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From: NetResearch Asia [mailto:postman@netresearch-asia.com]
Sent: Monday, March 18, 2013 9:47 AM
To: NetResearch Asia 18 Mar 2013
Subject: Worries over spillover effects of Cyprus bailout deal
DJIA: 14514.11 -25.03
Nasdaq Composite: 3249.07 -9.86
Good morning, fellow investors
US stocks closed lower last Friday, with the Dow snapping a ten-day winning
streak following a disappointing consumer sentiment report that led the
three major indices closing between 0.15% and 0.30% lower. Market also
drifted lower on modest profit-taking as investors questioned the
sustainability of the recent rally.
US consumer sentiment tumbled to its lowest in early March since December
2011 with the University of Michigan's preliminary reading on the overall
consumer sentiment index declining to 71.8, against expectations of a rise
to 78, from 77.6 in February. The weaker reading was largely due to
dissatisfaction with government economic policies and weaker prospects of
job growth. However, on a positive note, the weaker sentiment only had a
minimal impact on buying plans so far, with the index of buying conditions
for durable goods only easing slightly to 139 from 140.
A separate report showed that US consumer prices recorded the largest
increase in nearly four years in February, with the consumer price index
(CPI) rising 0.7% in February, higher than expectations of a rise of 0.5%,
after staying flat in January, due to higher gasoline prices which rose
9.1% in February, after falling 3.0% in January. However, core inflationary
pressure remained contained, with core CPI rising 0.2%, slowing from a rise
of 0.3% in January, signaling a generally benign underlying price pressure
that should provide the US central bank further room to adopt an
accommodative monetary policy to stimulate the economy.
Also on a positive note, US industrial production rose more than expected
in February, growing by 0.7% in February, against expectations of a rise of
0.4%, after staying flat in January, signalling a rebound in the
manufacturing sector and that the economy continues to gain momentum in
2013.
The financial sector was in focus last Friday after the Federal Reserve
approved the capital plans submitted by 16 of the 18 banks that was subject
to stress tests. Bank of America shares rose 3.8% after it announced plans
to repurchase US$10.5 bil of common stock and preferred shares while Wells
Fargo shares gained 3.3% following announcements to increase its quarterly
dividend payment to 30 UScents per share, starting the second quarter.
However, JP Morgan Chase and Goldman Sachs shares fell 1.9% and 0.5%
respectively after the Fed approved their capital plans, but with
conditions attached. Shares of BB&T Corp and Ally Financial fell after both
firms’ capital plans were rejected by the central bank.
Despite the weaker close last Friday, for the past week, all the three
stock indices logged in gains with the Dow Jones Industrial Average rising
0.81% while the S&P 500 rose 0.61% to close at 1560.70. The Nasdaq was the
worst performing index, gaining only 0.14% over last week.
On Saturday, the euro zone struck a deal to hand Cyprus a bailout worth 10
bil euro (US$13 bil). But in a radical departure from previous aid
packages, euro zone ministers demanded depositors in its banks to forfeit a
one-time tax of 6.75% on bank deposits of less than Euros100,000 and 9.9%
for those over that amount, starting Tuesday. On Monday, lawmakers in
Cyprus will be holding an emergency session of parliament to vote on the
euro zone's decision to force bank depositors to contribute towards the 10
bil euro bailout but this emergency deal reached on Saturday has already
sent people in Cyprus rushing to the ATMs to withdraw cash. The worry is
that taxing depositors will set a dangerous precedent for the euro zone and
ultimately risks runs on regional banks which could hit investor confidence
in the euro zone region.
The bank crisis in Cyprus will set market trading lower at the start of
this week. But beyond euro zone concerns, market will seek direction from
the US Federal Reserve and the housing market this week to underpin market.
The US central bank will hold a two-day meeting starting Tuesday with a
scheduled announcement on interest rate decision on Wednesday. Market is
expecting the central bank to maintain its gloomy forecast for 2013 and
will look to comments on how government spending cuts could impact economic
growth later this year. Market will also look to the housing data for signs
of a continuous recovery in the sector which has been the bright spot of
the economy and also contributed about 151,000 additional jobs to the
economy over the past five months. Housing readings due over this week
include the housing market index, housing starts, building permits, FHFA
housing price index, existing home sales and MBA mortgage index. Besides
economic readings, market will take leads from the corporate results of
FedEx and Oracle both due on Wednesday and Nike on Thursday.
Crude oil for April delivery added US$0.42 a barrel, or 0.45%, to settle at
US$93.95 a barrel last Friday and for the past week, crude oil for April
delivery rose US$1.50 a barrel, or 1.63%.
In Singapore today:
Singapore share opened in the positive territory last Friday following
overnight strength on Wall Street. However, profit-taking and the sell-off
of property stocks after the release of the latest developer sales figures
whittled earlier gains. The latest data from the Urban Redevelopment
Authority (URA) on Friday showed that new private-home sales in February,
excluding executive condominiums (ECs), fell to 708 units, down 65% from
the 2,016 units sold in January amid a double whammy of new cooling
measures and a traditional lull period during Chinese New Year. At the
close, the STI index rose a mere 6.55 points, or 0.20%, higher at 3286.05
and for the week, the benchmark index lost 3.48 points, or 0.11%.
Expect market to kick off this week on a negative note following a weekend
decision by the euro zone to force depositors in Cyprus to contribute
towards a bailout, raising fears of setting a dangerous precedent which has
the potential to destabilize regional and global financial markets.
Also adding to pessimism is a weak report this morning that Singapore's
non-oil domestic exports fell 30.6% YoY in February led by contractions in
both electronic and non-electronic exports which fell 27.4% (-5.6% in
January) and 32% (+3.7% in January) respectively.
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....
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