Weekly Market Review: Summertime Lull and Profit Taking
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Weekly Market Review: Summertime Lull and Profit Taking

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A quick review of last week's market happenings for busy expats. ...

A quick review of last week's market happenings for busy expats.

Second quarter earnings from the biggest U.S. companies have been rolling in and, once again, most firms are managing to beat reduced forecasts. In particular, as I touched on last week, the financial sector is doing very well.

In the mean time, Europe seems to be stabilizing which could be a plus for stocks in the months ahead but in the short term is putting some upwards pressure on bond yields.

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    Weekly Market Review: Summertime Lull and Profit Taking Weekly Market Review: Summertime Lull and Profit Taking Document Transcript

    • Weekly Market Review: Summertime Lull and Profit Taking Monday 29th July 2013 Second quarter earnings from the biggest U.S. companies have been rolling in and, once again, most firms are managing to beat reduced forecasts. In particular, as I touched on last week, the financial sector is doing very well. In the mean time, Europe seems to be stabilizing which could be a plus for stocks in the months ahead but in the short term is putting some upwards pressure on bond yields. Week Ending 26th July 2013 – Markets at a Glance
    • Round-up of Last Week's Happenings • Japanese Prime Minister Shinzo Abe's government coalition, led by his own political party the LDP, won enough seats in last Sunday's Upper House election to secure a majority in both houses of the Japanese Diet. The outcome ends six years of divided government, and analysts hope this will allow for structural economic reforms to move forward in Japan. • Staying in Japan, Japanese consumer prices rose 0.2% year over year in June after declining 0.3% in May, marking the first positive annual inflation rate in over a year and the biggest monthly jump in prices since November 2008. Economists were looking for a smaller advance to 0.1% inflation. The increase was largely due to higher energy prices however. Stripping out food and energy, consumer prices were still down 0.2% year over year in June. • Political turmoil in Portugal continued last week. Portuguese President Anibal Cavaco Silva rejected calls for snap elections in order to solve Portugal's austerity crisis, which has prompted a few key ministers to resign in recent weeks. Silva said in the context of Portugal's current emergency, the best solution is for the current government to stay in power. • Chinese Premier Li Keqiang was reported by the Beijing News to have said that China's "bottom line" for economic growth is 7%. Also in China, the China HSBC Flash Manufacturing PMI index slipped to 47.7 from last month's 48.2 reading, indicating a deepening contraction in Chinese manufacturing (any number below 50 indicates contraction while readings above 50 indicate expansion). Economists had expected the index to remain unchanged at 48.2.
    • • It was no doubt this recent weakness that was behind China's State Council announcing three policy measures to support economic growth and ease investor concerns over a slowdown in the Chinese economy. The government will cut value-added taxes and business taxes for micro and small enterprises, speed up the pace of reforms to simplify the export process, and speed up railway infrastructure construction. • In Spain GDP contracted by only 0.1% in the second quarter of 2013, following a 0.5% contraction in the first quarter, according to the latest data from the Bank of Spain. The economy was aided by growth in exports. In addition, Spain's unemployment rate unexpectedly fell to 26.3% in the second quarter from 27.2%, marking the first decline in the unemployment rate in two years. Spain's National Statistics Institute attributed the drop to a strong tourism season. • Apple reported second quarter earnings of $7.47 per share, above analysts' consensus estimate of $7.30, and revenues of $35.3 billion, above expectations for $35.04 billion. The company offered revenue guidance for the next quarter in the range of $34-37 billion, compared with analysts' estimates for $36.97 billion. • Eurozone-wide flash manufacturing PMI rose to 50.1 from last month's 48.8 reading, indicating a transition into an expansion phase. Economists had expected the index to advance to 49.1, representing solid improvement but not quite rising out of contractionary conditions. Eurozone composite PMI, which surveys both the manufacturing and services sectors, rose to 50.4 from 48.7 last month, marking the highest level on the index since January 2012. • Within the eurozone, French flash manufacturing PMI rose to 49.8 from 48.4, beating expectations for a smaller advance to 48.8. The numbers indicate that manufacturing activity in France continues to contract, but the contraction has slowed to a near halt. Also from France, industrial morale hit its highest level in over a year in July. The index rose to 95 from July's 93 reading, topping estimates for a tick up to 94. However, the indicator still remains below its long- term average of 100. • German flash manufacturing PMI crossed into positive territory, with the index rising to 50.3 from last month's 48.6 reading. Economists predicted the index would only rise to 49.2, leaving German manufacturing in contraction. In addition, the German Ifo Business Climate index rose to 106.2 in July from 105.9 in June, beating consensus estimates for a rise to 106.1. Combined, the data suggests that the engine of the eurozone is coming back to life once again.
    • • Facebook reported second quarter earnings of $0.19 per share, ahead of consensus estimates for $0.14 EPS, and revenues of $1.81 billion, above expectations for $1.62 billion. The beat was driven by $656 million in mobile advertising revenue, up from $375 million in the previous quarter. • The British economy expanded 0.6% in the second quarter, according to the latest GDP report, following a 0.3% expansion in Q1. The 0.6% expansion in Q2 brings the U.K.'s annual growth rate to 1.4%. Both figures were right in line with economists' estimates. • The debate over whether Federal Reserve Vice Chairman Janet Yellen or former Treasury Secretary Larry Summers will succeed Ben Bernanke as Fed Chair next year was augmented by a Bloomberg report that a letter is circulating in the U.S. Senate supporting Yellen for the post. She is said to have the support of Senator Sherrod Brown and several other Democrats. Much of the speculation surrounding Summers as the successor stems from his supporters in the White House, who have worked with him in the past and count him as a friend. • Finally, JPMorgan's chief U.S. equity strategist Tom Lee hiked his year-end price target for the S&P 500 to 1775 from 1715 today, making him the most bullish equity strategist on the Street. Lee's call implies an additional 5% upside for the index in 2013, and is driven largely by an improving economic picture in Europe. [You can receive my weekly market review by e-mail every Monday morning; just enter your contact details here.]