Barack Obama – stock indices’ best friend

World Markets

World stock indexes moved in different directions last week amid a variety of mixed news releases. Thus, the US Dow Jones, Nasdaq and SnP 500 were down 3.9%, 4.3% and 3.9% respectively. On the other hand, the UK FTSE-100, Austrian ATX PRIME, Belgian BEL-20, Japanese NIKKEI-500 rose by 0.2%, 5.5%, 3.5% and 1.2% respectively.

The US presidential election was undoubtedly the most eagerly anticipated event of the week. Democratic candidate Barack Obama collected enough electoral votes to clinch a historic victory in the American election, and investors greeted the election result with much optimism. Historically, the first post-election year each time when Democrats won the White House proved to be favorable for the stock market. Besides the positive expectations related to the election, investors’ optimism was strengthened at the beginning of the week by good macroeconomic news and corporate reports of some large American companies. In particular, market participants welcomed the decision of Australia’s central bank made the day before to cut its key interest rate by 0.75 of a percentage point as it holds out a hope that the global liquidity crisis might ease in the near future. The Bank of England surprised experts, having unexpectedly slashed its base rate by 1.5 percentage points to 3 per cent – the lowest level since 1955. MasterCard Inc., one of the world's largest credit-card operators, published its 2008Q3 financial report the day before. According to the data released, the company’s net loss for the quarter was $193.58 million, a reversal from year-ago net profit of $314.46 million. However, MasterCard’s third quarter revenues topped analysts’ expectations. Media company Viacom also reported its third-quarter financial results. The company said that its net earnings fell by 37% in the July-to-September period to $401 million, and revenues rose 4% to $3.41 billion. On the whole, the report was in line with analysts’ expectations.

Macroeconomic news from the USA spoiled investors’ mood a bit. Shortly after trading began on Tuesday, the US Commerce Department published a set of data on factory orders in the USA for September 2008. Analysts had expected the figure to fall by 0.7%, but in fact new orders received by US factories in September dropped 2.5%. Nevertheless, this statistical “spoon of tar” dissolved in the generally positive mood and failed to turn the course of trading around.

Later, however, this “spoon of tar” turned into a big scoop. Towards the middle of the week some fears appeared in stock markets that the stimulation measures proposed by Barack Obama will not be enough to scotch the financial crisis. In addition, a release of macroeconomic news fueled investors’ pessimism. Specifically, the index of business activity in the US services sphere, ISM Services index, was published during trading hours. The US October ISM Services index dropped to 44.4% from 50.2% in September. This marks the lowest level on record in the survey’s ten-year history. Analysts were expecting the index to fall to 47.5 percentage points. As a matter of fact, 50 points is the index’s barrier level separating growth and contraction of economy and while any number higher than 50% signifies industrial growth, the result below 50 indicates contraction in industrial production.

A series of unpleasant news came from the corporate sector. One of shareholders in American International Group (AIG) filed a lawsuit against the company, claiming that AIG's board had violated corporate law by accepting the federal government’s bailout of $85 billion. Besides, circumstances were unfavorable for the world's largest media company Time Warner Inc., which reported its financial results for the first nine months of 2008. The company’s net earnings fell by 21.6% to $2.63 billion from about $3.36 billion during the same period last year. The media conglomerate also lowered its earnings forecast for the full year. Shares in pharmaceutical companies also fell, including Pfizer Inc.

The financial sector has some problems as well. The report published by investment fund Blackstone Group appeared rather pessimistic, revealing the company’s loss for the past quarter of the current financial year. According to the company, it lost $502.5 million for its third quarter. Bank Wells Fargo said it intended to raise capital in a common stock offering to help pay for the deal to purchase American bank Wachovia Corp. Representatives of the US oil sector suffered from a not less pessimistic spell. In particular, shares of the US second-largest oil-and-gas corporation Chevron Corp. went down significantly amidst falling prices for oil.

The US Labor Department said Thursday that preliminary seasonally-adjusted annual rate of labor productivity growth in the USA in the third quarter of 2008 was 1.3% as compared to the previous quarter. According to the Labor Department report, the number of US workers filing new claims for jobless benefits edged lower by 4,000 in the week ending November 1, 2008 from the previous week's figure to 481,000, just above analysts' estimates of 480,000.

On Friday, stock markets closed with growth of the basic indexes for the first time in three days amidst investors’ expectations that the US Federal Reserve would cut its key rate again to stimulate the economy as rather pessimistic macroeconomic news suggest it is declining. In particular, the US Labor Department said in a report that the unemployment rate in the USA rose by 0.4 of a percentage point in October 2008 against the previous month to 6.5%, the highest the nation's unemployment rate has been since 1994. Apart from this, the US Commerce Department said the U.S. seasonally-adjusted wholesale inventories fell by 0.1% in September 2008 in comparison with August 2008 while analysts were expecting the figure to be up 0.3%. Besides, the world’s second-largest maker of graphics chips Nvidia Corp. published a financial report which exceeded analysts’ expectations. The US second-largest car maker Ford Motor Co. said its net loss for the first nine months of 2008 was $8.69 billion against the profit of $88 million earned in the similar period a year earlier. Ford’s revenues for the nine months of 2008 dropped 9% to $117.1 billion from $128.3 billion a year earlier. At the same time, analysts were expecting Ford to post worse results.

Ukrainian Market

The Ukrainian stock market showed very good performance for November 3-7, although it became worse by the end of the week. According to the results of the week, the PFTS index shot up by 13.7%, 40 most liquid stocks of the Ukrainian stock market were up 5.3%, and quotations of the companies traded in this period rose by an average 20.5%. However, second tier stocks fell by an average 6.9%. As for sectors, among top advancers there were energy companies, which gained an average 17.0%, and mechanical engineers, having added 12.8%.

As before, the upbeat mood was supported by growing world stock markets and some stabilization in the Ukrainian currency market as the National Bank of Ukraine started taking more active measures. Moreover, the International Monetary Fund approved a $16.4 billion stabilization package for Ukraine. One of the ambiguous pieces of news we would like to mention is the purchase of the majority share holding in Prominvestbank by a consortium of investors, whose structure has not been officially announced yet. Another Ukrainian bank, Nadra Bank, was acquired by Group DF controlled by well-known Ukrainian businessman Dmytro Firtash.

Investors were most interested in the stocks of Alchevsk Iron & Steel (+10.9%), Azovstal (+7.5%), Enakievo Steel (+25.1%), Ukrnafta (+13.2%), Centrenergo (+20.8%) and Avdiyivka Coke (+16.8%). It is important to note that the greatest declines in the production of steel and rolled products in October were posted by Kryvorizhstal, Mariupol Illych Iron and Steel, Alchevsk Iron & Steel, Dnipro Dzerzhinsky Iron&Steel and Petrovsky Metallurgy Works. Azovstal and Enakievo Steel suffered the least production declines in October.