Archive | February, 2014

Major European Indexes finished the Friday session of green

Most leading markets in Europe ended the last trading session from the week with increases despite the previously published data for the inflation in the Eurozone in February. The level again remained far below the one set by the European Central Bank (ECB) of 2%. The French CAC 40 grew with 0.21% to a level of 4,405.80 points. The German DAX index added 1.03% to a value of 9,687.30 points, while the British FTSE 100 retreated slightly with just 0.10% to 6,803.30 points. The leading Italian benchmark FTSE MIB rose with 0.64% to 20,451 points, while the Spanish IBEX 35 lost 0.60% to 10,103 points.

The inflation in the Eurozone kept unchanged in February, according to the expression studies of Eurostat. The measured inflation in the monetary union reached 0.8% yoy. The analysis of the main components of the index showed that in the expiring month the energy prices significantly decreased with 2.2%. According to the published data, the prices fell in this group deepened after during the first month of the year the Energy Resources fell 1.2%.

In today’s session the Spanish government launched the privatization of the largest bank in the country - Bankia, in an attempt to revive the domestic banking sector. At the beginning of the session the trading in shares of the bank was blocked by the local regulator. However, after the resumption the capitalization decreased with 3.73%. Also the shares of Old Mutual rose 4.8% after the reported profit growth in 2013.

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Freddie Mac almost doubled its profit for Q4 2013

The net profit of the mortgage giant Freddie Mac for the fourth quarter of 2013 reached 8.6 billion USD. The financial result was achieved due to the continuing rise in property prices, which reduces the amount that the company must set aside as provisions for coverage of losses from the mortgage loans. The profits of Freddie Mac for Q4 2013 almost doubled compared to the results in the last three months of 2012 amounted to 4.5 billion USD.

The company will even pay dividends to the US Treasury for 10.4 billion USD next month. Freddie Mac has already repaid the government aid to 71.3 billion USD after pay the dividends in the third quarter of 2013. The annual profit of the mortgage company was reported 48.7 billion USD due to the rise in property prices, and because of that the company capitalized tax breaks on bad loans, which absorbed during the crisis. Through the tax credit, which the company saved from the losses on defaulted loans in the third quarter, Freddie Mac reduced the debts to the government and reinforced with 23.3 billion USD in 2013.

The profit rose strongly last year from the positive financial result amounted to 11 billion USD recorded in 2012. In this way in 2012 the company has quadrupled its profits. However, from Freddie Mac said that the strong profit growth is not sustainable in the long term, because the growth in property prices started to slow down, and the use of tax incentives assessed as a single event. Also during the last year, the company got billions of USD from the court cases with major international banks on bad mortgage securities bought from them before the crisis.

The US government bailed out Freddie Mac and its larger relative Fannie Mae at the boom of the financial crisis in September 2008. Together the companies received financial aid from taxpayers in the amount of 187 billion USD.

The profits of Fannie Mae for the fourth quarter of 2013 amounted to 6.5 billion USD. This is the eighth consecutive quarter of positive financial report of the company. Fannie Mae will also pay all government assistance of 116 billion USD, after paying dividends for the last quarter.

Total Fannie Mae and Freddie Mac own or guarantee about half of all mortgages in USA, estimated at 5 trillion USD. Along with other federal agencies, they provide approximately 90% of the new mortgages. Once the housing market started to recover gradually and make profitable Fannie Mae and Freddie Mac again, they repaid their obligations to the government in the form of quarterly dividends. Because these payments the federal budget deficit became the smallest in the last five years.

The two companies did not grant direct loans to borrowers. They buy mortgages from banks, repackage them as bonds guarantee against non-payment for them and sell them to investors. Thus, the credits become available. The US President Barack Obama proposed to be carried out extensive reform of the US subprime financial system - including the liquidation of Fannie Mae and Freddie Mac. Its aim was to replace them with a system by which not the government, but the private sector will take the risk on the mortgage loans.

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Eurozone inflation in February remained 0.8%

Eurozone inflation in February remained 0.8%

EURThe inflation in the Eurozone in February was unchanged according to the expression studies of Eurostat. The calculated inflation in the monetary union was 0.8% yoy. The analysis of the main components of the index show that in the expiring month the energy prices significantly decreased with 2.2% compared to January 2014. According to the published data, the prices fell in this group deepened after the first month of the year, as the energy resources dropped by 1.2%.

The growth of the food prices, alcoholic beverages and tobacco products is also restricted. In February the prices of the group grew with 1.5%, while in January the growth was 1.7% In the same time the services sector grew with accelerated pace from 1.3%, compared to 1.2% in January.

These data are preliminary, specify Eurostat. The final analysis, as well as information about the inflation across the EU will be published in the middle of the next month. The inflation rate in the European Union is well below the limit of 2% set by the European Central Bank (ECB). The decline in prices is a serious problem for the continent and many analysts warn of the danger of falling into deflation.

The news about inflation decreased the pressure over the European Central Bank to take further actions to support the financial system and economic growth at its meeting on Thursday. The ECB will hold its next monetary policy meeting next Thursday, and today’s inflation data reduce the possibility for immediate action on its part to have to convince financial markets, households and businesses that the central bank is aware of the threat of deflation. After the data for inflation the pair EUR/USD jumped with 0.7% to 1.3807 and reached new highs after the yesterday’s decrease.

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Wall Street was encouraged by the Yellen’s statement

The US stock exchanges reported stable growth in Thursday session, as the broader index S&P 500 rose above its record closing, after the new Federal Reserve Chairman Janet Yellen said that the central bank will continue to narrow its program of asset purchases, while get clear what stake of the delay in the economic recovery is caused by the bad weather.

The broader index S&P 500 grew with 0.5% to 1,854.34 points, while the blue chip index Dow Jones Industrial Average added 74.75 points or 0.5% to a value of 16,273.16 points. The technology-oriented Nasdaq Composite rose with 26.87 points or 0.63% to a level of 4,318.93 points

The official report showed that orders for the US durable goods fell by 1.0% in January, less than expected, which is a new sign that the industry started gto get out from the harsh winter crisis, caused by the bad weather. On the labor market more Americans filed claims for unemployment benefits last week, which is a sign that the labor market is improving intermittently. All that data was the main indicator of the Wall Street indexes changes, forming their movements during the session.

The stock exchanges in Europe reported declines after Russia announced that it has begun military exercises near the Crimean border. Gunmen have occupied the Parliament of Crimea and raised the Russian flag, while in the capital the lawmakers approved the new cabinet, which must direct the policy of Ukraine to European Union.

The investors were primarily interested in the shares of the commercial companies. The shares of J.C. Penney jumped with 23% after the company said that it expects higher revenues and better margins for the current fiscal year. The shares of Best Buy rose with 5.2%, as the net profit of the company was reported above the market expectations. The capitalization of Sears rose also with 8.0% after the commercial concern managed to limit its losses during the quarter.

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Spain started the privatization of Bankia today

Spain started the privatization of Bankia, which is the largest bank in the country and had to rescue it from the financial crisis. This is a turning point in the government’s attempts to revive the banking sector. According to official documents till the end of today must be sold shares, equivalent to 7.5% from the capital of Bankia. They will be sold only to institutional investors, the demand for which has been assigned to Deutsche Bank, UBS and Morgan Stanley.

Spain currently holds 68% of the capital of the rescued bank. On the yesterday’s session the price per share of the bank was 1.58 EUR, which evaluates the proposed stake announced for sale of about 1.36 billion EUR.

During the procedure of nationalization of Bankia the shares were appreciate by the government at 1.35 EUR per share. Since the summer of last year the shares of the financial institutions have tripled their price, while only this year rose with nearly 30%.

The current structure of Bankia was formed in 2010 after the merge of seven different financial institutions, which all facd severe crisis from the bursting of the housing bubble in 2008. In 2012 the Bank received 22.4 billion EUR financial aid from the European Union, as its financial situation questioned the ability of Spain itself to deal with the debt crisis.

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Orders for durable goods in USA dropped in January

The US business ordered fewer durable goods in January, as the biggest falling trends is into the demand for aircraft, cars and machinery. A key category, which reflects the business investment has significant growth of 1.7%. The demand for electronics and industrial metals also increased.

The Commerce Department announced that orders for the US durable goods fell by 1.0% in January, compared to the increased with 2.6% in December. The decrease is due to a fall in demand for passenger aircrafts with 20.2%. Actually according to the statistics the procurement of any equipment related to transportation have dropped with 5.6%. Of course many of the analyzers excuse this data with the bad weather in USA. The cold weather has reduced the industrial production this winter, slowing the supply of raw materials and forcing some factories to suspend work.

Meanwhile the number of Americans filed applications for receiving unemployment benefits jumped last week, which is the latest sign for the volatility of the labor market in USA. The initial claims for unemployment benefits, which are an indicator of redundancies increased with 14,000 last week to 348,000, compared with the downward revised 334,000 claims in the previous period. The economists expected the orders for unemployment benefits to be 335,000. The average value of the applications for the last four weeks, which is considered for more refined from the seasonal fluctuations indicator, remained stable at 338 250 queries. From the Labor Department commented that the last week there were no special factors that have influenced the data. Today’s report comes after two months of weaker growth in employment rate in USA.

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CEZ profit halved in Q4 2013

For the last quarter of 2013 the profit of the Czech company CEZ has decreased with 49% to 3.5 billion kronor (175 million EUR) compared with 6.9 billion kronor (345 million EUR) an year earlier. For the entire 2013 the profit decreased with 12.3% to 35.2 billion kronor, also reported by the company. This result slightly surpasses expectations of the company, as the analysts expected the profit to be 200 million kronor more. The revenues of the company CEZ amounted to 82.1 billion kronor.

The reason for this decrease according to the business management of the company was the serious decline in the price of wholesale electricity in Europe and also the massive subsidies that go into the renewables sector. At the same time continue the stagnation of the European economy continue and the uncertainty about the regulatory environment in the energy sector in Europe, added from CEZ in the financial report.

The company forecasts are for worsening of the situation and the revenue for 2014 to be within about 70.5 billion kronor, while the profit to be around 27.5 billion kronor. In 2013 the company CEZ has pledged for optimizing of the traditional electricity. The company has invested in projects to increase the capacity of its nuclear power plants and coal plants.

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USA may invest 300 billion USD in road infrastructure

The US President Barack Obama presented his 4-year plan to restore the poor road infrastructure of the country. The amount, which the government plans to spend on repairs and building of new roads and bridges nationwide is 302 billion USD. This funding should be provided through the tax reform and will not be accepted without a serious debate in the Congress.

The deadline for renewal of the federal funding for transportation expires on 30th September 2014. On the same date expires also the deadline of the special fund for the highways, which funded only the highest priority projects. Traditionally, the fund is financed by taxes levied on fuel, but they do not carry the necessary revenue and formed pretty big hole.

Obama warned that if his plan is not approved, many projects will be frozen, and the construction machinery will remain on the building sites, which also will lead to increase of the unemployment rate in many states. The US President announced a new scheme to apply for grants, which is worth of 600 million USD and is intended for projects in the transport sector. The financing of the new program is already approved with good support by Congress.

The new programs of the US government are based on the increase of infrastructure projects and industry, which must decrease the unemployment rate in many states and will be the best action against the global financial crisis.

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Lower requirements for the stress tests of Greek banks

The international creditors of Greece have accepted a lower level of coverage tier to value of 8.0% for the four largest banks in the country - National Bank of Greece, Alpha Bank, Piraeus Bank and Eurobank. The banks will have to meet capital adequacy requirement if they successfully pass the stress tests carried out at the time by the European Central Bank.

Athens insisted the coefficient of adequacy of Tier I capital to be reduced to 8.0%, as before it was 9.0%. The the coefficient of adequacy for the European banks was earlier decreased to 8.0% and just now the requirements for the Greek banks are equalized to the European ones. The lower level of the coverage in the stress tests would mean that the banks will have to obtain less capital if necessary to pass through them.

The second stress test of the Bank of Greece have shown that the four major banks in the country will need about 5 billion EUR additional capital. The amount for each bank must first be approved by the three lenders of the country, who watch the country movement over the rescue program. The Bank of Greece conducted a second check of the balance sheets of the four largest banks to see if their recapitalization of 28 billion EUR committed last year is able to absorb the future of future shocks. The statistic showed that the bad loans continue to grow, which also increases the risks for the shocks in not not well-diversified wallet.

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Asian indexes with mixed results

The leading stock markets in Asia ended with mixed results the trade session on Thursday. All the eyes were focused on China, where the benchmark Shanghai Composite finally managed to end on green. The index added 0.30% to 2,047.35 points after four consecutive sessions of declines, which were caused by the weak preliminary production data and the concerns about the property sector last week. The banking sector made strong performance, where the capitalization of Hua Xia Bank and Minsheng Bank rose respectively with 5% and 4%.

Meanwhile, the CNY, which is in the spotlight after its sharp decline in the recent days, was traded almost without change at value of 6.1284 CNY per USD.

The Hong Kong’s benchmark Hang Seng rose with 1.74% to 22,828.18 points, while the Thai index SET added 1.03% to 1,318.05 points. The trade in Bangkok recovered despite the ongoing political turmoil in the country.

The index S&P ASX 200 was the biggest loser among the major markets in Asia, considering its strongest one-day drop in three weeks. The benchmark was put under pressure and lost 0.47% to 5,411.45 points. The index dropped sharply after the airline company Qantas announced it will sack 5000 of its employees, which caused drop of market capitalization with more than 9.0%.

The Japanese benchmark Nikkei 225 fluctuated between growth and drops, ending with a retreat of 0.32% to a level of 14,923.11 points. The investors were waiting for the series of economic data from the country that will be published on the last day of the week. The shares of Rakuten fell with more than 4%, while Nintendo lost 3.95. The market capitalization of Fast Retailing also decreased with 1.7%. However, Panasonic continued its rising trend, adding 3%, after on Wednesday the newspaper Nikkei reported that the technology giant has invited a number of Japanese suppliers to join its overall investment plan with Tesla Motor.

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