
exaggerated by the lack of liquidity in recent times) since the
massive euro area bailout package was announced on May 10th. That
rally of course was short-lived. This rally may extend further. The
stress tests were not to everyone's liking. But what they didn't
reveal is perhaps more important than what they did. There was no
seismic shock to the system, and those banks that didn't play ball
were dealt with by market forces on Monday: they have already had to
outline sovereign exposures in greater detail. Before the stress
test results were announced, sentiment towards the euro area has
already improved as evidenced by the rally in the euro towards $1.30
(the trade-weighted euro is up almost 5% since end-June). That rally
has consolidated at a level which is still helpful for euro area
economic growth, albeit that further appreciation would not be
desirable.
Because of the escalation of the euro area crisis from late
February onwards, Ireland's March 31st banking system
recapitalisation plan (which included rigorous stress tests) did not
receive much attention. Therefore, Ireland's banks passing the CEBS
tests came as a surprise to some investors, evidenced by their
stronger share price performance in recent days. If it becomes more
widely appreciated that Bank of Ireland is recapitalised, it can
only help sentiment towards Irish government debt, especially if
Allied Irish Banks soon begins to take steps to follow suit."
Wong Sui Jau, GM of
fundsupermart.com, is cautious on gold on the basis that it has already
experienced a 9-year run. He shares his investment strategy in this edition of
Protect Your Wealth:
Economic View: US
housing data portrays a mixed picture - - "US housing market data looks to
have improved recently with New Home Sales up a massive 23.6% mom in June and
the S&P/Case-Shiller composite firming by 0.47% mom in May and 4.61% yoy.
However, looks can be deceiving. The strong June New Home Sales number only
partially offsets the 36.7% plunge seen in May, following the end of the April
home buyer tax credit. While the May S&P/Case-Shiller showed that prices in 20
US cities rose by a stronger than expected 4.61% yoy, forecasts were for 3.85%
yoy, that was clearly influenced by a race to take advantage of the tax credit
before it expired.
Other housing market
indicators for June, released last week, also portray a mixed picture. Existing
home sales fell 5.1%. Housing starts fell by 5%, while housing permits rose by
an encouraging 2.1%. The NAHB survey fell to 16 in June from 22 in May and fell
further to 14 in July. Uncertainty surrounding the housing market is also
weighing on US consumer confidence, which dropped to 50.4, a 5 month low, in
July. With US economic data still being distorted by a stimulus package worth
$787bn, or 5.5% of GDP, it is unsurprising that the Federal Reserve is holding
firepower in relation to further stimulus measures until the economic picture
becomes clearer. In Ireland, the latest report from Daft.ie (Q210) suggests that
despite the economy technically exiting recession in Q110, activity in the
housing market remains weak. In fact the pace of decline in asking prices
actually deteriorated in Q210 with asking prices falling 4.2% qoq (-3.4% qoq in
Q1). Lack of adequate credit supply, uncertainty surrounding employment and low
levels of buyer confidence all continue to weigh on demand."
Europe has chosen
the wrong way to cut debt and unfortunately the United States will follow,
Dennis Gartman, author and publisher of the Gartman Letter, told CNBC Wednesday:
Arnotts: The Irish Independent reports that State-owned Anglo Irish Bank is to take control of Arnotts, the historic
Dublin department store struggling to pay huge debts of €260m.
In a
surprising twist to the banking saga, Anglo, which was bailed out by
taxpayers, is now set to control the iconic department store, which
opened in 1843. Anglo, which is receiving €22bn of taxpayers' money, has informed the
EU Commission it intends to have "joint control" over Arnotts, along
with fellow lender Ulster Bank. From this morning, the banks will take effective control of the shop.
But the store will open for business as usual. It is understood that
none of the company's 950 jobs is under threat.
US Markets
On Tuesday, the Dow rose 12
points or 0.12% to 10,538.
The S&P 500 slid 0.10% and
the Nasdaq slipped 0.36%.
Hugh Young, MD of
Aberdeen Asset Management, prefers India over China. He tells CNBC's Martin
Soong, Karen Tso & Sri Jegarajah why he'll rather forgo China's growth story so
as to avoid the risks involved in investing there:
Asia markets
The MSCI Asia Pacific Index
rose 0.8% Wednesday -- the fourth straight increase.
The Nikkei 225 added 2.70%; China's Shanghai
Composite advanced 2.04%; Australia's S&P/ASX 200 Index
gained 0.72% and India's Sensex Index rose 0.02%.
The BDI closed at
3,005 on Thursday, Dec 31st - - a rise of 289% in 2009. The index averaged 59%
lower in 2009 than a year earlier.
On Thursday, July
15, 2010, the index fell for the 35th straight session, by 9 points, or 0.537%,
to 1,700 points,
Bloomberg report.
On Friday July16th, the BDI rose 20 points or 1.12% to 1,700 to break the
35-session losing streak; on Tuesday, the BDI gained 28
points or 1.52% to 1,869.
The spot price of an oz of gold is
trading in New York at $1,163.40, up $1.80 from Tuesday's close.
Ryanair (Buy, Closing Price €3.84):
CEO places some stock; Goodbody analyst Eamonn Hughes commented - - "A
5m block traded in RYA yesterday on behalf of the CEO, coming a week after the
Q1 results. This matches the 5m block that traded on June 5 last year, just days
after the FY09 results. Mr O’Leary has heavily flagged his periodic selling of
the stock. The 20-F shows him with 60m shares (55m now!) and since the start of
2000 he has sold a cumulative 37.5 shares including the latest batch (5m in
March 2000, 3m in February 2001, 7m in December 2002, 4m in June 2003, 6m in
June 2005, 2.5m in November 2006, 5m in June 2009 and the latest 5m batch). So,
firstly, it’s not unusual. Last year, his disposal was well timed, effectively
at the share price peak for the following 9 months (€3.75), which has investors
presumably wondering if he will be as astute this time?
At the time of the disposal last year, the rolling forward 12 month EPS of
Ryanair was 27c. However, it was on its way to a low of 20c, which was a primary
driver in the share price’s subsequent decline until earlier in its fiscal Q1
this year (April) when earnings forecasts started to climb quite materially.
Interestingly enough, the rolling forward 12 month EPS of RYA is also 27c
currently, but “this time” we think its on its way higher (our estimates have
27c for FY11, 33c for FY12 and 52c for FY13 though bear in mind consensus is
below us this year, hence the rolling forward EPS which is based on consensus at
27c is a little light on our estimates).
While the placing will sap some
demand in the short term and the stock appears to be struggling to break through
the €4 barrier (see our comments yesterday), we are more comfortable on the
yield outlook this year. This time last year, we were forecasting 15% capacity
growth in FY10 and 16-17% in FY11 and FY12. Its now (unadjusted for the volcano)
11% in the current year, 10% in FY12 and 6% in FY12, giving the company greater
control on yields. This time last year, we were forecasting yields down 14% in
FY10 and -1% in FY11. We are forecasting +12% this year and +8% next year, with
the bias still upwards. Spot Brent was $69 last summer and its $76 now, higher,
but not massively so. So 12 months on, RYA is in a much more favourable place to
be! So while the stock closed at €3.83 yesterday vs the €3.75 placing 13 months
ago, the European Airlines index is up 20% over the same period, whilst the E300
Index is up 21%. We like the RYA story and believe the stock can go higher."
