Global equities sparkle a little

USA

U.S. equity markets advanced for the week, despite mixed economic figures and soft corporate earnings releases. For economics, U.S. trade deficit increased by 7.6% in March to reach US$43.5 billion, the second highest level in U.S.
history.

Oil imports surged by 21% in March which economists attributed to the build-up of petroleum for the war in Iraq and a cooler-than-expected winter across North America as the main reasons for the boost in oil imports for the U.S.

Canada, U.S.' largest trading partner, accounted for the majority of U.S. oil imports. As of March-2003, U.S. trade deficit owing to Canada widened to US$5.2 billion, the highest level since January-2001.

U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) fell by 1.9% and 0.3%, respectively, in April. While falling prices are conducive to consumer spending, deflation is the heart of concern for the U.S. Federal Reserve.

Most market analysts worry about the lack of pricing power in the U.S., however, certain economists reacted positively on these figures, as they signal a higher probability for a rate cut later this year.

The University of Michigan's preliminary consumer sentiment index increased to 93.2 in May from last month's reading of 86, pointing to rising consumer confidence on the back of the conclusion of the war in Iraq and rising equity markets. Also, U.S. jobless claims fell by 13,000 last week to 417,000.

For corporate announcements, Dell Computer reported a 31% increase in earnings for 1Q-2003, matching analysts expectations. Dell's worldwide shipments advanced by 29% in the period.

However, the company's CFO cautioned about not seeing signs of 'significant' near-term improvements in the PC industry. Separately, Intel's CEO reaffirmed its earnings guidance for the current quarter but also remained cautious about the prospect for a tech turnaround in the near term.

Wal-Mart, Target and JC Penney have reported their 1Q-2003 earnings. Wal-Mart's net profit matched with market consensus and increased by 13.5%, on the back of improved gross margins and solid performance from its international division.

However, Wal-Mart's revenue and same-store growth were short of market expectations. Both Target and JC Penney's 1Q-2003 earnings were short of market consensus, mainly as a result of slower sales. Wal-Mart remains our top pick for the U.S. retail sector.

Europe

The German DAX index performed positively last week after the German investor confidence index unexpectedly rose to 18.7 in May from April's 18.4, surpassing economists' forecasts of 17.

Moreover, speculation that the ECB may lower interest rates next month sparked German's export stocks such as Bayer and BASF, as they generate a substantial portion of earnings from the U.S. and other overseas markets.

Separately, European retailers rallied last week, on the back of Selfridges agreed to be acquired by Galen Weston, a Canadian billionaire, for a 628 million pounds.

Japan

Japan's economy recorded zero GDP growth in 1Q-2003, comparing to a 0.5% growth in 4Q-2003. In addition, Japan's exports dropped by 0.5% in 1Q-2003.

Certain economists worry that the outbreak of SARS in the Asian region will further erode Japan's exports in the coming months. Japanese exports stocks like Toyota, Honda and Matsushita performed negatively for the week.

On the contrary, Takeda, Japan's largest drug firm, reported 15% growth for its FY03 earnings, boosted by its new drug that cures blood pressure. Other Japanese drug firms like Yamanouchi and Eisai, also advanced after forecasting record earnings for the current fiscal year.