Month: October 2012

When will companies snap out of it?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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What’s been showing up in this quarter’s earnings reports should now show up in Friday’s third quarter GDP release: Corporate America is worried, and its move to the sidelines is slowing down the economy.

“It’s kind of an about-face from the way it was a year ago,” said Michael Feroli, chief US economist at JPMorgan. “It does feel like there is a disconnect. … Generally the consumer tends to lead, but it is all the stranger that business is turning down now because it’s not like the consumer is exceptionally weak.”

Feroli cut his forecast for third quarter GDP growth to 1.6 percent from 1.8 percent, after Thursday’s disappointing durable goods report.

GDP is released Friday at 8:30 a.m. EDT. The final reading on second quarter GDP was a weak 1.3 percent increase, down from the first quarter’s 2 percent rate.

Consumer sentiment is also reported Friday, at 9:55 a.m. when the Thomson Reuters/University of Michigan consumer sentiment survey is released. The preliminary October reading, released Oct. 12, showed a surprising jump in sentiment to 83.1, its highest level in five years. Last week’s September retail sales report, an important gauge of consumer strength, rose 1.1 percent in September, with spending on everything from cars to electronics expanding.

Barclays chief U.S. economist Dean Maki said he expects GDP growth of 2 percent for the third quarter. “After today’s durable goods report, the risk to that looks to be a little to the downside. … What will be interesting about the report is we think it will reflect a strengthening on the consumer side and continued robust residential investment growth, but a notable weakness on business investment spending. So business and the consumer are going in different directions right now.”

The impact of Europe’s slowdown is arguably the biggest hit to profits, and Asia’s weaker growth is also a factor.

But CEOs have been blaming pre-election uncertainty about policy and taxes, and they fear the “fiscal cliff” (learn more). The fiscal cliff is the hit to the economy that could come if the lame duck Congress fails to act on expiring tax cuts and automatic spending cuts that start Jan. 1.

“I think it’s reflecting uncertainty, as well as the slowdown in global growth,” Maki said. “Businesses are attuned to both these things. When uncertainty rises, businesses will hold off capital projects. Corporate profits have slowed.”

So far, half of the companies in the SandP 500 have reported earnings. While 62 percent have beat earnings estimates, a surprising 64 percent have missed revenues estimates. Many have also warned that fourth quarter forecasts are too high. The 500 companies are expected to report profit growth of 1.3 percent, an improvement from the loss expected before reporting season.

The durable goods report tells the same story that many technology companies revealed this quarter – cap ex spending is soft and that’s hitting revenues. Even though the durable goods report showed new orders received by manufacturers jumped by 9.9 percent in September, a big chunk of that was driven by aircraft orders. Without those orders, durable orders rose just 2 percent. But the core capital goods orders were flat, and core capital good shipments were down 0.3 percent. Feroli points out both those numbers were weak in the past few months, and while some rebound was expected they are also numbers that tend to be strong in the third quarter.

Feroli notes that to make it worse, the numbers were revised down in August, and the three-month average annualized change shows shipments declining at a 4.9 percent rate and orders falling at a 23.5 percent annual pace. “The orders still look pretty bad, so it doesn’t look like you’re getting any momentum heading into Q4,” he said. Feroli expects 2 percent growth in the fourth quarter.

“Declines of these magnitudes are seldom seen outside of recessions; this isn’t meant to raise recession alarms, but instead to highlight that we have the consumer to thank for keeping the economy above water,” he wrote in a note Thursday.

Maki said there have been times when the consumer has led. For instance in the late 1990s when Asia went into recession, energy prices dropped and US consumer spending boomed. He said energy prices, falling rapidly, may start to help the consumer now. He said the economy, however, could feel some impact from the fiscal cliff next year and he expects growth of 1.5 percent to 2 percent next year.

“In that environment businesses are not going to open up and start spending freely,” he said. What is needed is a “grand bargain” in Congress, where they enact tax reform and fiscal reform.

“This quarter for the corporate sector, it’s understandable why they are pulling back on the investment spending front. Consumers are less affected by each of these forces. We don’t have proxies of uncertainty having a large effect on consumer spending. Consumers usually spend based on their income and their wealth,” Maki said.

Economists say consumers may be feeling better about their personal wealth, based on the increase in housing prices this year and the 12 percent increases in stock prices since Jan. 1.

Besides the economic reports, earnings expected Friday include Comcast, Merck, Goodyear Tire, Ericsson, Weyerhaeuser and Moody’s.

Follow Patti Domm on Twitter: @pattidomm Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Southeast Asia: A new hot spot for private equity?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global private equity firms are fast stepping up their focus on Southeast Asia, a region that boasts high growth, favorable demographics and rising consumer affluence.

Kohlberg Kravis Roberts (KKR), one of the world’s biggest private equity firms with global investments totaling USD 61.5 billion, has sunk in USD 1 billion in Southeast Asian region since 2005, and is looking to more than double its investment over the next five years.

“Companies of all shapes and sizes need and want growth capital; we see tremendous opportunity in the region. Southeast Asia is our most active market in Asia after China,” co-founder Henry Kravis said Thursday at a press conference in Singapore.

Southeast Asia has become increasingly ripe for private equity investment because of the region’s steady growth, governmental stability and improving transparency, Kravis said.

The firm sees increasing opportunities from the region’s robust domestic consumption, rapidly developing financial services industry as well as the commodities space, in particular palm oil, thermal coal and rubber.

Unlike in China and India which are home to hundreds of private equity firms, Southeast Asia’s private equity market is at a nascent stage, KKR added, translating into lesser competition.

KKR, which is currently invested in Singapore and Vietnam, singled out Indonesia as the bright spot in the region, citing its strong economic fundamentals and improvement in its regulatory environment.

Other major players in the private equity space have also been seeking out investments in Southeast Asia. Washington-based Carlyle Group announced on Thursday it has made an investment into a publicly traded Indonesian telecom towers operator PT Solusi Tunas Pratama for about USD 100 million – its first investment in the region.

KKR is in the process of raising money for its second pan-Asia fund, and has so far raised over USD 4 billion of the target USD 6 billion. Looking to strengthen its presence in the region, the firm opened its seventh office in the region this week, located in Singapore.

From Southeast Asia to Spain

Despite the debt crisis in Europe, Kravis said he sees “real opportunity” in a less sought after market, Spain, due to cheap valuations.

“We invest in regions when most people don’t want to be there. With Europe going through difficulties, there’s a real need for capital in countries like Spain,” he said. “We’re not writing Europe off in any way, we’re putting money to work there.”

The Spanish stock market is trading at a forward price-to-earnings ratio of 10.1, compared with 12.2 for the SandP 500.

Kravis said the firm is eyeing opportunities in Spain’s financial, leisure and hotel, as well as the real estate sectors.

“They are selling things at cents on the dollar and we’re looking at some of those opportunities,” he said.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Are gold bulls being set up for a major letdown?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Gold prices have fallen 5 percent in the space of just over two weeks on prospects for weak global growth and inflation, and commodity experts tell CNBC that with no major catalyst to drive prices back up, gold bulls targeting USD 2000 an ounce by year-end are in for a major let down.

After surging to a nine-month high of around USD 1,795 [at the beginning of October, the precious metal has fallen to around USD 1700 an ounce on Thursday.

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A few months ago, traders were betting on a move up to USD 2000 on expectations that massive quantitative easing by major central banks would encourage spending and lift asset prices and gold, used as a hedge against inflation.

But this has not materialized and gold prices have weakened as a result, said UBS commodities analyst Tom Price.

“Instead of spending you have deleveraging going on, people are taking cash and paying down debt, that’s a bearish sign,” Price said.

Recent strength in the US dollar which has risen 0.5 percent against a basket of currencies in the last month, has also contributed to the sell down in gold, said Ric Spooner, Chief Market Analyst at CMC Markets Asia Pacific.

A strong dollar generally means lower gold prices. When the dollar strengthens, gold futures, which are traded in dollars, become more expensive for investors who use other currencies.

And, there is limited upside for the precious metal in the coming months, say analysts, given the bleak inflation outlook and growing risk aversion in global equity markets.

As investors look to move to the sidelines, they are likely to sell gold exchange traded funds (ETFs) and this will further weigh on gold prices, said Jonathan Barratt, CEO and founder of Barratt’s Bulletin, a commodity newsletter in Sydney.

For instance the SPDR Gold Trust, one of the biggest ETFs, has fallen 3.6 percent over the past month. “The SPDR gold fund has more gold holdings than the French central bank, if investors decide to get out, you have physical sales which will impact the price of gold,” he said.

Barratt, who started scaling back his long position in gold two weeks ago, forecasts the precious metal will likely end the year below $1700, with $1635 the lower end of his target range.

Festive Season

While the festive season in the world’s top consumer of bullion, India, will provide some support to gold prices, it is unlikely to have a lasting impact, according to analysts.

The precious metal, which is widely regarded as a store of wealth by Indians, is traditionally gifted during weddings and religious occasions, particularly during the months of October and November.

“The Indian festival season is an important fundamental driver for gold, we will see a few weeks of gold buying, but weakness in the rupee which translates into higher gold prices, could limit buying this year,” said Price.

Barratt, who agrees that Indian buying will not be enough to counter selling by investors, says the next major risk event for gold will be the November 6 US presidential election.

“The election is a game changer, if we get an Obama win, gold prices will stay steady, but if (Republican challenger Mitt) Romney comes in, gold will edge lower,” Barratt said.

“If Romney wins, he will stop spending and we will get a new Fed chairman who won’t be aggressive in printing money,” he said, adding that this will lower inflation expectations further and cause a correction in gold prices.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed maintains dovish stance as earnings ruffle markets

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Fed officials, huddling in Washington for a second day Wednesday, are likely to be discussing how to tweak policy later in the year.

Those changes could include a new way of communicating their low rate policy, and what they will do when their Operation Twist ends in December.

“It`s more likely they talk about it at this meeting and then use the minutes to give the market a heads up and then make changes in December,” said Ward McCarthy, chief financial economist at Jefferies. The minutes from the meeting are released in mid-November.

The Fed winds down its meeting with a statement at 2:15 p.m. Wednesday. There is no press conference or economic projections, following this meeting.

“I think they`re going to be sitting around talking about communications for the next two days. There`s some possibility that they change the way they talk about the rate guidance in that they put it in the context of their economic forecast or metrics that would be consistent with their dual mandate,” McCarthy said. He expects the Fed to continue purchasing longer-dated Treasurys after its Twist program expires. Currently, the Fed sells the same amount of shorter-dated notes so as not to expand its balance sheet.

He and others expect the Fed will add Treasury purchases to its open-ended quantitative easing program, QE3. Under QE3, the Fed is buying $40 billion in mortgage securities a month.

“They`ve been very successful keeping rates low and stable, and keeping spreads narrow. To a certain degree, I think they contribute to the rising stock market. Corporations that have been flush with cash have been able to borrow at these low rates, and buy their stock back,” said McCarthy. “The financial consequences are clear. What`s less clear is to what extent this is supporting the economy. While Fed policy is providing stimulus, fiscal policy is going the other way.”

Fiscal policy, or the fear of it, has been weighing on the stock market. Some analysts say the fear of the “fiscal cliff,” the expiration of Bush-era tax cuts at year end and the onset of automatic spending cuts, has created enough uncertainty to have weighed on corporate profits this quarter, along with the effect of a sluggish global economy.

More bad earnings news Tuesday sent stocks careening. The Dow ended down 243 points at 13,102, its third biggest drop this year. Blue chips 3M and Dupont  both lowered their guidance, with Dupont saying demand would be “substantially” lower for titanium dioxide, a paint pigment that is seen as a key indicator of global demand. The S&P 500 was down 1.4 percent at 1413, and the Nasdaq was down 26 points at 2990.

Corporate chieftains have been laying blame for sluggish profit growth, a stalled business environment and overall malaise increasingly on the uncertainty coming from Washington on taxes and fiscal policy ahead of the election. Of course, the global economy gets its share of the blame, but the “cliff” is increasingly being cited. The economy would hit the “cliff,” unless Congress acts to extend some tax cuts and redirect spending cuts in its lame duck session.

“The whole move is about earnings in the industrial and tech sectors and that is all about weak capital spending, and that is a function of public policy uncertainty,” said Barry Knapp, head of equity portfolio strategy at Barclays.

As of Tuesday, 57 percent of the 145 SandP 500 companies that have reported beat earnings estimates, according to Thomson Reuters. That is slightly below recent averages, but the worse news is that 63 percent of the companies are missing revenue forecasts.

“It`s revenues season and guidance season that stink. The upside earnings surprises are just about close to average but the revenue side is a disaster,” said Art Hogan of Lazard Capital Parnters. “It begs the question – in some of these household names, what were they thinking with not pre-announcing?” He said if they had, the market may have felt bumps earlier but the damage to individual stocks would have been less severe.

Analysts have been waiting for a shakeout in stocks, which had run close to their year highs just last week, and the earnings season may be that catalyst. But most strategists expect any sell off to be fairly shallow because the Fed`s programs are keeping a floor under stocks.

Technology stocks have been perhaps the most painful misses, with some big surprises in big names, like Microsoft and Google and IBM. On Monday, Western Digital reported positive surprises in earnings and revenue, but its stock later sold off on a forecast shortfall. The company said economic uncertainty is taking a toll on IT spending, and CEO John Coyne was quoted by Reuters as saying: “We have got elections, we have got changes in government, we have got fiscal cliff…lots of different things that undoubtedly are impacting spending at a corporate and a consumer level.”

Surprise!

At least one company surprised positively Tuesday, and that was Facebook (NASDAQ: FB), a company analysts thought would misfire. The company`s stock soared more than 13 percent after the closing bell. It reported earnings of 12 cents per share on revenues of $1.26 billion. It also showed that ad revenues are accelerating and that mobile is becoming more important.

What to Watch

Economic reports Wednesday include Markit PMI reports from Europe as well as the 9 a.m. Flash Markit PMI for the U.S. New home sales and FHFA home price data are released at 10 a.m. There is a $35 billion auction of 5-year notes at 1 p.m.

Earnings releases are expected from ATandT, Bristol-Myers Squibb, Boeing, SAP, American Electric Power, Delta Airlines, Corning, Dr. Pepper Snapple, Lockheed Martin, Nasdaq OMX, Owens Corning, T.Rowe Price, Tupperware, US Airways, WR Grace and Six Flags Entertainment. Companies reporting after the market close include Zynga, Akamai, Citrix, Ameriprise Financial, F5 Networks, Angie`s List, Logitech, Symantec, KBR, AvalonBay.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Yen to fall up to 10% versus dollar in near-term: Chart

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The long term fan reversal pattern on the dollar/yen chart is pointing towards a breakout from 79 with an upside target near 84 and 87 yen. A new support base has developed near 78. This was a previous resistance level. The compression of activity between support near 78 and the value of downtrend line D increase the probability of a fast breakout.

The fan pattern consists of a series of trend lines, all starting from the same high point. These lines first act as a support level, and then later as a resistance level.

The price activity is contained between these trend lines. When a breakout occurs the rally is capped and this creates the location point of a higher trend line. The fan pattern starts from the August 2008 highs near 110 yen.

A fan pattern develops as a trend starts to change direction. It is most commonly seen in a downtrend. The pattern occurs when prices are re-valued upwards, but the direction of the trend does not change. This appears on the chart as a shift sideways. The old resistance level acts as a new support level.

The new resistance level does not run parallel to the old support level. As price action moves horizontally in time the price uses the new resistance line as a limit area. A break above this is often decisive, making a new high before pulling back to use the old resistance level as a new support level.

This is how it works with the dollar/yen chart. The breakout above the trend line C on the chart in February 2011 quickly moved to resistance near 84 before retreating. This peak at 84 provides the second anchor point for trend line D. The value of this trend line is currently under threat with a high probability of a breakout.

A breakout above trend line D is very bullish because the fan pattern reversal is typically a very long term pattern. It may take six months to a year to fully develop. Usually it has three to four sections of the fan. The dollar/yen chart shows three fan sections so the balance of probability favors a successful rally towards 84 to 87 with a breakout above 80 in the short-term.

A retreat following the breakout that uses the upper downtrend line D as a support level would confirm the development of a new uptrend in the dollar/yen chart.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Facebook, Apple dominate as investors weigh debate results

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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After a string of tech sector earnings disappointments, expectations are high that Facebook could miss the mark when it releases its second earnings report as a public company Tuesday.

Facebook reports after the closing bell, but tech news should dominate the trading day, as Apple also unveils its new i-Pad mini at 1 p.m. ET. There should also be action in some names that reported late Monday, including Yahoo!, an exception to tech’s disappointing third quarter story. Its stock jumped after it beat on the top and bottom line.

Texas Instruments, however, warned that its profits and revenues would be weaker than analysts’ expect for the current quarter, after it reported a third quarter drop in revenues. Western Digital beat on both the top and bottom lines, but a rally in its shares reversed course after it gave a lowered second quarter forecast and said it sees a “muted demand environment.”

Tech profits have been bumpy across the board, as PC demand has waned and the industry finds it difficult to monetize the mobile boom. Big companies like Intel, IBM, Google and Microsoft, either missed on top or bottom line, or made weaker forecasts.

Tech stocks have been lagging recently, but some of the sector bounced back Monday as investors moved in to Apple ahead of Tuesday’s announcement. Traders said they also saw short-covering, which helped lift Apple’s stock price. “If there’s one industry that can give you a true barometer on global growth, it’s tech,” said Jack Ablin, CIO of BMO Private Bank.

“The problem for equities in general is the growth concerns…it’s not a very good earnings season and it’s weighing on the market,” said Dan Greenhaus, BTIG global market strategist.

Greenhaus said the market rallied up to what was a poor earnings season, but now it is looking past the numbers and focusing on election and fiscal cliff issues. Investors Tuesday will be assessing Monday’s presidential debate, the final one before the Nov. 6 election. 

As for the earnings, “from a headline standpoint, it’s a little worse than expected. From a numbers standpoint , the earnings per share are coming in better-than-expected. Revenues are flat, and that is better than expected,” Greenhaus said.

“We have 27 percent of the SandP reporting already. We’re into it, and we haven’t crushed the rally,” Greenhaus said.

So far, earnings of SandP companies that have reported and are expected to report are down 2.4 percent for the quarter, the first decline since 2009, according to Thomson Reuters. Sixty percent of companies have reported earnings above estimates, but an unusually large amount – 61 percent – have missed revenue forecasts.

“You’re getting these punk readings from Fedex and IBM and McDonald’s… I just hope it’s a temporary pause before the election,” Ablin said.

He said he is cautious on stocks, but he does expect to see a major market decline at this point, and he is sticking to his SandP 500 forecast of 1450. “We’re still in, and we’re watching momentum. I’m hoping we can regain the 1450 number. If we start to see deterioration here, I think we’re going to tread water for a while. I don’t think anything’s going to fall off the table until after November,” he said.

Stocks turned around late in the session Monday, with the SandP tech sector, leading the market higher with a nearly one percent gain. The Dow was up 2 at 13,345, while the SandP 500 ended up less than a point at 1433, just under its 50-day moving average. Nasdaq jumped 11 to 3016, as Apple gained nearly 4 percent. Traders said the market began to rise after a news story suggested the Fed could discuss expanding its quantitative easing program, or QE3 at its two day meeting Tuesday and Wednesday.

“We’re still not fighting the Fed,” Ablin said. “Investors believe there’s some dry powder left.”

BTIG global market strategist Dan Greenhaus said it makes sense the Fed would discuss expanding its current mortgage purchase program, or QE3, to include Treasurys, when its other program, Operation Twist expires at year end. That discussion could start at this week’s meeting, he said, but no decision is likely until the December meeting or later. The Fed is buying USD 40 billion in mortgages securities in an open-ended QE3 program. Operation Twist involves the purchase of longer-dated Treasurys and the sale of an equal amount of shorter duration notes.

“There was always the possibility that the Fed, in order to make up for the impact of Operation Twist, would expand the QE size,” he said. He said he has thought it likely the Fed will add USD 20 to USD 30 billion in Treasury securities to its monthly asset purchases.

Friending Facebook?

Facebook reports after the bell, and it is expected to earn USD 0.11 per share on revenues of USD 1.23 billion, according to FactSet.

“The stock is set up to miss,” said Michael Pachter, Wedbush managing director, equity research. He expects to see $0.09 per share on revenues of USD 1.27 billion. “There’s room for disagreement on the number of shares and room for disagreement on tax rates.”

“I think the street has modeled it wrong,” he said. Pachter said he hopes to see Facebook executives provide some clarity on how they’re growing the company, and what they are spending.

Other companies reporting Tuesday include Dupont, MMM, United Technologies, Coach, UPS, Harley-Davidson, Xerox, Whirlpool, Ryder, Virgin Media, Regions Financial, AK Steel, MeadWestvaco, CIT, Air Products, and Lexmark, all before the opening bell. Besides Facebook, Gilead Sciences, Amgen, Aflac, Norfolk Southern, Panera Bread, VMWare, Netflix, Altera, Boston Properties, Hanesbrands, and Buffalo Wild Wings report after the close.

The Treasury auctions USD 35 billion in two-year notes at 1 p.m.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Despite Dubai recovery, some firms look beyond Burj

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Dubai’s recovery is happening, at least that’s what stakeholders and data points are showing. And yet, for some an overreliance on Dubai before the crisis means that if one lesson has been learned, it`s that more geographical diversity is key.

The Prime Global Rental Index, published by Knight Frank earlier this month, showed that rents in prime locations in Dubai rose by more than three percent during the first half of the year bolstered by steady economic growth.

The International Institute of Finance (IIF) expects Dubai to lead economic expansion in the United Arab Emirates (UAE) with gross domestic product (GDP) growth of 4.2 percent in 2013.

Among the largest construction companies in the Middle East and North Africa (MENA) is Arabtec Construction, a wholly-owned subsidiary of Dubai-listed Arabtec Holding. It is also a firm that had considerable exposure to Dubai, having been involved in the creation of some of its central landmarks, including the world’s largest tower, the Burj Khalifa.

“When the global crisis and the global turmoil hit everywhere, Dubai was one of the natural places to suffer simply because of the tremendous growth that was taking place here,” Riad Kamal, founder and chairman of Arabtec Construction, told CNBC’s “Access: Middle East” in an exclusive interview.

The local equity market, has gained some 20 percent so far this year, making it the second-best performer in the region after Egypt’s EGX30 benchmark. Arabtec Holding’s stock has more than doubled over the course of one year, compared to gains in excess of 50 percent for the sector.

Kamal has stuck to his forecast that Dubai’s property glut will be absorbed in the next two years. And yet almost three years after the property crash and Dubai World’s near-default sent ripples through global markets, Arabtec is still struggling with receivables.

“Arabtec and its exposure to Dubai was quite large when the bust actually happened,” Saleem Khokhar, head of equities at the National Bank of Abu Dhabi (NBAD), told CNBC.

“The repayments of those receivable is a significant issue for them. What we’re seeing in the market at the moment is actually positive, and I do expect the trend will continue to improve,” he added.

While some are still betting primarily on Dubai, Arabtec is shifting its focus slightly. Abu Dhabi’s sovereign wealth fund Aabar bought a 20.76 percent equity stake in the company in May. That could mean more contracts for Arabtec from the oil rich emirate of Abu Dhabi.

Analysts have described the change in strategy as “the right move” for Arabtec; securing a one billion dollar role in the construction of the new midfield terminal building at Abu Dhabi International Airport is cited as just the beginning.

The prospects for the remainder of the region may not be much rosier however, as the industry as a whole faces lower margins in light of tighter competition.

“Arabtec is used to an average net income margin of 10-12 percent in the good years. Since 2009, it has dropped to between 4-6 percent,” Samer Darwiche, Associate at Gulfmena Investment, told CNBC.

But that does not worry Riad Kamal, who is confident of a return to profitability in the second half of 2012 and achieving 15 percent growth per annum over the next three years.

“Everybody is trying to enter the [Gulf Cooperation Council] market and therefore the competition is more than the supply of projects. We are having to content ourselves with lesser margins at the moment, but there is still plenty of work and reasonable margins to be had,” he added.

Apart from Abu Dhabi, that regional push encompasses Qatar, Saudi Arabia and even Morocco. The exceptions, rather than the rule, are projects such as the construction of Europe’s largest office building in St. Petersburg.

“We have been competing with our global peers in the region and we have no intention…to go and compete with them in Germany or in U.K. That will be a disaster for us because we don’t know enough for these markets. Certainly it’s not going to happen in my generation”.

This week on “Access: Middle East”: An exclusive interview with Riad Kamal, the chairman and founder of one of the region’s largest construction companies, Arabtec. Tune in to see what he has to say about Dubai in the early days, building the world’s tallest tower, and mistakes he’s made over the years.

Yousef Gamal El-Din is CNBC’s Middle East Correspondent and contributes to the channel’s flagship shows, as well as analysis for CNBC.com.

Stay in touch with him on Twitter at http://www.twitter.com/youseftv @youseftv

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Can the market hold on amid wave of falling profits?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stocks are caught in an earnings season shakeout.

The third quarter is the first in three years, where profits are actually declining, and the stock market is taking notice.

As of Friday, earnings for the SandP 500 companies were expected to be off 1.8 percent for the quarter. In the coming week, more than 150 of the SandP are reporting, including Apple, Caterpillar, Boeing, Amazon.com, Merck, and ATandT. Earnings news will dominate, but there is also a two-day Fed meeting; the final presidential debate Monday, and important economic reports that include housing data and the first look at third-quarter GDP.

“Earnings, earnings, earnings – that’s what we’re focused on,” said Patrick Boyle, CRT Capital managing director. “We were focused on earnings coming into this week and last week, and right now it’s just letting us down.”

Stocks sold off sharply Friday after some high-profile earnings misses from big blue chips, like Microsoft and McDonald’s. The Dow and SandP 500 closed out the volatile week barely changed, despite the selloff Friday that took the Dow down more than 200 points.

“You’ve got to be a little nervous going into next week,” said Boyle. But, he adds, because the market is “backstopped” by the Federal Reserve and European Central Bank “people want to buy the dips.”

The SandP was up 0.3 percent for the week, at 1433, right at its 50-day moving average, while the Dow was off 0.1 percent at 13,343. The Nasdaq, hit by tech’s selloff, lost 1.3 percent for the week to 3005. The SandP tech sector was down 2.4 percent, while materials were the best performers, up 2.1 percent.

Materials companies were expected to perform poorly this quarter but expectations for the technology sector had not come down as much and many investors were more heavily invested in tech than other sectors. Therefore, the selling by disappointed investors has been dramatic. Since the SandP’s Sept. 14, 2012 high, tech has by far been the biggest laggard, losing 7.8 percent. Materials stocks were the second worse sector since then, down 2.9 percent, and energy was third, down 2. 8 percent.

“I would say this is just the beginning,” said Carter Worth, Oppenheimer Asset Management’s chief market technician. He said he expects another two- to three-percent decline, with the SandP heading to its 150-day moving average at 1380. Then, its direction remains to be seen.

“My bet is down. When we get there, it’s how you go down there. If we were going to crash there (150-day) on Monday, I’d say we go lower,” said Worth. In a note earlier in the week, Worth had identified the tech sector as heading for trouble. He said semiconductors and semiconductor-equipment makers were “literally coming apart.” He also pointed out that some leading names, like Qualcomm, Apple, Microsoft and Amazon were under pressure.

But the tech space might see some excitement this week when Apple unveils its new iPad mini. Microsoft also launches Windows 8, and its new Surface tablet product.

Floor Under Stocks

Even with the bumpy earnings season, strategists say there are plenty of underpinnings for the market, including the already baked-in expectations that earnings would be weak. “The institutional clients know the estimates are too high, so the missing of those estimates is not going to be disruptive in the aggregate. Individual companies could still have some strong volatility. Individual stocks will still get whipsawed sometimes,” said Tobias Levkovich, chief U.S. equity strategist at Citigroup.

J.P. Morgan strategist Thomas Lee sees a trough in the third- or fourth-quarter profit reports, and the current reports are only revealing what the market about a slowdown in the global economy. “We know the global data’s been really, really sluggish, and so that’s the reason why industrial and tech earnings are as weak as they are,” he said. Lee said there are signs that investors have been buying stocks on dips that sold off on earnings news. That, he said, is a sign the earnings misses are already factored in to share prices.

Lee said the fact that so many managers are lagging the indexes this year could also give a boost to the market this quarter. “They’re really trying to close this gap. They roughly have 10 weeks to fix that,” he said. “That’s the opportunity that people will use to buy on pullbacks. The market’s down. I know earnings are kind of scaring people but from a hedge fund perspective, once you’re done with earnings, you are through a negative catalyst.” He said he thinks the election could be a factor for the market, but a re-election of President Barack Obama is already priced in. However, a Mitt Romney victory could ignite a bigger rally.

Levkovich said he sees a similar trend, with most institutions not meeting the benchmarks because they stayed defensive too long. “We see two different kinds of views. Some people are saying: ‘I’ve made some money, let’s lock in the gains.’ Others are saying ‘I see a big fourth quarter rally. Let’s gear up,'” he said. “The bias is a little more bullish than it is cautious.”

Mark Luschini, chief investment strategist at Janney Montgomery, said he’s trusting the market’s rally a little more recently. He had been looking for improvement in economic indicators, and some of that is beginning to show up. “In the last couple of weeks, you had ISM move above the boom-bust line. You had auto sales above 14 million. You had retail sales better than expected. You had the improvement in the housing recovery and that’s a real green shoot,” he said.

Add to that improvement in some of China’s data this past week, he said. “It doesn’t spell a vigorous turnabout in the economy, but at the same time it suggests the deterioration we had been seeing has been stemmed and validates why equity prices are supported at these levels,” he said.

Fed Ahead

The Fed’s easy policies are another reason traders say stock prices are supported. The Fed is continuing its “Operation Twist,” where it buys long-dated Treasury securities and sells the short end. It is also conducting an open-ended QE3 mortgage-purchase program, announced at its last meeting.

Fed watchers are not expecting any action at this week’s meeting. “It’s likely to be an inconsequential meeting, a transition meeting,” said Pimco strategist Tony Crescenzi.

“The December meeting is the one with the greater likelihood of fireworks because there are decisions to be made,” he said. “The key decision to be made is whether to continue the purchase of longer term securities, after Operation Twist ends. Second is whether to change the forward guidance (on rates) and move it away from calendar guidance, which many members do not like.”

What to Watch:

Monday

Earnings: Caterpillar, Yahoo, Sun Trust Banks, Texas Instruments, Celanese, Hasbro, Peabody Energy, Freeport McMoRan, VF Corp

1:30 pm Cleveland Fed President Sandra Pianalto

Tuesday

Earnings: Facebook, Norfolk Southern, Dupont, MMM, United Technologies, Tempur-Pedic, Buffalo Wild Wings, Panera Bread, FMC Tech, Juniper Networks, Amgen, Ace, UPS, Carlisle, CIT Group, Whirlpool, Xerox, Netflix

Fed two-day meeting starts

10:00 am Richmond Fed

1:00 pm $35 billion 2-year auction

Wednesday

Earnings: Boeing, ATandT, Bristol-Myers Squibb, Lilly, SAP, Nasdaq OMX, Corning, Lockheed Martin, Northrop Grumman, Kimberly-Clark, Zynga, Taubman Centers, Akamai, Range Resources, Symantec, F5 Networks, Angie’s List, Morningstar, Dr. Pepper Snapple, Owens Corning, General Dynamics, Motorola Solutions

7:00 am Mortgage applications

10:00 am New home sales

10:00 am FHFA home price data

1:00 pm $35 billion 5-year auction

2:15 pm Fed rate announcement

Thursday

Earnings: Apple, Procter and Gamble, ConocoPhillips, Amazon.com, Unilever, Expedia, Coinstar, Credit Suisse, Luxottica, McKesson, Sherwin-Williams Sprint, JetBlue, Sanofi, Altria, AstraZeneca, AutoNation, Biogen Idec, Colgate-Palmolive, Occidental Petroleum, Potash, Starwood Hotels, UnderArmour, Raytheon, Tenneco, Cabot Oil and Gas, Dun and Bradstreet, HealthSouth, Unilever, Reliance Steel, Bunge, Chubb

8:30 am Weekly jobless claims

8:30 am Durable goods

10:00 am Pending home sales

11:00 am Kansas City Fed survey

1:00 pm USD 29 billion 7-year auction

Friday

Earnings: Comcast, Merck, Ericsson, Goodyear Tire, Interpublic Group, Newell Rubbermaid, Rockwell Collins, Weyerhaeuser, Aon, Moody’s, Statoil

8:30 am Q3 GDP

9:55 am Consumer sentiment

Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at marketinsider@cnbc.com

Copyright 2011 cnbc.com

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Does the yen’s pullback take the heat off Bank of Japan?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Just a month ago traders were on high alert for intervention from Japan to weaken its surging currency. Now that the yen is falling against the dollar, the pressure on Japan to take action has eased, but not for long, said analysts.

The yen weakened to 79.45 against the dollar on Thursday, its lowest level in eight weeks and three percent below seven-month peaks hit a month ago.

This should bring some relief to the Bank of Japan (BOJ), which last month surprised markets by easing monetary policy via asset purchases in a move that was widely seen by analysts as designed, in part, to sap yen strength.

“The slight easing in the yen does take the urgency off further easing from the Bank of Japan,” said Ray Attrill, global co-head of foreign exchange strategy at National Australia Bank, in Sydney.

“But the yen is still problematic and it is still overvalued and that is a negative for the Japanese economy,” he said, adding that the BOJ was likely to ease monetary policy again soon.

A strong yen has been a constant source of consternation for Japan’s policymakers who have been grappling with a deteriorating economic outlook, stubborn deflation and a territorial row with China that has dealt a further blow to exports and manufacturers operating on the mainland.

While the yen’s fall this week is likely to be welcomed in Tokyo, the fact is the currency remains relatively strong and will continue to provide an incentive to ease monetary policy, currency analysts said.

The BOJ, which is next scheduled to meet on October 30, is expected to cut its long-term economic growth and inflation forecasts and analysts said there is a chance the central bank could ease policy again.

Despite its recent falls, the yen is still up about three percent so far this year, making it one of the best performing major global currencies, which means the yen is likely to remain on the BOJ’s radar screen, they said.

“There are two ways you can defray natural currency strength, one is to embark on asset purchasing, which is what they are considering doing, possibly at the end of this month,” Michael Woolfolk, senior currency strategist at BNY Mellon told CNBC Asia’s “Squawk Box” on Friday.

“The second is to lighten up on the proportion of JGBs (Japanese government bonds) held in government portfolios and perhaps buy more international bonds,” he added.

Weakness Just a Blip?

The reason not to get too excited about the yen’s pullback is that the move is mostly driven by improved sentiment towards risk by investors and that typically benefits currencies such as the Australian dollar at the expense of the yen, analysts said.

“The move in the yen is not a structural downward move, it reflects the more positive risk sentiment,” said Dominic Bunning, currency strategist at HSBC in Hong Kong.

“As markets head into year-end, there could be more room for the yen to strengthen, since the quantitative easing we’ve seen out of the US will weaken the dollar to a greater extent than monetary easing in Japan will weaken the yen,” Bunning added.

Currency analysts pointed out that even at weaker levels, the yen is not too far away from the record high of 75.50 against the dollar hit late last year. Any strengthening towards 78 from around 79 currently is likely to be met with intervention talk once more, they added.

“Yen strength remains a factor and a move back through the levels seen in the last few months versus the dollar would heighten concerns about intervention,” said Bunning.

– By CNBC’s Dhara Ranasinghe; Follow her on Twitter: @Dhara CNBC

Copyright 2011 cnbc.com

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