*** What the markets will do following the French 'non'
*** The difference between Barclays and HSBC
*** Is China-bashing a good idea?...what dollar strength means...how inefficiency can lead to growth...and more
------------------- – So the French have voted 'non' for the European Constitution – but what impact will this have on the financial markets? Probably not all that much, most analysts reckon; as the markets open again today following a holiday in both the UK and across the pond.
– In fact, it's more likely that investors will be unsettled in coming weeks by the consumer slowdown in the UK. Following up on Barclays, who alarmed the market last week when it said its credit card bad debts had risen at a rather chilling pace, HSBC said it had seen a 'marked' hike in doubtful debts in the first quarter.
– The difference however between Barclays and HSBC is that the latter earns less than one quarter of its profits in the UK – with operations in 77 countries. Moreover, the bank is now one year into its plans to increase operations in emerging middle classes in countries such as Brazil, Mexico, South Korea and China.
– By home-time Friday HSBC shares traded 0.2% down at 868p. And a rather telling indicator with regards to the sector: HSBC shares have fallen 1% this year – but remains the second-best performer among UK banks. Barclays meantime shed more than 1% on Friday.
– The blue chip index inched 0.3% higher last week, to trade at 4,986 before the weekend. The FTSE 250 gained 2.5% in the week, to close at 7,105.
– So where did the indices' strength come from? The mining sector, for one, which gained over 3% last week. Miners had gone through a tough trading time in recent weeks as investors took profits. Yet reports from the Organisation for Economic Co-operation and Development (OECD), which confirmed that Chinese growth is showing no signs of lagging, and gaining copper and base metal prices, pushed BHP Billiton and Antofagasta up 4% in the last seven trading days.
– And Brent crude shifted above the $50 a barrel mark before the weekend – to trade at $50.70 per barrel, a 5% hike for the week. Nymex also hit a two-week high on Friday at $51.75 per barrel. The reason for the hike? Rising demand from US refineries as the production was upped ahead of the country's driving season. BP and Shell both traded 0.5% down on Friday.
------------------- – Both the US and China are 'painting themselves into political corners' from where there is no easy way out, says Morgan Stanley's Steven Roach. China is livid about Washington's current protectionist leanings – and yet seems either 'unwilling or unable' to recognise the political aspect of the threat. The US politicians, meanwhile, are blaming China for their bulging deficits – and could even be on the verge of saying 'enough is enough'. The two countries need to compromise...but that looks unlikely, leaving Roach with a 'deep sense of trepidation'.
– With the dollar currently gaining strength, the currency has become key to what could happen to commodity stocks and gold, says Dan Denning in Strategic Investment. For one, it's a barometer for confidence – giving comfort to 'foreign investors who already own' US stocks and bonds but may be concerned about currency loss. But a strong dollar will also mean lower inflation in commodity prices; which in turn could mean that commodity, energy and gold stocks will consolidate their gains.
– How is it possible that inefficiency – or the failure to implement laws and regulations effectively – can be seen as a growth stimulus? asks Martin Spring in the On Target newsletter. Sound impossible? Take South Africa: the economy has done reasonably well despite the fact that the country is stymied by its stringent labour laws.
Published in Stock markets
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by
Heather D'Alton
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