Rebound in the States

USA
The better than expected retail sales and higher demand for semiconductor equipment drove the S&P 500 and NASDAQ to their biggest weekly gain since September. Wal-Mart, Dell Computer and Applied Materials reported better than expected results also supported the market.

The latest semiconductor capital equipment book-to-bill ratio reinforced the recovering industry outlook. The preliminary April figure came out at 1.2, increased from the revised 1.05 in February, due to a faster rise in orders versus shipments.
April marked the 5th straight sequential m/m order increase since the trough posted in November. U.S. fabrication utilization data also showed a positive move over the past quarters.

The upbeat industry data, together with Dell's and Applied Materials' positive comments, should set a positive tone for U.S. techs in the near term. However, we anticipate profit taking on good news.

It remains to be seen whether the market can sustain further upside momentum. End market demand would ultimately need to grow for technology stocks to continue the cyclical upturn. All in all, trading-oriented investors are recommended to sell into strength.

Drug stocks were hit by regulator's investigation at various pharmaceutical companies, including Schering-Plough, Abbott Labs, and Pfizer.


Europe
While 1Q corporate profits were around minus 8% y/y, 2Q profits are expected to start showing more signs of recovery. The positive/negative surprise ratio has already improved in 1Q.

Looking ahead, the pre-announcement period in June-July would likely paint a brighter picture for European corporates' profit cycle and thus be the near-term driver for the equity market.

Sentiment towards the European chemical sector appears to have turned positive over the past months. Money flows going into the sector are currently at the highest in 3 months.

The European banking sector has outperformed the broader European market by about 7% in the past one-and-a-half month, led by the U.K. and French banks. This was a result of investors seeking defensive growth offered by commercial and consumer banks in more robust economies.

Capital-markets-sensitive banks should be underweight as the slump in the investment banking industry continues. Banks with heavy reliance on trading revenues may continue to be out of favour. Retail and consumer banks, on the other hand, have greater earnings visibility and sustainability.

Japan
The overall outlook for Japanese equities has become more positive, underpinned by improving corporate news, upward revision of earnings forecasts and an increase in restructuring and merger & acquisition activities.

Corporate restructuring is expected to generate profit recovery. Hence, for the time being, stock prices would likely be supported by the expectation of profit recovery.

There has been a rising trend of corporate stock buybacks following the abolition of the ban on treasury stocks last year. Since April, 171 companies had announced plans to buy back their own shares, totaling ¥2.4 trillion. These buyback programs would certainly improve the near-term equity supply-demand outlook.

Exporting companies are more preferred, for the export side of the economy is now doing better. Export volumes are beginning to respond to rising global economic activity.