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Broadgate: Market News 18/4

18 June 2012

U.S. stock futures rose, following a two-week gain in equities, as concern over Greece exiting the euro eased after official projections showed that the largest pro-bailout parties won enough seats to form a coalition.

Futures on the Standard & Poor’s 500 Index expiring in September added 0.4 percent to 1,343.40 as of 2:05 p.m. in Tokyo. The benchmark measure for U.S. equities advanced 1.3 percent last week. The euro rose 0.6 percent to $1.2713 today.

“This allows Greece to step back from the brink,” said Peter Sorrentino, who helps oversee $14.7 billion at Huntington Asset Advisors in Cincinnati. “It gives Europe a little breathing room to deal with the Spanish situation. It buys them more time. We’ll get some positive carry through.”

The New Democracy and Pasok parties won enough seats to form a majority in the 300-member parliament, according to an official projection, easing concern that Greece would reject austerity measures needed to qualify for international aid.

Equity futures also rose after German Chancellor Angela Merkel’s government signaled a willingness to loosen Greece’s austerity requirements as long as the next government stands by its obligations under a European Union-led bailout program. German Foreign Minister Guido Westerwelle said negotiators might consider giving Greece more time to rein in its finances.

‘Structural Issues’

“The market will breathe a sigh of relief,” Todd Lowenstein, who helps oversee about $17 billion for Highmark Capital Management Inc. in Los Angeles, said in a phone interview. “The results of the Greek election took a negative off the table versus this being a big positive. At the end of the day, there are still structural issues and imbalances that need to be corrected and dealt with. This government, as well as the whole euro zone, faces some very tough choices ahead of it. This is just one of many.”

Concern about Europe’s debt crisis and a global slowdown put the S&P 500 on the brink of a so-called correction earlier this month. The index fell 9.9 percent from an almost four-year high in April through June 1. Since then, the lowest valuation in six months and bets on global policy action drove the measure up 5.1 percent.

Policy makers from the U.K. to Japan and Canada stepped up warnings about the threat to financial markets should Europe fail to contain its crisis. In the U.S., reports showing a decline in retail sales, industrial production and consumer confidence added to evidence of economic weakness before Federal Reserve policy makers meet June 19-20 to decide whether more stimulus is needed.

World leaders meeting in Mexico will boost the $430 billion firewall the International Monetary Fund announced in April, host President Felipe Calderon said. Leaders of the Group of 20 nations are gathering in Los Cabos for a two-day summit dominated by the financial crisis in Europe and its risk to the global economy.

China’s stocks rose for a second day, extending last week’s advance for the benchmark index, as easing concern that Greece will exit the euro overshadowed slumping Chinese property prices.

BYD Co., the automaker backed by investor Warren Buffett, advanced 2 percent after the Economic Information Daily reported China will exempt new energy vehicles from a sales tax. Jiangxi Copper Co. and coal producer China Shenhua Energy Co. led gains among commodity producers after projections showed Greek politicians that support a bailout won enough seats to control parliament, bolstering the global economic outlook.

“The risk of Greece being removed from the euro has fallen considerably and investors think this is positive for emerging markets like China,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing.

The Shanghai Composite Index climbed 15.9 points, or 0.7 percent, to 2,322.76 as of 1:02 p.m. local time. The CSI 300 Index added 0.9 percent to 2,590.13. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, advanced 1.6 percent in New York.

Concerns that a growth slowdown is deepening and Greece will leave the euro area have pushed the Shanghai index down 5.6 percent from this year’s high set on March 2. Stocks in the measure are valued at 10.1 times estimated earnings, compared with the five-year average of 17.8, Bloomberg weekly data showed.

Falling home prices

The nation’s home prices fell in a record 54 of 70 cities tracked by the government in May as developers cut prices to boost sales amid housing curbs.

The eastern city of Wenzhou led declines with a 14 percent slump in values from a year earlier, while Beijing and Shanghai recorded losses of as much as 1.6 percent, according to data released by the statistics bureau today.

Foreign direct investment in China was almost unchanged at $9.23 billion in May from a year earlier as the economy cooled, the yuan weakened and Europe’s crisis roiled financial markets.

The number was 0.05 percent higher than a year earlier, the Ministry of Commerce said on its website on June 15. That compared with a 0.7 percent decline in April.

Inner Mongolia Yili Industrial Group retreated 3.1 percent to 21.18 yuan, headed for the lowest close since Feb. 3. The company apologized for a recall of baby formula found with “abnormal” levels of mercury, according to a statement from the company to the Shanghai Stock Exchange.

Citic Heavy Industries Co., the heavy machinery unit of China’s largest conglomerate, plans to sell as many as 685 million shares in a Shanghai initial public offering this month to help finance projects, according to a stock exchange filing on June 15.

The iShares FTSE China 25 Index Fund, the biggest U.S.- listed China exchange-traded fund, jumped 2.1 percent on June 15 to a one-month high, completing its third weekly advance.

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.