Market Commentary: China’s industrial profits rise 13.5% in July

The value of global equities reached a record $66 trillion as rallies in Brazil, Japan and the US added more than $2.2 trillion in value since August. Investors are betting that new stimulus will revive growth while Geopolitical risk is mostly being disregarded.

US

The S&P 500 has climbed 0.6 percent over the past 2 days after US durable-goods orders increased by the most on record in July. Consumer confidence also climbed to its highest level in 7 years.

Minutes from the US Central Bank’s July meeting indicate that the US Federal Reserve is still committed to supporting a recovery; The US Federal Reserve is expected to stop bond purchases in October although a timeframe for its reversal is not yet on the cards and interest rate are expected to remain low for a prolonged period.

The move is the first step to move towards conventional policy and what may be a return to economic normality.

Asia Pacific

Asian stocks declined as a stronger Japanese Yen dragged Japan’s Topix lower. Analysts from UBS AG believe that the Asian equity market is fairly valued. The underlying earnings growth forecast is positive albeit mostly already priced in. Equities, however, appear cheap when returns are compared to interest rates for 10-year bond rates or cash rates.

China’s industrial profits rose 13.5 percent in July following a 17.9 percent increase in June. Hong Kong’s Hang Seng Index slipped 0.6 percent. Alibaba Group Holding Ltd tripled first quarter net income to $1.99 billion. Revenue climbed an estimated 46 percent. The news is a huge positive for the company that intends to start marketing its initial public offering next month in New York.

EU

During a speech at the Jackson Hole conference the European Central Bank’s Chairperson Mario Draghi signaled his willingness to start quantitive easing.

Italy’s four largest banks are seeking as much as €27 Billion from the ECB in cheap loans. The European Central Bank is to auction cheap cash with the intention to boost loans to companies and individuals. UniCredit SpA, Italy’s largest lender is said to be seeking up to €7 billion while Intesa Sanpaolo SpA intends to action for €13 billion.

The loans, known as TLTRO or Targeted long-term refinance operations, are part of the ECB’s arsenal to address shortage of credit to businesses and households in order to revive growth. Banks across the Euro area are expected to borrow as much as €110 billion in September and a further €160 billion in December.

Banks are required to provide comprehensive data on their loan books prior to applying for the TLTRO’s as the primary objective of the auction is to address shortage of liquidity to small businesses and households.

European stocks opened lower this morning as Russian and the US traded accusations over Ukraine. Russia said it was watching a build-up of NATO troops around its borders while the US said Moscow was sending troops to direct regel in Ukraine. The Ukrainian government in Kiev said that fighting has spread to previously peaceful area effectively opening a new front.

This article was issued by Calamatta Cuschieri, visit www.cc.com.mt for more information.

The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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