FTSE 100	3645.87, +133.78	Dow	6875.84, +149.82
FTSE 250	6083.51, +232.78	Nasdaq	1353.74, +32.73
FTSE All Share	1848.97, +67.33	S&P 500	712.87, +16.54
Nikkei	7433.49, +142.53	Hang Seng	12230.40, -100.75
Oil (Crude)	$45.38	Gold	$907.80
Base Rate	1%	10 Yr Gilt	3.634%
£/$	1.4196	£/€	1.1277
1 month LIBOR	1.365	3 month LIBOR	2.017

 

Markets

London - UK stocks closed higher on Wednesday, rebounding from recent steep losses and snapping a three day losing run, as commodity stocks rose on signs the Chinese manufacturing downturn may be bottoming out. The FTSE100 closed 133.78 points higher at 3645.87. Energy stocks added the most points to the index as crude prices rose sharply, supported by better economic news from China and expectations by some traders that OPEC oil producers may further cut output. BP, Royal Dutch Shell, BG Group, Cairn Energy and Tullow Oil surged between 4.1 percent and 8 percent. China’s manufacturing downturn showed tentative signs of bottoming out, a rare glimmer of hope for a world economy in crisis.

Firmer metal prices also buoyed miners with BHP Billiton, Rio Tinto, Xstrata, Kazakhmys, Anglo American, Eurasian Natural Resources and Antofagasta rising 11.7 percent to 19.6 percent.
Financials also bounced after sharp falls in recent sessions. Barclays, RBS, Lloyds Banking and Standard Chartered rose to 4.8 percent to 15 percent. HSBC closed 1.5 percent higher. Among insurers, Aviva surged nearly 11 percent and Prudential soared more than 12 percent.

In economic news, the service sector shrank sharply in February, but the pace of decline eased for a third month in a row and the rate of job cuts slowed a fraction, purchasing managers data showed. Today, investors are likely to focus on the Bank of England interest rate decision, which looks set to cut rates to close to zero and announce it will start boosting the money supply to resuscitate the economy.

New York - US stocks rallied on Wednesday, ending a five day losing streak, as another Chinese stimulus package boosted commodity prices and encouraged investors to put their money into energy and natural resource stocks. Markets opened higher on news that China will increase spending on infrastructure and manufacturing drove oil and metals prices higher, helping to underpin the market after it hit a 12 year low on Tuesday. Government officials unveiled details of the $75bn foreclosure fix which also boosted stocks.

The DJIA closed 149.82 points higher at 6875.84. Earlier in the session the index had been up more than 250 points. The S&P500 rose 16.54 points to close at 712.87 and the Nasdaq added 32.73 points to close at 1353.74.

Alcoa and Caterpillar led the advance, both up 13 percent. Meanwhile, General Electric was down almost 5 percent, as investors feared that the company with a legendary AAA rating may face a downgrade that could push it into a cash shortage and funding problems.

In economic news, Federal Officials announced details of President Obama’s $75bn foreclosure prevention plan and the program opened for business Wednesday. The foreclose fix aims to modify home loans to monthly payments are no more than 31 percent of monthly gross income. The plan will offer incentives to borrowers and loan services and investors to help struggling homeowners make their payments.
Job market data released showed continued weakness, but a mixed message about whether there’s an improvement underway. Payroll processing company ADP said the private sector lost 697,000 jobs in February, more than the 630,000 jobs economists were expecting.

Meanwhile, the number of planned job cuts announced in February fell for the first time since December. US employers announced 186,350 job cuts, down 23 percent from January’s 241,749 cuts.
Another report released Wednesday showed further contraction in the service sector in February. The Institute for Supply Management’s non manufacturing index fell 1.3 percent to 41.6 in February from the month prior. The drop was not as steep as economists were expecting.

Oil prices closed up $3.73 at $45.38 a barrel. The government’s weekly supply report showed that crude stockpiles decreased by 700,000 barrels in the week ended February 27, while analysts expected an increased of 2.2m barrels.

The dollar fell against the euro and the pound, but rose against the yen.

COMEX gold for April delivery fell $5.80 to close at $907.80.

Tokyo - Japanese stocks rose for a second day today, as hopes for fresh stimulus in China and an economic recovery there boosted machinery stocks such as Komatsu Ltd and shipping firms. A weaker yen also helped exporters, while market analysts said buying by what they believe to be public pension funds has been supporting the index when it approaches the 26 year low of 6994.90 hit in late October. Chinese PM Wen Jiabo said on Thursday that China would achieve 8 percent growth this year. Other markets surged on speculation that Wen would add to a 4 trillion yuan stimulus plan unveiled in November. Analysts say an economic recovery in China would likely help turn around the deteriorating global economy.

The Nikkei closed 142.53 points higher at 7433.49. Construction machinery makers extended gains in expectations of Chinese spending on infrastructure and manufacturing. Komatsu gained 3.8 percent to Y1,075 and  Hitachi Construction climbed 2.7 percent to Y1,246. Kubota Corp rose 1.8 percent to 7502. Shippers also rose after the key Baltic Dry freight index rose 2.5 percent. Mitsui O.S.K Lines shot up 7 percent to Y502 and Kawasaki Kisen gained 4.1 percent to Y308. Nippon Yusen added 4.9 percent to Y405.

Economics

UK Bank of England rate announcement (Mar) 12.00 bst

The February Inflation Report made clear that the MPC fell more policy action needs to be taken to ensure activity rebounds and inflation meets the 2 percent target. Kate Barker, in a recent interview, said that rates were near the bottom. A final 50bp rate cut to end the easing cycle with the Bank Rate standing at 0.5 percent and there is likely to be a commitment to keep rates low for some time.
There is also expected to be an announcement on quantitive easing released at the same time as the interest rate communication. Expanding the quantity of central bank money (notes and coin plus the reserve accounts that the banks have at the Bank of England) as part of a monetary policy operation needs to be approved in advance by the Chancellor. An exchange of letters either before, or coinciding with, the MPC’s decision, in which the Chancellor will provide an initial ceiling for the creation of central bank money. The Bank of England can at a later date ask for this initial ceiling to be raised, if such a move is deemed necessary. Once the approval for use of this policy tool is granted, the MPC have independent authorisation it’s the use in order to meet the inflation objective - taxpayers money (at least in nominal terms) is not at risk and so the BoE should not need to coordinate action with the Treasury. It will, however, need to coordinate with the DMO to ensure that the impact of their own gilt purchases is not offset by the actions of the DMO.
The initial ceiling on this additional money creation will be £20bn, with the monetary base currently standing at £93BN. Given the current discussion of hundreds of billions of pounds, this figure of £20bn may sound small and insignificant. But in theory, you don’t have to put much new money into the system to generate a significant amount of activity, because money travels from one person/business to another. In other words, assuming the money multiplier isn’t zero, and the new cash isn’t entirely hoarded, then it shouldn’t take a large injection of new base money to boost nominal GDP. Because the size of this multiplier- the extent to which the cash travels through the system- is unknown, the BoE is likely to begin this process carefully, since it risks damaging its inflation credibility by doing too much too soon.

Corporate

Michael Page reported a 5 percent fall in 2008 profit as slowing economies and the credit crisis dampened demand for workers, and said market conditions had deteriorated further in 2009. The company posted a pre-tax profit of £140.1m on revenue 17 percent higher at £972.8m for 2008 and held the final dividend at 8 pence. Analysts expected the company to report a pre-tax profit of £140m for 2008. The company said demand for permanent placements fell at in increasing rate in Britain, North America and Spain in 2008 as companies across the world scaled back on hiring in the fight against the economic slowdown. CE Steve Ingham said ""Market conditions have deteriorated further since the beginning of the year, with gross profit decreasing in January and February by 30 percent. In light of these conditions, we continue to take aggressive action to manage our cost base. The company reduced its headcount by 10 percent in the second half of 2008 and has cut a further 9 percent of staff in the last two months to the current level of around 5000. Michael Page saw its UK profit fall 5 percent in 2008 and said the financial crisis had substantially reduced the number of permanent banking placements.

Aggreko Plc posted a 52.6 percent rise in full-year pre-tax profit, hiked its dividend and said its performance in the coming year would be well ahead of market expectations. Aggreko said its revenue for the year ending Dec. 31, 2008 grew 37 percent in constant currency, while pre-tax profit jumped to £191.6m from £125.5m. Earnings per share also rose 51 percent, and dividends for the year climbed to 10.08 pence, a 25 percent increase on 2007. Chairman Philip Rogerson said the company had improved its margins in the past year and seen a strong start to 2009. We expect to make good progress on both a headline and constant-currency basis in the first half," he said. "The outlook for the second half is less certain and will depend on how the macro-economic environment develops." The company said its North American and European units had proved resilient in the face of the global downturn and forecast that dollar revenue, which accounts for over 70 percent of its total income, would drive growth in 2009.

Aviva said today it was maintaining its dividend, easing concerns that the payout could be cut to conserve capital, and reported annual profits that broadly met forecasts. Aviva said it had a 2008 operating profit of £2.297bn, up 4 percent with the previous year. Analysts had expected operating profit of £2.278bn. Aviva said it was setting its total dividend for the year at 33 pence, unchanged from 2007. Investors had been concerned that the company might have to cut or cancel the payout in order to shore up its capital reserves as weak financial markets dent its investment performance. The company said it was setting aside a further £550m possible defaults against its corporate bond and mortgage portfolio, bringing the total provision to £1.13bn. The insurer took a £140m hit from corporate bond defaults in 2008, equivalent to 0.2 percent of its total corporate debt investments. Aviva also said it is setting aside £304m against a possible rise in asbestos-related claims. Under the newly-introduced Market Consistent Embedded Value standard, Aviva had a 2008 operating profit of £3.358bn, up 10 pct from the previous year.

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The above details are provided for information only and are not intended to be construed a solicitation for the sale or purchase of any particular investment nor as specific investment advice.

Posted: March 5th, 2009 under Asset Management.
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