Respite for equities this Thursday, but hardly a full risk-on environment – safe-haven core government bonds are still in favour, commodities ease [gold off near 9 bucks] and the USD is firmer versus peers. So much of this mild recovery after two days of aggressive selling pressure is being attributed to easing fears over an imminent attack by Western forces on Syria – the UN said time was needed to investigate the chemical attacks in Syria, putting an imminent strike off for now. That’s one of the reasons sure, but clearly value-hunting market participants have crept back into the market at attractive levels to reap some quick rewards. Unlikely we have further room for upside later on in the session as we have some heavy duty US macro indicators which will refuel those taper-talk “fears” again. We have weekly jobless claims which should remain consistent with the encouraging yet slow paced recovery we are seeing in the US labour market; good news for the Fed if so. The second estimate of US Q2 GDP will also be released with growth expected to be revised higher to 2.2% from 1.7% - now it will be interesting to see how the market responds to this; will an upward revision invoke the “good news is bad news for QE” response or will the market be more sensible about it and latch onto the fact that the US economy is showing great character in its recovery, especially by phasing out any material hit of the sequestration cuts which are now widely being seen as a moot point. The Syria tensions have managed to get the market thinking about something other than tapering but that could all change later this afternoon – many in the market are still convinced the Fed will imitate the first round next month. Onto some other news making headlines: data from Spain show that exports rose by 6% in Q2, welcome news for the peripheral nation which remains in a recession. Note however that Spain’s economic woes are easing with the pace of contraction now slowing; GDP for 2Q contracted by 0.1% versus the 1.6% contraction for Q2’12. Good news out of Italy too – business and consumer confidence increases at a better and faster rate than many had anticipated, fuelling expectations that the country can move out of a recession by the end of 2013 despite the grey clouds that constantly hang above Italian parliament. Finally, deal activity is a notable driver for the feel good tone in the market – Vodafone is in talks to dispose of its 45% stake in Verizon Wireless to Verizon Communications in a deal which could be worth some $130billion. ETX Capital’s head of trading, Joe Rundle commented on the announcement earlier: Vodafone shares have jumped sharply higher after the telecom giant confirmed it is in talks with Verizon Communications about disposing of its stake in the joint venture between the two companies. Vodafone currently has a 45% interest in Verizon Wireless, which could be offloaded for a staggering deal worth near $130billion. Vodafone has said there is no certainty that the agreement will be reached but investors are optimistic Vodafone is set to receive a hefty amount for this disposal. Very welcome news for Vodafone – this disposal was an overhang in the stock price for some time given the speculation around this and more importantly, it allows the group to pay down its debt. In fact, if Verizon buys all of the holding company, it could spare Vodafone from paying as much as $35billion in taxes, another key positive of this proposed disposal. Vodafone’s market cap today jumped up to around $152billion in USD terms so a disposal around $130billion is a transformational fortune changing deal which is likely to see Vodafone become the new darling of the telecom sector. So long as Vodafone pays down its debt, runs steady ships in international operations [Western Europe in particularly] to mitigate the losses in southern European businesses and delivers incremental increase to earnings via the integration of Kabel Deutschland, there’s little reason to be bearish about this stock, especially with a dividend yield around 5%. ________________________________________ Ishaq Siddiqi Market Strategist
Posted on: Thu, 29 Aug 2013 11:09:01 +0000