EM Markets Up, Currency Weak
Emerging markets were up for the sixth day in row with strong follow through coming in today off the People's Bank of China (PBOC) announcing Q1 better-than-expected earnings and the stimulus package working. Dollar strength gives some macro pressure. Oil is flat and awaits inventory data in the U.S. while earnings in Russia and Latin America continue to be decent.
All major foreign exchange currencies (Brazilian Real, Mexican Peso, South Korean Won, Russian Ruble, South African Rand...) were .50-1 percet weaker today. Watch for any extended weakness for signs of trouble.
Stress Tests Spark Caution with CommoditiesAluminum was up about 3 percent, while Copper
prices fell around 3.3 percent after a two week high on Tuesday as
new reports on the government stress tests indicated that 10 U.S. banks may need additional capital. The results are scheduled to be released on Thursday. The
CRB is still only 15 above its 20 year low.
Tim is liking silver plays here and is expecting continued outperformance in the sector. Despite any derailiment from banks – we are at very early stages of cyclical recovery, or at worst in a pause from a long term structural commodities boom cycle. There is great value here if you believe this theme.
This morning, Brazil claims it found the world's third largest potash deposit. Brazil normally imports 90 percent of its potash needs. The bottom line here is very negative for pricing of potash if the size is accurate. Potash Corp of Saskatchewan Inc. (POT) has long been coverted by BHP Billiton Ltd. (BHP), could this merger happen? BHP has been thwarted in other recent takeover efforts – but they may be hungry.
Federal Reserve Chairman Ben Bernanke also offered a little optimism this week, however, saying that the housing market is bottoming out. The
CRB had its first down day in a week and the
DXY surged up above 84.129, from 83.753 from Monday.
Seymour also says to watch out for the latest earnings report from mining giant Companhia Valedo Rio Doce (
VALE), the world’s largest producer of iron ore, to get a good indicator on the actual demand for the metal (as well as coal) from China. Vale saw
production fall about 37 percent for the first quarter as it shut down mines because of lower demand and a decline in steel production.
China has said it would hold out for lower prices. The company also had a big run up 49 percent from March 9, and Goldman is predicting that steel destocking is waning and could end in Q3.
Latin American steelmaker Ternium SA (TX) rallied Tuesday on decent earnings and an improvement in its balance sheet.
The company, based out of Mexico, Argentina and Venezuela, reported poor revenue, but also a free cash flow of $341 million (up from a negative $98.8 million in Q1 of last year) to pay off $1.8 billion in debt. (down $345.4 million from December 2008). It's a cheap buy at $9.78, and was up 3.1 percent at close Tuesday. TX had been a victim of President Hugo Chavez interference last year, and this Venezuelan hanover still weighs on the stock. Any improvement there is a catalyst to a bigger upside.
Both silver and gold
gained earlier this week with news of the stress tests and and a weakening dollar. Seymour says gold isn't likely to stay in the position.
Dryships' Ship Has Sailed
Seymour says he has sold his shares of Dryships Inc (
DRYS) after positive reverberation from a $630 million, 3-year
deal with Petrobras (
PBR) to explore drilling in the Black Sea, as well as a better-than-expected Q1
earnings report. Dryships was up 2.64 percent at close on Tuesday.
Signs of Easing in Latin America
Expect the strong performance in Latin America to continue, says Seymour, with a focus on domestics and a target of 900 (up 36 percent) on the MSCI EM Index (
MXEF).
Valuations are not stretched, and only a 30 percent rally has people scratching their heads. In the absence of technicals, buyers would be lining up on fundamental valuation and demand resurgence.
Israeli Drug Maker Looks Good Long Term
Teva Pharmaceutical Industries Ltd. (
TEVA) r
eported better than expected Q1 earnings Tuesday with an EPS of $0.71 but with lighter revenues from a negative foreign exchange effect of about $200 million on its top line.
This was the first quarter that included consolidated results with U.S.-based, generic-drug maker Barr Pharmaceuticals, which it acquired in mid-2008 for $7.5 billion.
It was a solid beginning to the year despite the negative foreign exchange impact, making it difficult to forecast. The U.S. continues to be driven by Copaxone, ProAir and several key generic products including Lotrel, Yasmin, Protonix, and the launch of Solodyn while growth overseas was very solid with strong performances in Spain, Poland, Germany, Russia and Croatia. The Barr acquisition had a better-than-expected impact on the gross margins (58.4 percent) and quarterly profits tripled.
Teva didn't do much in the recent market rally as investors rotate away from defensives (down .63 percent at close). This may continue in the near term. However, Seymour thinks the stock will move slowly higher in the long term as the company keeps putting up numbers throughout the year.
China Emerging as Top Auto Market
The Japanese car manufacturer Toyota (
TM) plans on
easing cuts in Camry and RAV4 sport-utility-vehicle production as the auto market slump stabilizes. It decreased its output last year from its plants in the U.S., Canada and Mexico in anticipation of weak demand.
And in China, General Motors (
GM) has seen sales hit
a new high up 50 percent from last year. Vehicle sales in China have thus far outpaced those in the United States and could eventually bump China up as the world's largest auto market. But Congress is also actively working to implement a "
scrappage" plan (which GM has agreed upon) which would provide vouchers in exchange for older automobiles and potentially boost new sales.
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