Today's Major Market Move - Finnish Stock Market Down Over 21% for the Month

There has been much carnage on the equity market landscape this past month and the usual suspects of Greece, Italy, Portugal, Spain and Cyprus were all down at least 15%. But today we'd like to discuss the Finnish market which hasn't received as much attention. The three Finnish equity indexes that we track, the OMX Helsinki 25 Index, the OMXHCap and the OMX Helsinki Index were all down over 21%. All 3 were in the top 5 decliners of global equity indexes.

Click on the image for a larger view.Click here to view the table with the most recent data.
We talked about Finland's stock market in a recent post back on July 20th. In the post we pointed out how Nokia represented a large proportion of the total market cap of the Finnish market.

Nokia plays a very large role in the economy of Finland; it is by far the largest Finnish company, accounting for about a third of the market capitalization of the Helsinki Stock Exchange (OMX Helsinki) as of 2007, a unique situation for an industrialized country.[12] It is an important employer in Finland and several small companies have grown into large ones as its partners and subcontractors.[13] Nokia increased Finland's GDP by more than 1.5% in 1999 alone. In 2004 Nokia's share of the Finnish GDP was 3.5% and accounted for almost a quarter of Finland's exports in 2003.[14]

As most people are already aware, Nokia has been rapidly losing market share in the mobile device space. According to Gartner, Nokia's share declined a staggering 5% YOY from Q12010 to Q12011. With the increasing popularity of the Android and iPhone platforms, it doesn't look like that trend is going to reverse itself anytime soon.

The outlook for Finland over the longer term is also pessimistic. According to the IMF, Finland's real gdp is estimated to grow only 15% over the next 5 years, lowest in the Scandinavian and Baltic regions.

Click on the image for a larger view.Click here for a live version of the above chart.(Please be patient, the chart takes about a minute to load.)

Today's Major Market Move - U.S. Equity Futures Up 1.5% On News of Debt Deal

The over-dramatized and over-hyped debt deal is finally here and in pavlovian fashion, futures in the U.S., Australia, Japan, and the U.K. have all surged. The Dow Jones is up 1.5% and the All Ordinaries is up even more at +2.4%. I suppose the logic is as follows: Continued U.S. Deficit Spending=Continued Demand for Chinese Goods=Continued Demand for Australian Commodities. Here's the most recent table of global equity index futures:


Click on the image for a larger view.Click here for the most recent version of the table.
Details on the deal are still emerging but here are some of the numbers that are being reported (from The Globe and Mail):

Under the agreement, a congressional committee would have to come up with a 10-year, $1.5-trillion deficit reduction plan by November. And Mr. Obama could increase the borrowing limit by $2.1-trillion, enough to avoid having to ask Congress for more before the 2012 election.

The $1.5 trillion in long term cuts is on top of an immediate $1 trillion in deficit reduction. That ends up being $2.5 trillion in cuts over 10 years while we are current running an annual deficit of over $1.6 trillion. Even if we wound the wars down completely today (a logistical impossibility), that $2.5 trillion in cuts wouldn't last for more than 3 or 4 years in terms of balancing the budget. In essence the government, and this applies to both parties, is betting the farm on rising revenues. Politicians are desperately hoping that tax revenue will pick up and subsequently the pressure to make further cuts will dissipate. In light of the current macro trends: continued high unemployment, weakening housing market, declining gdp numbers, I find that outcome highly unlikely.

According to the US debt clock, the U.S. federal government is spending 63% more than what it takes in (3.6 trillion vs 2.2 trillion). Over the next 5 years, according to the IMF, GDP is expected to grow 23%. This number is extremely optimistic considering that the poor GDP numbers from Friday's release haven't been factored in yet (they still have an estimate of 3.6% growth for 2011 and we'll be lucky if we see even half of that).

Click on the image for a larger view.

Click here for the live version of the above chart.

(Please be patient, it takes about a minute to load)

Without a change in the tax rate, which the Republicans so far have been dead set against, I don't see how tax revenue growth can outpace GDP growth by much. If revenues only increase by 23% over the next 5 years, there are going to have to be very significant spending reductions to bring the budget into balance.

Today's Major Market Move - Cyprus Stock Market Drops 4% in Today's Session

Oh how the central bankers and politicians long for the days when a bailout could generate a stock market rally that would last longer than a week. Take the Cypriot equity market as an example: after the latest Greek bailout was announced on July 22, stock markets around the world, including Cyprus, surged (you can read our post about this here). But the euphoria in Cyprus barely lasted through the weekend as the market began to roll over on Monday. Here's a chart of the General Market Index CSE which is the main Cypriot equity index:

Click on the image for a larger view.Click here for the current version of the chart.
After a 4% drop today, the gains from the bailout news have almost been completely reversed and the index is now nearing the lows of 2011. This article from Reuters does a good job of highlighting the different issues facing the island nation's economy which include:

• recent debt rating cut by Moody's
• exposure to Greek debt
• loss of over 50% of power generation capability
• gdp growth estimates cut to 0 for 2011
• 10 year government bond trading at 9.5%, effectively cutting Cyprus out of bond market

Also mentioned in the article is a quote by the head of the Cypriot central bank that the government may be forced to seek a bailout. The impact of a Cypriot bailout would most likely be more psychologically damning rather than causing any actual economic damage. The Cypriot economy is after all only 10% the size of Portugal's which is then only 10% the size of Italy's.

(Data is courtesy of the IMF)

But with that being said, remember that when Iceland (who's economy is only half that of Cyprus) imploded in 2008, it had sent out some major economic shock waves, the effects of which are still being dealt with today. Just recently Iceland finally agreed to a payment scheme for reimbursing Dutch and UK depositors of Iceland banks.

Today's Major Market Move - Chinese Stock Markets Down Over 3% in One Day

The Chinese equity markets were down significantly in Monday's trading session, with the ChiNext Price Index being one of the biggest decliners at down 4%.


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We had last mentioned the ChiNext Price Index on June 25:

Of the Chinese equity indexes we track on PikeFin, the worst performer for 2011 is the ChiNext Price Index at -18.4%. The ChiNext index is a listing of high growth companies (i.e. high risk) based in Shenzhen. According to this article on Want China Times, it's barely over a year old and is down over 15% since its inception (it hit 986 on opening day 6/1/2010 and the most recent print was 832).

Since that mention, the ChiNext Index in particular, and Chinese equity markets in general, had rebounded nicely. Part of the rebound was due to the boost that stock markets around the globe received at the news of another Greek bailout. Here is a chart of the % gains of 3 Chinese equity indexes along with the USDCNY (US $ / Chinese Yuan cross in blue):


Click on the image for a larger view.Click here to go to the current chart.
There are several issues facing Chinese markets in the near future: a potential popping of the real estate bubble, rising commodity prices (which we've talked about here) and a slow down in the U.S. as a result of reigned-in government spending.

Today's Major Market Move - Abercrombie & Fitch (ANF) Up 50% for the Year

One of the best performing stocks in the U.S equity markets this year has been Abercrombie and Fitch (ticker: ANF). Its nearly 50% gain so far this year puts it in the top 10 of the S&P 500 (Citigroup shouldn't be in the list; they reversed split earlier in the year and we are in the process of adjusting our historical data).



Taking a look over longer time frame, ANF's stock price has recovered to pre-crisis levels, thanks mainly to a big earnings beat in the calendar 4th quarter of last year. (eps estimate: .03, eps actual 1.03). Expectations are now high for the calendar 4th quarter of this year where Abercrombie is expected to double earnings YOY.


(Note: the earnings announcement for the calendar 2nd quarter is scheduled for aug 17th).

The clothing retail business in general has received a boost from depressed cotton prices, which are down over 50% from their 2011 high. Of the commodities we track on pikefin.com, cotton is by far the worst performer being down 35% since the beginning of the year (wheat is the next worst, down 14%).



Part of the reason for the decline in cotton prices may be the result of a less expensive cotton alternative being developed. From the motley fool:

Other more cotton-dependent companies have turned to natural alternatives. Naturally Advanced Technologies has developed a method of making a cotton-like fabric from flax, which is cheaper and easier to grow. The company is still in the process of commercializing but has already signed deals with the likes of Hanesbrands (NYSE: HBI ) and Levi Strauss.

(Click here for a larger view.
Click here for the current performance of stocks in the S&P 500.
Click here for a chart comparing % growth of eps estimates, eps actuals and stock price.
Click here for the current chart of cotton futures.)

Today's Major Market Move - Indonesian Stock Market Up 17% for the Year

For this edition of our Major Market Move feature we're going to be looking at the Indonesian equity market which has posted a strong gain so far this year. Both major Indonesian equity indexes, the Jakarta LQ-45 Index and the Jakarta Composite Index, are up over 17% this year. That performance has made the Indonesia stock market the second best globally after Venezuela.


The Jakarta Composite Index has been on a steady climb since the beginning of the year.


Indonesia's full year forecasted gdp growth is 11.8% so the equity markets are outpacing that by roughly 3X (17% equity market growth vs 6% midyear gdp growth). The 11.8% annual target puts Indonesia towards the upper end for the south pacific region.


Often times these days a growing economy is partly the result of currency devaluation. That isn't the case with Indonesia who's currency has strengthened over 6% vs the US dollar this year. This also means that US based investors in Indonesia have done particularly well.



(Click on the images for a larger view.
Click here for the current table of global equity indexes.
Click here for the current chart of the Jakarta Composite Index.
Click here for the motion chart of global gdp estimates (requires flash).
Click here for the current chart of the USDIDR (indonesian rupiah) cross.)

Today's Major Market Move - Google (GOOG) Up 13% for the Day

Yesterday afternoon Google (ticker: GOOG) announced their 2nd quarter results and the stock immediately shot up after hours. It ended today's trading session up a little under 13%. Results were better than expected on both the top and bottom lines, with revenues coming in at 6.92 billion (6.54 expected) and GAAP earnings coming in at 7.68 (6.78 expected). The stock is now only down 5% for the year; it took a big hit earlier in the year when the first quarter missed by a wide margin (actual eps: 5.51, expected 7.88).



Google's earnings are back on the track that analysts expected at the beginning of the year. I wouldn't be surprise the next couple of quarters of earnings estimates to be revised higher in the near future. Here's a chart of % growth of acutal eps, exepcted eps and stock price (with the just-released quarter not yet included):

Google may be considered a high tech company, but the bulk of their revenues still come from advertising and they are probably more exposed that most other software/internet companies to macro fluctuations. As shown in the above chart, GOOG's earnings were hit hard during the apex of the crisis at the end of 2008. The fact that GOOG missed big in Q1 of 2011 before QE 2 had a chance to fully kick in may also be more than a coincidence.

Make no mistake, this was a stellar earnings report and Google's core search business remains impregnable. Beyond search, Android is a clear hit but is not creating any direct revenue since Google is still giving it away, YouTube generates ad revenue but I haven't seen the detailed numbers to know exactly how much of an impact it is having and even with all the recent hype surrounding Google+, how much staying power will it really have? Facebook appears as entrenched in social media as Google is in search.

(Click on the images for a larger view.
Click here for the current chart of GOOG stock price.
Click here for the chart comparing % growth of eps actuals, eps estimates and stock price.)

Today's Major Market Move - Akamai Technologies (AKAM) down 40% for the Year

It's been a few days since we've covered an individual equity so today we're going to take a look at Akamai Technologies (ticker: AKAM) for our Major Market Move feature. Akamai has had a rough 2011, dropping 40% since January while the S&P 500 index is up 2.8%. AKAM has been the third worst performer of the S&P 500 this year, after Eastman Kodak (ticker: EK) and Tellabs (ticker: TLAB). (Ignore BLL, FAST and HRML in the following chart, their stocks have all split and we're still in the process of updating our historical data).


After their stock price recovered from the 2008-2009 crisis, it collapsed again after missing estimates in the last 2 earnings announcements (although it was only by a penny each time). Here's the chart of eps actuals vs. eps estimates:

And here's the chart of % growth of eps actuals and eps estimates along with stock price:

It's been a wild ride since 2008, with the stock first dropping 40% during the financial crisis, then surging up 80% in "stimulus" phase, and finally coming back down to being essentially flat. Akamai's next earnings announcement is on 7/27, and according to this analyst on fool.com, they should meet or beat with strong forward guidance. His rational:

Streaming volume should be up -- helped by a re-up of its relationship with Netflix (Nasdaq: NFLX ) -- while the introduction of Apple's (Nasdaq: AAPL ) iCloud should provide more downloading work. (Though, as analyst Dan Rayburn rightly points out here, the bigger opportunity would be a video version of iCloud.)

There's also e-commerce and mobile to consider. A new survey from the Pew Research Center finds that 35% of Americans now own a smartphone. Of this group, 87% access the Web or email on their device with 68% using these services daily.

As far as the most recent quarter is concerned, Netflix has been around since 2003; has their growth rate surged all of a sudden in the past few months?. I also see it being too early to even decipher what the future growth rate is going to be for iCloud (it was only just unveiled a little over a month ago). Google (ticker:GOOG), who has struggled in the early part of 2011, just announced a bang-up quarter so that may bode well for AKAM also getting out of the dole drums.

(Click on the images for a larger view.
Click here for the current table of the performance of stocks in the S&P 500.
Click here for the charts of eps estimates, eps actuals and stock price.)

Today's Major Market Move - Italian Stock Market Down Over 8% for the Week

We're going to stick with European equity markets for out Major Market Move post, specifically European countries that border the Mediterranean. Because of heightened sovereign debt concerns, Italy's stock market, as well as the stock markets for a good portion of the world, have taken a hit over the last 5 trading days. All of the Italian equity indexes we track are down well over 8%.


There was a pretty decent bounce back in equity markets in the latter part of the European trading day after the successful completion of an Italian bond auction. There were some concerns that the auction might fail. From the Wall Street Journal:

European stocks came off lows Tuesday as the Italian market pared losses following a broadly successful, albeit expensive, Italian bond auction.

Yields at Italy's auction of 12-month Treasury-bills came in at 3.67%, against expectations of 3.1%. Still, UniCredit's Luca Cazzulani said that considering the tense market environment and despite the higher auction yields, the auction result "is good and shows the recent tensions have not weighed negatively on demand for Italian paper."

In fact the auction turned out so much better than expected that rumors began circulating that the ECB was involved. From reuters:

They later slipped back below 6 percent on market talk the ECB was buying Italian and Spanish bonds even though bond traders who normally see such transactions said there was no sign of purchases.

I have a hard time believing that there wasn't some form of intervention. In fact what would really surprise me is if intervention had ONLY been limited to the Italian bond auction. Everyone with two firing neurons knows the game by now. The powers that be will throw everything they have at their disposal, and then some, to kick the can just a little bit further down the road. There are only 2 things that will give them pause.

This:



Or This:


Coincidentally (or maybe not so much), after the equity markets received their boost from the auction results, the commodity markets also started to surge higher. The soft commodities such as rice, wheat, corn, sugar, cattle all had particularly robust gains of over 5%. Gold is nearing its all time nominal high in US dollars and WTI Crude is back to threatening 100$/barrel.


As a nice little twist, the Fed meeting minutes were released today which indicated that some FRB members support additional easing. It will most likely be in the form of more QE but that term is now tainted so don't be surprised if they tweak the program and give it a different name. The releasing of the minutes coinciding with the European turmoil today reeks of coordination but bear in mind that the Fed meeting took place weeks ago and the timing of the release is planned well in advance.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of WTI crude futures.
Click here for the current performance of commodity futures.)

Today's Major Market Move - Cyprus Equity Market Down 8% for the Day

As a result of the worsening situation with Italian and Portuguese sovereign debt, there's a bloodbath going on in European stock markets right now. All the other news sources will be reporting on the usual suspects: Greece, Spain, Italy, Portugal, etc., but the largest downward moves at the moment are in Cyprus and Hungary.


The Cypriot equity markets are down a vertigo inducing 8% (imagine a 1000 point drop in the DOW in a single day). Hungary had managed to stay out of the limelight for the past few months, showing resilience after it saw dramatic weakening in it's currency at the beginning of this year. Chart of the USD - Hungarian Forint cross:


All of the recent gains in the equity markets of the PIGS have essentially been lost and those markets are now plumbing new lows for 2011. Oh how we pine for the days when a bailout-induced market boost would last longer than 2 weeks. Here's the FTSE MIB Italian Equity Index:



Italy and Spain are of course the big kahunas in the european debt minefield, but there has been almost no mention of Cyprus in the media. As mentioned here in an earlier post, Cyprus has a GDP twice that of Iceland and will most likely also require a bailout in the not-too-distant future.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of the USDHUF cross.
Click here for the current chart of the FTSE MIB Index.)

Today's Major Market Move - Kenya Equity Markets Down 14% for the Year

With all the fireworks going off in Europe, there's been less focus on equity and bond markets in other parts of the world, including Africa. Northern African markets garnered some attention during the spring time rebellions and the Eqyptian equity markets have yet to recover from the declines suffered during the ouster of Mubarak. However there have been other notable performers in Africa this year besides Egypt: the equity market in Ghana, which is the second best performer globally at 17% (and will no doubt soon be the subject of a Major Market Move post), and the equity market in Kenya, which is unfortunately on the other end of the spectrum, down close to 14%.


The Kenyan economy is seeing a double whammy with the Kenyan Shilling experiencing significant weakening. It's down 11% since the beginning of the year, third worst globally after Uganda and Belarus (which experienced a massive devaluation that was discussed in a previous post). The positive effects of currency devaluation on exports don't appear to have kicked in yet.


An event that has been weighing heavily on the economy is the ongoing drought throughout the Horn of Africa, which not only has impacted agriculture within Kenya, but has also forced the government and relief agencies to deal with a flood of refugees from surrounding countries. From the Australian Broadcast Corporation:

Dadaab in Kenya has now the dubious honour of being home to the largest refugee camp in the world.

Every day, a thousand Somalis stream across the Kenyan border into the camp to join the 367,000 people already living there. It takes them weeks to get there, and when they arrive they are malnourished and dehydrated. The exodus is the result of drought, this has been the driest year in 60 years.

(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current performance of exchange rates.)