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||Asean Affairs 22 June 2012
ASEAN Market Preview
By Shayne Heffernan Ph.D.
Shares of energy and materials companies led declines as commodity prices fell. U.S. crude futures slipped below $80 a barrel for the first time since October and the S&P energy sector index .GSPE lost 4 percent. Investors said weak overseas demand was responsible for the decline in those industries.
Stocks' slide was accelerated by a bearish call from Goldman Sachs, which recommended clients build short positions in the broad S&P 500 index on expectations of more economic weakness.
"We are recommending a short position in the S&P 500 index with a target of 1,285," (roughly 5 percent below current levels), Goldman Sachs said in a note.
The investment bank cited the Philly Fed's mid-Atlantic factory index, which fell to minus 16.6 in June, an unexpected contraction in the region's factory activity.
Semiconductor stocks weighed on the Nasdaq after chipmaker Micron Technology Inc (MU.O) posted a net loss for the fourth straight quarter. Micron lost 7.8 percent to $5.65 and the PHLX semiconductor index .SOX dropped 4.1 percent.
Stocks had enjoyed a two-week run that brought the S&P up more than 7 percent on hopes for additional stimulus from the Federal Reserve.
Business activity across the euro zone shrank for a fifth straight month in June and Chinese manufacturing contracted, while weaker overseas demand slowed growth by U.S. factories.
U.S. manufacturing grew at its slowest pace in 11 months in June and the number of Americans filing new applications for unemployment aid fell slightly last week, further evidence the economy was weakening.
Other reports on Thursday underscored the difficulty the economy was having breaking out of a soft patch. Factory activity in the Mid-Atlantic region tumbled to a 10-month low in June and home resales slipped in May.
"Today's numbers are ugly. The economy is in another mid-year slump, growth will struggle to breach 2 percent and the odds are rising that the Fed will need to do more, probably as soon as its August meeting," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.
The Federal Reserve on Wednesday moved to hold down borrowing costs by extending a program to re-weight securities it holds toward longer maturities. However, many economists think it will eventually launch a third round of bond purchases in a more aggressive bid to spur a stronger recovery.
The economy is going through a repeat of 2011 when growth stumbled in summer, with Europe's debt crisis and uncertainty over the course of U.S. fiscal policy making businesses reluctant to hire.
Financial information firm Markit said its U.S. "flash" manufacturing gauge fell to 52.9 in June from 54.0 in May. June's reading was the lowest since last July although it stayed above 50, indicating an expansion in activity.
For the second straight month, weaker demand from Europe and large emerging markets such as China dented sales. Markit said U.S. manufacturers reported the second largest decline in new export orders since September 2009.
JOB MARKET STAGNATING
In a separate report, the Labor Department said initial claims for state unemployment benefits slipped 2,000 last week to a seasonally adjusted 387,000. However, a four-week moving average, considered a better measure of labor market trends, hit the highest level since early December.
Greece's new government promised on Thursday to renegotiate the terms of the country's bailout without endangering its future in the euro, responding to intense pressure to ease mounting social tensions but also risking a showdown with European powers.
The three-party coalition called for changes to the deal that is helping Greece avoid bankruptcy after the announcement of an 18-member cabinet dominated by the conservative New Democracy party of Prime Minister Antonis Samaras.
National Bank Chairman Vassilis Rapanos was named finance minister and New Democracy deputy leader Dimitris Avramopoulos became foreign minister.
Once jailed for fighting Greece's 1967-74 military dictatorship, Rapanos must now cure its sick public finances while negotiating with euro zone leaders who are losing patience with Athens after two multi-billion euro bailouts since 2010 that have failed to end the crisis.
Yesterday in Asia
Sydney fell 1.09 percent, or 44.8 points, to 4,087.6 and Seoul gave up 0.79 percent, or 14.97 points, to close at 1,889.15.
Hong Kong tumbled 1.30 percent, or 253.78 points, to 19,265.07 while Shanghai fell 1.40 percent, or 32.00 points, to 2,260.88.
But Tokyo closed 0.82 percent higher, adding 71.76 points to 8,824.07 owing to a slightly weaker yen.
– Mumbai ended up 0.8 percent, or 135.93 points, at 17,032.56.
ICICI Bank rose 2.1 percent to 850.55 rupees, and State Bank of India ended 2.9 percent higher at 2,177.95.
– Singapore closed down 0.89 percent, or 25.53 points, at 2,830.15.
City Developments fell 0.65 percent to Sg$10.71 and Fraser and Neave shed 1.43 percent to Sg$6.90.
– Taipei fell 0.76 percent, or 55.58 points, to 7,279.05.
Smartphone maker HTC fell 2.81 percent to Tw$380.0 while TSMC was 1.23 percent lower at Tw$80.6.
– Manila fell 0.72 percent, or 37.03 points, to 5,109.43.
SM Investments dropped 2.11 percent to 695 pesos while Megaworld rose 2.88 percent to 2.14 pesos and Alliance Global added 0.17 percent to 11.98 pesos.
– Wellington closed 1.03 percent, or 35.40 points, lower at 3,409.39.
Telecom fell 2.22 percent to NZ$2.425, Fletcher Building slipped 2.90 percent to NZ$6.03 and Air New Zealand was steady at NZ$0.86.
– Jakarta fell 1.07 percent, or 42.11 points, to 3,901.79.
Gas distributor Gas Negara fell 4.3 percent to 3,375 rupiah, nickel and gold miner Aneka Tambang slid 2.9 percent to 1,350 rupiah and Astra International lost 2.21 percent to 6,650 rupiah.
– Kuala Lumpur eased 0.18 percent, or 2.96 points, to 1,601.43.
YTL Corp lost 1.9 percent to 2.08 ringgit and MMC Corp eased 1.4 percent to 2.81 ringgit while Petronas Dagangan added 0.8 percent to 21.80 and YTL Power International rose 0.6 percent to 1.74 ringgit.
– Bangkok fell 1.21 percent, or 14.19 points, to 1,159.05.
PTT fell 3.31 percent to 321 baht and Banpu lost 2.59 percent to 452 baht.
Shayne Heffernan Ph.D.
Linda Johnson, Business Development Director - Private Client Group, Heffernan Capital Management
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