Warrants Highlight

Euro Markets Rallied 5%

Macquarie is pleased to list the following new warrants this morning:

This time, they are for real. Last Friday, European leaders came to agree on stronger measures to stem the 2-year-old crisis and to stimulate growth. Global markets cheered on the news, with European indices rising almost 5%, while the US indices rose 2.5%.

Breaking the vicious cycle
Previously, whenever European banks had trouble in financing themselves, the country’s government had to seek bailout fund from the central European governing body. This put immense pressure on the country’s finances, causing much unpopular austerity measures and surging sovereign yields. However, these austerity measures are commonly seen as anti-growth, reducing the ability of the government to repay its debts.

To break this vicious cycle, the European leaders agreed to use its emergency funds to support ailing banks directly without going through the individual governments. This lifts the heavy financial burden of the European countries in supporting the financial industry and allows them to focus their effort in promoting growth instead.

Fiscal cliff downgraded to “Fiscal Hill”
According to Macquarie Equities Research (MER) report dated 29th June, MER sees a potential compromise between the two US political parties where all tax cuts are extended through 2013, with 40% of the current spending cuts being implemented. In effect, this would mean just 20% of the economic impact of the full fiscal cliff would be felt in 2013E. Under this scenario, the US economy would continue to generate real growth of around 2% a year, as it has done in recent years.

Key Macro Data this week
Mon 2 Jul: PRC HSBC Manufacturing PMI (Jun), US ISM Manufacturing (Jun)
Tue 3 Jul: SG PMI (Jun), PRC Non-manufacturing PMI (Jun), US Factory Orders (May)
Wed 4 Jul: PRC HSBC Services PMI (Jun)
Thu 5 Jul: US ADP Employment Change (Jun), US ISM Non-manufacturing Composite (Jun)
Fri 6 Jul: US Non-farm Payrolls (Jun), US Unemployment Rate (Jun)

Singapore Market Wrap

STI up 1.8% for the week, 3.8% in June

Climbing 2.9% in the last three days, the benchmark STI overcame its reluctance to make any significant moves ahead of the European Summit which took place last Thursday and Friday. Global markets rallied on Friday evening after European leaders eased rules for emergency loans to Spain and made recapitalisation easier. The STI was up 1.8% week-on-week (wow) to 2,878.45. The gain accounted for close to half of the total 3.8% return in the month of June.

Call STI 2950MBeCW120831 (QE8W) exercise level 2,950.*
Put STI 2850MBePW120831 (QE9W) exercise level 2,850.*

China data provided boost for related stocks
Apart from the positive news from Europe, markets were also helped higher by China's report during the week that showed a rise in lending and real-estate activities and comments by its commerce ministry that the nation's trade growth had "sound momentum" in June.

Singapore-listed stocks with an exposure to China such as Yanlord (+4.7% wow, $1.225) and CapitaLand (+2.3% wow, $2.70) saw their share prices receive additional boosts on the news.

Call Yanlord MBeCW121203 (QR2W) exercise price $1.00.*
Call Yanlord MBeCW121002 (P8LW) exercise price $1.40.*

Call CapitalaMBeCW120903 (P0ZW) exercise price $2.582.*
Call CapitalaMBeCW120904 (QC5W) exercise price $2.979.*
Put CapitalaMBePW121203 (QR6W) exercise price $2.60.*

Banks lead gains
While the aid for Spanish banks technically have no direct impact on local banks, Singapore's two largest banks by assets were still favoured by buyers, finishing as the index leaders for the week. UOB rose 2.2% wow to $18.66 while DBS added 1.5% wow to $13.87.

DBS had said on Friday that it had tripled the expansion of its U.S commercial paper program from US$5 billion to US$15 billion. In a separate announcement last Wednesday, the bank's business in India posted record revenues and profits for its fiscal year 2011-2012 figures. DBS was also the only bank that finished in the green on Friday after gaining another 0.3% dod to $13.84.

Call UOB MB eCW121001 (QK4W) exercise price $17.30.*
Call UOB MB eCW121101 (QD7W) exercise price $19.00.*
Put UOB MB ePW121001 (QR3W) exercise price $16.40.*

Call DBS MB eCW120904 (QC6W) exercise price $14.00.*
Put DBS MB ePW121001 (QO9W) exercise price $13.00.*

Overnight Market Wrap

Joy from EU summit agreement

The US market rallied on news from the EU summit. The S&P made its climb intraday, closing 2.49% up as investors cheered the outcome from the fifteen-hour meeting at Brussels. The region took a step in the right direction with several key agreements.

First is the setup of a banking union by the end of the year. The single supervisory body will improve the European Central Bank (ECB) position in regulating the region's banks since all the banks are expected to follow the same rules and regulations.

Second, the ECB will directly recapitalize banks instead of going through their respective governments. This will reduce the implications banks have on their country in the event of a failure.

Third, the European Stability Mechanism (ESM), which is available next month, will lose its seniority status. This will place loans from ESM and government bond holders on the same level. Also, funds in the European Financial Stability Facility (EFSF) and ESM can now be used to buy up government bonds in the open market, keeping borrowing costs low.

Overnight Markets

Indices	Last	Change
STI	2878.45	1.1%
HSI	19441.46	2.2%
DJIA	12880.09	2.2%
S&P 500	1362.16	2.5%
Nasdaq	2935.05	3.0%
China A50	7802.63	1.7%

Corporate News

Corporate Announcements

Results announcements:
Thu 19 Jul: Keppel Corp 2Q12
Fri 27 Jul: SGX 4Q12