19 - 23 JULY 2010

Weekly review

A strong week for US equity markets following better-than-expected second quarter earnings reports. The major averages ended on a strong note, rallying Friday following the release of the highly-anticipated European banks stress tests results. For the week: Dow Jones +3.2%, S&P 500 +3.5% and Nasdaq +4.1%. However, mid- and small-cap indices outperformed this week, with the Russell 2000 gaining 6.6%. IBM actually led off the week with disappointing earnings results, missing on the top line, but the major averages managed to reverse a sharply lower open to close with modest gains. For the remainder of the week, however, earnings results for the most part came in positive. Economic issues resurfaced on Wednesday following the release of Federal Reserve Chairman Ben Bernanke's semi-annual monetary policy report. He disappointed the market by focusing on the uncertainty still in the marketplace. While economic commentary aided the bears on Wednesday, economic data helped extend gains on Thursday. After the major averages opened sharply higher following a strong batch of earnings results, Existing Home Sales showed a smaller-than-expected decline of 5.1% in June, helping U.S. equity markets reach new highs for the session.

Asian stocks rose for a third week as commodity prices gained and as US companies reported or raised profit forecasts, boosting confidence in the strength of global economic growth. The MSCI Asia Pacific Index climbed 1%, advancing for a third-straight week and posting the longest winning streak since the week ended April 16. Hong Kong’s Hang Seng Index rose 2.8% this week as the city’s developers gained on prospects of higher property prices. China’s Shanghai Composite Index climbed 6.1%. Australia’s S&P/ASX 200 Index rose 0.8%, led by materials companies. BHP Billiton, the world’s largest mining company, climbed 4% this week in Sydney. The London Metals Exchange Index, a measure of six metals, rose 7% this week, while copper futures for September delivery jumped 8.7% in New York after a report showed sales of previously owned US homes fell less than forecast in June, bolstering the demand outlook for the metal. Crude oil for September delivery climbed 3.2%. Hon Hai Precision Industry, the world’s largest electronics contract manufacturer, gained 3.7% in Taipei after Microsoft Corp. reported positive earnings in the US. China Resources Land, a state-controlled developer, soared 6.4% in Hong Kong on speculation China may ease tightening measures.

The FBM KLCI strengthened last week, gaining 9.03 points to close at 1,345.68 on Friday. Defensive stocks in sectors like food & beverages and education continued to be on a winning streak despite uncertainties in the global market. Automotive stocks such as Tan Chong Motors and APM Automotive were also in focus after the Malaysian Automotive Association said it expects auto sales to hit an all-time high of 570,000 units this year from an earlier forecast of 550,000. There was also rotational play into second and third liner property stocks as fundamentals are strengthening and demand for physical properties continue to be robust.  On the corporate front, UEM Group said that they will bid for the KL MRT project should a tender be called for it. Meanwhile, crude palm oil (CPO) futures strengthened further this week to RM2,498 per tonne on concerns a brewing La Nina will impact production and drive prices higher. The CPO futures has rebounded 10% from its recent low three weeks ago. 

Economic news

US: Housing starts fell in June to the lowest level since Oct 09 as a slump in sales following the expiration of a government tax incentive caused builders to cut back. Work began on 549,000 houses at an annual rate, fewer than the 577,000 median estimates and down 5% m-o-m in June.Building permits, a gauge of future construction, rose 2.1% in June to a 586,000 pace, propelled by a 20% jump in multifamily applications that are often volatile. The ABC Consumer Comfort Index fell to -45 for the week ended 18 July from -44 in the previous week, dipping to its lowest level since 13 June, when it read -45. There were 464,000 initial jobless claims filed in the week ended 17 July, up 37,000 from a revised 427,000 the previous week. The index of leading indicators fell 0.2% in June (+0.5% in May); the second decline in three months, signaling the world’s largest economy will cool.  

Malaysia: The Consumer Price Index (CPI) for June increased by 1.7% y-o-y to 113.7pts (1.6% in May). The rise was due to the increase in food and non-alcoholic beverages and non-food indices by 2.7% y-o-y and 1.1% y-o-y respectively. The international reserves of Bank Negara Malaysia amounted to RM309.9bn (US$94.8bn) as at 15 Jul (RM309.8bn or US$94.8bn as at 31 June). The reserves position is sufficient to finance 8 months of retained imports and is 4.4 times the short-term external debt.