Sunday, May 29, 2011

US markets rise despite weak consumer and housing data

US markets rose on Friday despite weaker-than-expected US consumer spending and housing data. Data showed that pending sales of existing US houses fell more than expected in April to hit a 7-month low. It was the latest in a long list of data that shows a very weak US housing market. US consumer spending data showed a less-than-expected increase in April.

On Friday, the S&P 500 rose 5.41 points or 0.41% to 1,331.10. The Dow gained 38.82 points or 0.31% to 12,441.58. For the week, the S&P 500 lost 0.16%, while the Dow fell 0.56%.

US data in focus

Weak US economic data has caused the recent stalling in the stock market. On Thursday, 1st quarter GDP was revised to 1.8%, lower than the 2.2% economists expected. Also on Thursday, initial jobless data showed 424,000 claims last week, which was another week over 400,000, the level below which is needed for job growth.

Euro zone troubles remain

Early this week, Fitch placed Belgium on negative outlook. This followed Italy's new negative outlook on the previous Friday. Meanwhile, European officials continued to discuss a solution for Greece, with default, “restructuring” and Greece leaving the euro zone as ideas being discussed. Greek 10-year bond yields hit a stunning high of 17% this week, showing that markets clearly believe a default is inevitable.

Gold soars

As a result of the euro zone troubles and the US dollar weakening, gold rose $13.9 on Friday to close at $1,537.3/ounce.

Looking ahead to next week

Investors will be focusing on the May ISM manufacturing survey and payroll data. Reuters consensus for the ISM reading is a fall to 58 in May from 60.4 in April, while the Reuters consensus for the jobs data is 185,000 jobs added in May.

Data that match consensus estimates, which are very weak, could reaffirm investor belief of a weakening US economy, which could be negative for stocks. Data that are worst than consensus estimates would definitely send stocks lower. 
Investors will continue to closely watch the situation in the euro zone, as officials discuss terms such as default, “restructuring” and “reprofiling”. If recent history since early 2010 is any indicator, euro zone officials will once again be incapable of preventing the crisis from worsening, leading to an eventual Greek default. 
All in all, investors should expect markets to continue heading lower next week.

Sunday, May 22, 2011

US markets fall on Greece and Italy

US markets fell on Friday on a worsening situation in the euro zone. The S&P 500 fell 10.33 points or 0.77% to 1,333.27. The Dow dropped 93.28 points or 0.74% to 12,512.04 points. 

Markets were dragged down on Tuesday by HP's disappointing guidance, though stocks got a boost from LinkedIn's strong debut on Thursday after its IPO. For the week, the S&P 500 lost 0.3%, while to Dow fell 0.7%. 

Euro zone troubles aplenty

Greece was the focus of markets for much of this week. A “soft restructuring” was mentioned by European finance officials all week, which caused discomfort for investors. On Friday, Fitch downgraded Greek debt by 3 notches, to B+. The yield on 10-year Greek government debt rose to a staggering 17% on Friday, making some type of default look inevitable.

Greece was not the only euro zone country in trouble this week, as Italy was placed under a negative outlook by S&P on Friday. In addition, despite public protest being declared illegal in Spain ahead of elections, several thousand protestors gathered in a public square in the capital to protest austerity measures and the high unemployment rate. Unemployment in Spain is at 21.3%, which is the highest within the European Union.

Looking at the situations in Greece, Italy and Spain, it appears that the debt crisis is becoming more severe, in a situation eerily similar to May 2010. EU officials have repeatedly shown that they are unable to mitigate a crisis in a euro zone nation.

Gold soars

Benefiting from the euro zone crisis, gold had its biggest daily gain in 2 weeks on Friday. By late afternoon on Friday, spot gold gained 1.5% to $1,514.49/ounce.

Looking ahead to next week

Investors will continue to focus on events in the euro zone. A deteriorating situation next week would send markets lower. Investors will also be looking at US economic data that will be announced, including GDP, retail sales and unemployment. Since US economic data has been pointing to slow growth in recent weeks, data showing weak growth will likely continue to send markets lower. Of course, better than expected data would provide a boost to equities.

Sunday, May 15, 2011

US markets fall for 2nd week on commodities

US markets fell on Friday on the falling price of commodities. The S&P 500 fell 10.88 points or 0.81% to 1,337.77. The Dow dropped 100.17 points or 0.79% to 12,595.75. For the week, the S&P 500 fell 0.2%, while the Dow lost 0.3%. 

Stock markets ended down for the week due to concerns about weak US economic growth, tightening measures in China and a continuing crisis in the euro zone. Some investors were also concerned about the imminent end of QE2 at the end of June.

China raises RRR

On Wednesday, China announced that April CPI rose 5.3%, higher than markets expected. Despite only 0.1% higher than March's reading, it was the second consecutive month above 5%. As a result, the next day, China raised the RRR (reserve requirement ratio) at banks by 0.5%, bringing the RRR at major banks to 21%. The moved weakened commodity prices.

Greece at centre of attention

Greece was the focus of euro zone concerns this week. While Greek government officials repeatedly tried to assure investors that a restructuring or default are not going to happen, investors continue to be concerned that it is inevitable. There were also rumours that Greece wants to leave the euro zone.

Looking ahead to next week

Commodities have tumbled in the past 2 weeks, and could continue to do so next week. Investors' concerns about a weak US economic growth, tightening in China and the euro zone crisis continue to exist, which could push markets lower next week. The end of QE2 at the end June is also a concern for investors. QE2 has been a major reason for the sharp rise in the markets since August, so its end could have a very negative effect for markets.

Investors will also be focusing on US economic data that will be announced next week, to get a reading on the strength of the US economy.

Sunday, May 8, 2011

US markets tumble on correction in commodities

US markets rose on Friday on an encouraging April payrolls report. The S&P 500 rose 5.10 points or 0.38% to 1,340.20. The Dow added 54.64 points or 0.43% to 12,638.81. For the week, the S&P 500 dropped 1.7%, while the Dow lost 1.3% in a commodities-led sell-off.

Friday's April jobs report showed an increased of 244,000 jobs, the highest in 11 months. Non-farm payrolls made gains that were better than expected. However, the unemployment rate increased from 8.9% to 9.0%.

Markets had dropped on Thursday after initial jobless claims for last week increased 43,000, the biggest jump in 2 years, to 474,000 claims. Initial jobless claims had stayed above 400,000 for 4 weeks straight, causing investors to become concerned about economic growth.

Commodities tumble

Commodities had a massive sell-off this week, caused by concerns about the end of QE2, tightening in China and weak US economic growth. For the week, silver fell 25.6% and oil fell 14.7%. Gold fell the least among many commodities, ending the week down 4.4%.

Commodities have made significant gains since the preamble to QE2 on August 27. With the strong headwinds this week, it was only reasonable that they went through a correction. However, the correction was alarming, with silver's 25.6% fall shocking investors.

Looking ahead to next week

While the markets received positive news on Friday, markets could continue to head downwards or move sideways in the week ahead. Investors might continue to price in weaker US economic growth, which would take the S&P 500 down closer to the 1,250 level.

In fact, troubles continue in the euro zone, with rumblings on Friday about a possible exit from the euro zone by Greece. China may also introduce further tightening measures in the weeks head. In addition, the US housing market has repeatedly shown lower house prices in recent weeks, indicating a double-dip.

Tuesday, May 3, 2011

RIM's new cross-platform strategy

RIM has made many announcements in the past 2 days at BlackBerry World.  Among the announcements, a trend is developing, which is RIM's support for other platforms.  RIM is clearly accepting the strength of each of its rivals, and taking advantage of some of their strengths to benefit the BlackBerry platform.

Multi-platform BES  

Yesterday, RIM announced a multi-platform BlackBerry Enterprise Solution (BES) after the acquisition of Ubitexx, a maker of cross-platform solutions.  The announcement shows that RIM is accepting the presence of iPhones and Android devices in the enterprise.  RIM is also leveraging the legendary security and device management capabilities of BES to earn additional revenue by selling this software.

This is particularly beneficial in companies that use entirely iPhones and Androids, since it allows RIM to earn revenue when it would not otherwise.  In addition, it would allow RIM to show these companies the benefits of BlackBerry, and try to convert them.  

Surprisingly smooth Android app player

Today, we got the first demo of the Android app player for the PlayBook, which was announced before April 19.  The appearance of Android apps on the PlayBook as icons like any other app is a great feature.  The smoothness of Android apps running on the player was incredible, and seemed as smooth as native apps.  The smoothness of the demo is testimony to the power of the QNX OS, since iOS and Android are incapable doing the same. 

RIM's strategy of offering an Android app player is smart, since it takes advantage of Android's 200,000+ apps.  In addition, the requirement for vendors to submit their apps into BlackBerry App World will literally add 200,000+ apps into App World.  RIM will have have their contact information and can market to them. 

Bing search, maps and location services

Today, Microsoft CEO surprised many by appearing on stage to announce the partnership with RIM on Bing.  Bing will be used for its search engine, maps and location services.  While many BlackBerry users would prefer using Google, Microsoft likely offered more favourable terms to RIM. 

The move also allows RIM to reduce its capital expenditure by letting Microsoft take care of maps and location services.  In addition, Microsoft may pay RIM royalties, since Microsoft would gain revenue from the services.  For example, Stephen Elop said that Nokia would obtain "billions" per year from Microsoft as a result of their partnership.

The days of going it alone are over

The smartphone sector is rapidly expanding, with new features added regularly.  It would be unrealistic for RIM to go it alone.  By striking partnerships, and offering cross-platform services, RIM is lowering expenses and making additional revenue.  RIM is also leveraging its strengths and taking advantage of those of its competitors.  With the cross-platform announcements in recent days, it is likely only a matter of time before BBM goes cross-platform.