After managing to escape New York two weeks ago without a new iPad, unfortunately Hong Kong got the better of me last week and without realising it I ended up walking into an Apple store and buying a Mac Book Air. I blame DB research as Sanjeev Sanyal in Asia wrote a piece entitled "Mapping the World’s prices" a few weeks ago showing the Dollar cost of numerous items in 20-30 key centres around the world. Hong Kong came out as one of the cheapest places to buy said Apple products. For the romantic amongst you, Delhi was the cheapest place to take your partner or prospective partner on a date. I suppose this doesn’t cover the airfares so be careful committing yourself based on this research. We are not responsible! Oh and Sydney is the most expensive place to holiday. This shows how times change as in 1998 I visited to watch England get thrashed at cricket and came back with a suitcase full of very cheap clothes to dull the pain, some of which I still wear today. But that says as much about my out-of-date fashion sense as anything else.
Anyway there was a reason for the Apple mention, the company saw better-thanexpected earnings (again) after the bell. Overall the company reported Q2 EPS and sales that came around 23% and 6% higher relative to market consensus. Actual earnings were almost doubled over the quarter driven by iPhone demand in China. Earnings and revenue outlook for Q3 were somewhat weaker though relative to market consensus but this is something they make a habit of doing. The company guided to a Q3 EPS of $8.68 and revenue of $34bn which compared to prevailing market consensus of $9.96 and $37.49bn. Nevertheless the results came as a relief for the stock that has fallen in 10 of the last 11 days. Apple rallied as much as 7.8% in after hours after having closed 2% lower on the day.
Earnings seem to be helping Asia slightly as bourses are mostly higher on the day led by better gains in Japan (+0.8%) and Taiwan (+0.8%). The Shanghai Composite and the KOSPI are around +0.3% higher while the Hang Seng is largely flat as we type. Asian credit markets are little changed as are Copper and Oil.
Asia is also being encouraged by a positive session in the US and European markets yesterday. The S&P 500 gained 0.37% helped by again another day of positive earnings. Of the 40 companies that reported yesterday 31 topped EPS expectations. Better US housing data also helped as house prices in February rose more than expected (+0.3% v +0.1%) and the Richmond Fed manufacturing index (14 v 6) also surprised to the upside. Elsewhere, Cattle futures were limit down in the US session (but somewhat firmer in Asia overnight) after a case of mad-cow disease was discovered in central California.
Across the Atlantic, European equities rebounded strongly as sovereign concerns were soothed by a decent Spanish and Dutch auction. The CAC, DAX and FTSE MIB rose 2.29%, 1.03%, and 2.48% respectively. Spain sold EU1.9bn in bills, which is close to the reduced target amount albeit with higher yields of late.
ECB’s Paramo seemed confident that the Spanish government will find a way to deal with the banking sector and added that ways are being considered to find “imaginative formulas to segregate troubled assets”. This gave the market some confidence that plans are afoot. Elsewhere the EFSF issued EU3bn in 7yr notes at 77bp on reportedly good demand. Spanish and Dutch 10yr bond yields fell 13bp and 9bp to 5.82% and 2.32%, respectively.
Elsewhere in Europe, the Greek central bank downgraded its forecast for the economy expecting it to shrink by about 5% (vs a 4.5% forecast a few weeks ago). Indeed in quite alarming stats given by Antonis Samaras, Greece had 1million companies in 2009 but 250,000 have since closed and 300,000 more do not pay their workers on time. However, the ‘good news’ is that the central bank was rather optimistic about achieving a primary budget surplus next year. The central bank also warned of downside risks to its growth forecasts if there are delays in implementing structural reforms. Austerity versus growth has always been a tough balancing act with the former being forced on Europe. That may change over time as the popular backlash against austerity escalates perhaps encouraged by the ongoing French elections and the recent Dutch rebellion. This is something I talked about yesterday in the call. Interestingly the WSJ yesterday wrote that some within the EU political circles are acknowledging that a better balance is perhaps needed in light of the growth problems and an option is to place the actual budget deficit on an “equal footing” with the “structural” deficit. A draft EU document obtained by Reuters showed that the European Commission will today propose a 6.8% increase in the EU’s budget next year despite calls for fiscal discipline.
Moving along we have another eventful day ahead of us. The FOMC is clearly a key event for markets. The statement is due at 12.30pm NY time ahead of the Fed Funds Rate projection at 2pm, and Bernanke’s press conference at 2.15pm NY. Overall our chief US economist does not expect the Fed to show any change in its current policy stance, including its conditional expectations to hold rates near zero at least through late 2014 as well as its intention to complete its twist program in June. Markets will pay attention to the FOMC’s economic forecasts and the tone from Bernanke’s press conference. Data wise durable goods orders will be the key US release. In Europe all eyes will be on the ECB lending survey. The reading remains a critical factor affecting euro area growth although our European economists highlight that even if we see some tentative loosening in credit standards today (perhaps due to LTRO effect) there may still be a lag of 2-3 quarters before it translates into positive momentum for credit origination. We also have the first reading of Q1 GDP in the UK today.
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