MarketView for February 14

 

 

Summary 

 

The major equity indexes managed to recoup the day’s losses for the most part on Tuesday,. One key reason was an unofficial indication from the Greek bureaucracy that the conservative party leader was expected to deliver a letter of commitment to the country's international lenders.

 

The information was taken as a sign of Greece's commitment to the tough austerity measures demanded by euro zone leaders. It was also a catalyst for many to start buying late in the session. Late-day moves by stocks are often exacerbated by dealers who are hedging positions. Euro zone finance ministers are due to hold a telephone conference call on Wednesday about a 130 billion euros bailout to avert a chaotic Greek default.

 

Bank shares, which have been the most affected by developments out of Greece, cut some of their losses. Materials and financials were the worst performing sectors after rising more than 10 percent for the year. Citigroup ended the day down 2.4 percent to close at $32.08. Meanwhile, the Dow Jones Industrial Average has encountered strong resistance in the 1,355-1,360 area.

 

Volume was light with about 6.78 billion shares changing hands on the three major equity exchanges, a number that was just below the daily average of 6.96 billion shares.

 

Economic data showed a weaker-than-expected gain in January retail sales, which was due in part to discounting in auto sales, but a rebound in an underlying measure of sales pointed to an improving economy.

 

The S&P retail index  was up 0.3 percent after hitting an intraday high of 570.33, the highest level on record for the index.

 

Auto supplier BorgWarner gained 0.70 percent to end the day at $79.41 after posting a fourth-quarter profit that exceeded Street expectations on a 16 percent increase in sales.

 

According to Thomson Reuters data through Tuesday morning, of the 361 companies in the S&P 500 that have posted results, 63 percent have topped expectations, tracking below recent quarters through this stage in earnings season.

 

Micron Technology rose 6.2 percent to $8.34 after positive comments from analysts at JPMorgan and Oppenheimer. The stock is up 32.6 percent this year.

 

Moody's Investors Service put Britain's Aaa credit rating in jeopardy for the first time late on Monday. The agency also cut its outlook on the top-tier ratings of France and Austria and downgraded the ratings of six euro-zone nations, including Spain and Italy.

 

Data from Germany suggested that the German economy is picking up Speed. The ZEW economic think tank's monthly poll of economic sentiment jumped to 5.4 from minus 21.6 in January, well above the consensus forecast.

 

Apple plans to announce a new version of its iPad in the first week of March, a Wall Street Journal report said, citing a person briefed on the matter. Apple ended the day up 1.4 percent to close at $509.46 after closing above $500 for the first time on Monday.

 

Retail Sales Rise

 

Retail sales did not gain as much ground as had been expected in January, hurt by discounting in the auto sector, but a rebound in core sales suggested a solid underpinning for the economy's recovery. Total retail sales increased 0.4 percent last month, the Commerce Department said on Tuesday, below economists' expectations of a 0.7 percent increase. Sales excluding autos, gasoline and building materials rebounded 0.7 percent after falling 0.4 percent the prior month.

 

In the retail sales report, spending at gasoline stations rose 1.4 percent - the biggest gain since March 2011 - while receipts for electronics increased 0.5 percent. Dampening the overall increase, sales of cars and auto parts fell 1.1 percent, while purchases at non-store retailers, a category dominated by online sales, also fell 1.1 percent. The decline in auto receipts was surprising given that motor vehicle sales in January were the highest in nearly two-and-a-half years.

 

However, the increase in core sales, which correspond most closely with the consumer spending component of the government's gross domestic product report, suggested consumers were not growing more timid.

 

The government revised downward its estimates of retail sales in both December and November, suggesting consumers did not spend as much as previously thought during the holiday shopping season.

 

In another report, the Commerce Department said business inventories rose 0.4 percent to $1.56 trillion in December. And Another report on Tuesday showed confidence among small U.S. business owners hit a four year-high in January, according to the National Federation of Independent Business.

 

The economy still faces threats from a potential worsening of Europe's debt crisis or the possibility or fiscal tightening at home by, although comments Republican lawmakers on Monday suggested a deal was within reach to extend a payroll tax cut.

 

Extended unemployment benefits are also due to expire at the end of February. The economy could also take a hit if higher gasoline prices crimp consumer spending on other things.

 

A separate report from the Labor Department showed U.S. import prices were a touch higher than expected in January as petroleum and food prices rebounded strongly.

 

iPad Trademark Contested

 

A Chinese tech firm that says it owns the iPad trademark plans to seek a ban on exports of Apple's computer tablets from China, a lawyer for the company said. If successful, the move could deal a blow to the U.S. technology giant's iPad sales worldwide. Not only is China a huge consumer market but it is a major production base for the American company's iconic products including the iPad, iPhone and iPod.

 

The Chinese firm Proview Technology (Shenzhen) Co Ltd is petitioning Chinese customs to stop shipments of Apple's popular iPads in and out of China, though the customs have not responded to its request, lawyer Xie Xianghui told Asian Legal Business, a Thomson Reuters publication.

 

Customs officials could not be reached for comment and Proview declined to comment.

 

Apple's legal battle with Proview Technology over the trademark name iPad is emerging as the latest headache for the U.S. giant in a booming market and highlights the legal challenges facing foreign multinationals operating in China.

 

Apple lost a case to Proview Technology (Shenzhen) in a Shenzhen court in southern China late last year when the court agreed that Proview owned the iPad trademark. However, Apple has appealed the decision and a final hearing is due to start in the southern Guangdong High Court on Feb 29. This court's decision will be final under the Chinese legal process.

 

Proview's latest salvo comes a day after media reports that authorities in some Chinese cities had ordered retailers to stop selling Apple's iPad due to the dispute. Apple said it had bought the worldwide rights to the trademark long ago.

 

"We bought Proview's worldwide rights to the iPad trademark in 10 different countries several years ago. Proview refuses to honor their agreement with Apple in China and a Hong Kong court has sided with Apple in this matter," an Apple spokeswoman said.

 

Proview Technology has asked authorities in about 20 cities, including Shijiazhuang near Beijing, to stop retailers from selling the popular iPad tablet PC and has also filed lawsuits against Apple in Shanghai and Shenzhen, and retailers selling iPads in Futian and Huizhou, located in the south of the country.

 

Apple's options are limited to either settling with Proview Technology (Shenzhen), appealing to a higher court or facing devastating enforcement actions in China, legal experts said.

 

"There are two views we can take here. One view is, Apple was not sufficiently prudent and therefore, this was missed by Apple and its attorneys," said Elliot Papageorgiou, a partner and executive based in Shanghai at law firm Rouse Legal (China).

 

"A more charitable view would be that, Apple said that for business reasons we need to use this brand and as far as the name in China is concerned, let's cross the bridge when we come to it," he said.

 

Proview lawyer Xie, partner of Grandall Law Firm's Shenzhen office, said Apple was not currently in negotiations with the Chinese firm.

 

Local media reported recently that Proview was taking legal action, seeking up to 10 billion yuan ($1.6 billion) in compensation from Apple for trademark infringement.

 

"Without a win in that Shenzhen case, all the other actions, whether it is administrative or with different courts, customs, Apple is not in a good position at all," said Stan Abrams, an IP law professor at Beijing's Central University of Finance and Economics.

 

One More Time

 

Greece has a long history of promising reforms to its creditors and not delivering, and this time looks set to be no different. The result will be that sooner or later they won't get the money. Meanwhile, the Greek parliament defied violent street protests and voted in even more austerity, but fully implementing the measures is likely to prove an impossible task given acrimonious political divisions and deep-seated social unrest.

 

The package including public sector layoffs, sharply cutting the minimum wage and already dwindling pensions, as well as widespread tax increases has unleashed indignant public anger and tested the will of Greek politicians.

 

After decades of using public services as political spoils, the Athens government must also take on the corruption and inefficiency they fostered before they can implement the reforms that creditors demand before releasing further funds.

 

The punishing austerity bill was needed to secure a fresh bailout and avert a messy default that would shake the euro zone and comes after two years of wage cuts and tax hikes that have plunged Greece into its worst recession in decades.

 

International lenders, the IMF and the EU, blame the failure of the rescue plan so far on slow implementation of structural reforms, such as the opening up of markets and professions. There is widespread skepticism because of a long history of missed targets.

 There is a chance this is just delaying the inevitable."

 

Athens says the deeper than expected recession has put it behind agreed targets. Data on Tuesday showed the economy shrank 7.0 percent year-on-year in the fourth quarter last year, as the downward spiral quickened from 5.0 percent in the third quarter.

 

Greece has repeatedly voted in measures and privatizations that have never materialized. It is proving a Herculean task. The government has passed laws as many as three times to open up the legal and pharmaceutical professions to more entrants, aiming to make them more efficient and bring down costs, with no visible results, angering reformers as well as creditors.

 

The lucrative Greek cruise ship business, crucial to the key tourism sector, still suffers from restrictions two years after it was officially liberalized. As a result far fewer of the big modern cruise liners moor at Greece's picturesque ports and bays than for instance in Italy, depriving souvenir shops, cafes and restaurants ashore of armies of customers.

 

EU and IMF partners have voiced their exasperation openly, increasingly reluctant to commit another 130 billion euros to bail Greece out unless political parties clearly back the measures long term.

 

The three-month-old coalition government of technocrat Prime Minister Lucas Papademos, now backed by just the main two parties after the far right walked out refusing to vote for the austerity bill, does not have much time left with elections expected in April.

 

Labor and welfare reforms may take years to show results and an ambitious, 50-billion-euro privatization program has proved disappointing, with little prospect of reaching its full potential soon as investors keep away from crisis-hit Greece.

 

In a first test for parties, before Wednesday's Euro-group meeting called to approve the fresh bailout, Greek political leaders must give concrete assurances they will back the plan after the election and the government must come up with 325 million euros in cuts to secure aid.

 

Government officials said the expulsion of about 40 deputies who voted against the bailout from the two main parties was a good omen, cleansing parliament of the main opponents to the measures.

 

Sunday's vote in favor of a new wave of austerity was a sign politicians realized they must make a serious effort to tackle the crisis, government officials say.

 

But the election may well produce another government which is hesitant to push unpopular reforms through.

 

A recent poll showed Socialist party supporters moving to other groups further to the left, its standing down to 8 percent from more than 40 percent in the 2009 election. But politicians face widespread public anger, evident not just in the angry youths that burned or wrecked 93 buildings in Athens on Sunday night but increasingly among middle-class business people and civil servants who turn out to protest.

 

Athenians held a candlelit vigil outside the historic Attikon theater building, dating to 1870, which went up in flames during the riot and shop owners picked up the pieces of destroyed and looted shops in the city center.

 

Although the government has said it expects first signs of economic growth in late 2013, after five years of recession, unemployment has risen to record highs, the number of homeless and beggars on the streets of the capital visibly increasing.