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Broadgate: Weekly Briefing 10/5

10 May 2013

China – China’s trade growth accelerated in April, beating analyst expectations, a positive sign for the country’s fragile economic recovery.

Exports surged by 14.7% compared with a year earlier. That is up from 10% in March. Imports also rose by 16.8% up from 14.1%.

The data meant a trade surplus for China, reversing a surprise deficit in March. However, some analysts raised questions about the accuracy of the data.

“I have no strong conviction whether the data reflects reality,” said Zhiwei Zhang, chief China economist at Nomura in Hong Kong.

Japan – Japan’s Nikkei has continued its surge, rising above the 14,000 mark for the first time since June 2008.

The benchmark index rose 3.6% to 14,180 on its first day of trading after the Golden Week holiday.

Japanese markets have jumped recently after its central bank unveiled aggressive moves, including doubling the money supply, to spur growth.

On Tuesday, markets were also reacting to last week’s events, including a rate cut by the European Central Bank.

“Stocks must account for a few sessions of most positive activity in overseas markets, which have resulted in a sharply weaker yen, all of which will be tonic for buying,” said Hiroichi Nishi from SMBC Nikko Securities.

“Signs that the U.S. economy is improving, as well as the European Central Bank’s rate cut are most encouraging fundamentally.”

South Korea – South Korea has cut interest rates in a surprise move aimed at boosting growth and countering a weak Japanese yen.

Its central bank, the Bank of Korea, lowered its benchmark rate to 2.5% from 2.25%, the first cut in seven months. South Korean exporters are seeing their price competitiveness suffer after the Japanese government’s recent aggressive policy stance weakened the yen.

“This rate cut means that the Bank of Korea admits that the economy is not as good as they think,” said Jun Min-Kyoo from Korean Investment and Securities.

U.S. – The Dow Jones index closed above 15,000 for the first time on Wednesday as strong German factory data pushed U.S. and European share markets higher.

The Dow rose 87 points to 15,056. It has been rising rapidly over the past six months, and was boosted by better-than-expected jobs figures last week.

Meanwhile, the world’s most famous investor, Warren Buffett, has forecast that despite U.S. indices surging to new highs, there is still more to come.

Speaking to CNBC the Berkshire Hathaway boss said: “”You’ll see (stock) numbers a lot higher than this in your lifetime.”

Buffett, dubbed the Sage of Omaha, said while he felt stocks are not as cheap as they were just a few years ago, they were “reasonably priced”. He conceded there could be a correction at any time but warned against attempts to time the market.

Mexico – Mexico had its credit rating raised by Fitch Ratings on the prospect that proposed legal changes will boost growth in Latin America’s second-largest economy. The peso surged to the strongest level since August 2011.

Fitch increased the rating to BBB+, the third-lowest investment grade level, from BBB, putting it in line with Moody’s Investors Service’s Baa1 rating. The move reverses a cut that Fitch carried out in November 2009, when falling oil output and a recession curbed tax revenue.

Fitch said in a statement that the increase reflects Mexico’s economic resilience and that it sees “greater than anticipated commitment of the new administration and Congress to pass structural reforms.” President Enrique Pena Nieto, who took office in December, has pledged to push through legal changes to boost tax collection and open the state-controlled energy industry to more private investment.

U.K. – Shares in London soared to another five year high on Tuesday as the FTSE 100 index played catch up after the May Day bank holiday.

The blue chip index climbed as high as 6,563.35 in the middle of the afternoon carrying on Friday’s rally after better than expected job creation figures from the U.S. revealed unemployment fell to 7.5%. Aside from its recent rally it has not been above 6500 in the last five years. The FTSE was last above 6550 in the first week of December 2007. The next nearest high would require the index to jump by 100 points to 6661.30 which was achieved before the financial crisis had taken hold in the third week of October 2007.

Commodities – Gold futures posted the biggest gain in almost two weeks as demand for bars and jewellery increased in India and China, the world’s largest consumers of the metal.

Imports by China from Hong Kong more than doubled to an all-time high in March, Hong Kong government data showed on Wednesday. India’s purchases are set to top 100 metric tons in May for the second straight month, according to India Pvt., a bullion refiner. Last month, gold had the biggest two-day drop in 33 years, slumping into a bear market, although subsequently climbed 12% from a 26-month low on April 16.

“The jump in prices was mainly on reports of strong physical buying from India and China,” Michael Smith, the president of T&K Futures & Options Inc. “Imports by China in April may have been even higher than in March.”

Spotlight on: Cyclical stocks start to outperform, suggesting more room for market growth

Cyclical stocks are starting to outperform their defensive peers, suggesting the ongoing rally could be extended even further.

The uplift which has boosted world stockmarkets since the start of the year has been dominated by defensive sectors such as healthcare rather than by financials and other cyclicals, that would typically lead market rally.

The S&P 500 Healthcare sector, for example, rose 23% over the opening three months of 2013 – outperforming the 18% gain in the S&P 500 Financials sector.

However, defensives’ outperformance appears to have moderated in the weeks since, with U.S. financials rising 4.2% in the first eight days of May against a 1.6% increase in healthcare.

BlackRock chief investment strategist Russ Koesterich adds: “Some of the more expensive defensive sectors of the market such as the utilities sector are underperforming, while the technology sector has experienced better results and still looks inexpensive.”

In the UK, banks have so far outperformed pharmaceuticals during May. The FTSE All-Share Banks sector is up 13.9% year to date, against the FTSE All Share Pharmaceuticals and Biotechnology sector’s 21%.

But over the course of May so far, banks have firmed 3.3% while pharmaceuticals have dropped by 0.8%.

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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