Stocks finish higher upon a Monday which is in itself a bit of a novelty in an otherwise low volume news light day. The buyside bias of the day was supported by end quarter “window” dressing (fund managers sell their losers and belatedly pick up the winners. Energy stocks also posted solid gains with Exxon (+2.2%) finishing as the biggest winner in the S&P after crude prices moved over $71 again to an 8 month high.

The big board was also helped by Microsoft who gained two brokerage upgrades of price targets for the stock (Deutsche raising it from $30 from $22). Ford also chimed in which some positive noises saying that they foresaw H2 being better than the first half of 2009 (wouldn’t be hard I hear you mutter). But the big news was of course Bernie Madoff getting a dollar fifty years (or 3 years for every billion he stole). Shame our own Breffni O’ Brien won’t be up before Judge Chin.

Today’s Market Moving Stories

• China’s state-owned Chinalco is widely expected to take up its full entitlement to new shares in global miner Rio Tinto’s $15.2 billion rights issue, the Financial Times newspaper reported on Tuesday. There has been uncertainty over Chinalco’s intentions after indebted Rio ditched a deal with the Chinese group for a $19.5 billion capital injection in favour of the rights issue and an iron ore joint venture with BHP Billiton . By taking up its rights, Chinalco would be able to maintain its overall stake in Rio at about 9 percent. A Chinalco spokesman in Sydney declined to comment. A spokesman for Rio Tinto could not be immediately reached for comment
• The FT is reporting that the EU Competition authority may warn UK banks that they will have to make disposals in order to avail of the generous State aid to offset the apparent competitive advantage they may get. This isn’t just an idle threat as evidenced by their insistence that German banks Commerz & WestLB cut their assets by almost half. This may spell VERY bad news for the likes of Ulster Bank, First (in)Active and Bank of Scotland Ireland.
• The FT also writes that Euro Libor (inter bank rates) has fallen to new lows after the ECB’s €442bn cash injection last week, but the jury is still out. Most of that money – €236bn – was parked back at the ECB’s deposit facility, which suggests that the banks are hoarding a large part of the funds. It is still not clear whether this new money will ultimately lead to more lending, which is the goal of this exercise.
• Oil future hit $71pb, the Wall Street Journal noted, but why? It surely is not demand. The International Energy Agency has cut its forecast for world oil demand over the next five years to an average of 87.9m bpd in 2013, 7% fewer than it expected last July. Oil consumption is forecast to by 3% this year, the sharpest decline in a quarter-century. But if it is not demand, then the reason may be a lot more sinister, the Journal noted. Two possibilities are supply constraints, and speculation.
• More generally the perception that the UK economy may be one of the first to emerge from the mire should be very good news for Irish companies such as C&C, Fyffes (recall they upgraded guidance by 13% recently) and other agri food producers Kerry, Total Produce & Greencore all of whom have big UK exposures with relatively low valuations
• Sunrise European equities news is a tad light this morning on the last day of the quarter though with oil prices on the up Royal Dutch Shell is bid this morning. Clothing retailer H&M was cut to neutral from outperform over at Credit Suisse. CD retailer HMV has seen their profits halve from £89m to £44.2m as the windfall gain from the sale of their Japanese stores wasn’t repeated.

The Dog Days of Summer
The week got off to a predictably slow start in the US, with no major data releases and markets looking forward to a holiday-shortened workweek. Tuesday brings some relief in the form of data on US home prices, consumer confidence, and regional manufacturing activity.

House prices are difficult to measure because it is hard to compare like-with-like transactions and to adjust for quality changes such as renovations. For its part, the Case-Shiller 20-city series is continuing to slide and should be down about 18% on a year ago when May data are published Tuesday.

Despite the further fall in house prices, which should weigh on household wealth, consumer confidence should tell a different story, climbing further in June by four points to 59. Two of the five questions in the survey concern the labour market, and although it still remains weak, the news on the job front has been less negative, which may lead to a modest bounce.

Summer Time And The Living is Easy
British consumer morale improved in June to its best in 14 months as people became confident their own finances would improve for the first time in more than a year, a survey showed on Tuesday. The GfK/NOP consumer confidence index rose to -25 in June from -27 in May — the highest since April 2008 and in line with analysts’ forecasts. The index, while showing that people remain deeply gloomy as Britain suffers its deepest downturn in decades, has been improving in recent months and is now 9 points higher than a year ago.

All but one of the five sub-indices rose this month, and the index gauging people’s feelings about their personal finances over the next 12 months rose two points to +1, its highest since March 2008.
A string of recent data have suggested that Britain may already be pulling out of recession, but unemployment is still rising fast and policymakers have warned that it could be a long, hard slog to recovery. Tuesday’s survey showed that while Britons are feeling less gloomy about the prospects for the UK economy as a whole over the coming year, they have become less inclined to splash out on major purchases, with that index down 4 points from May to -26. “Confidence still remains fragile as uncertainty about the strength of any recovery and an increase in unemployment all mean that consumers remain wary,” said Rachael Joy at GfK/NOP.

In the UK Gordon Brown yesterday pledged £2.1bn to ensure 20,000 new affordable homes are built in the UK in the next two years. The announcement is a tripling of the £600m announced in the recent budget and is estimated to create 45,000 new jobs in construction. Brown said there was an “urgent need” for new social housing and affordable homes in all parts of the country. The news is a positive for the Irish house builders, especially McInerneys who generate around 50% of revenues from the UK social housing market.

Unemployment Struggles In Japan
The Japananese recent unemployment rate for June was released overnight. Unemployment continues to trend higher, rising to 5.2%, up from a low of 3.6% a 5 ½ year high and job availability shrank to a fresh record low. Finance and Economics Minister Kaoru Yosano said on Tuesday a rise in Japan’s jobless rate underscores the need for the government to guide economic policy flexibly. Yosano also told a news conference that the effects of government stimulus measures were not yet fully appearing in the economy. Yosano said the government had formally decided to offer financial support to Japanese PC chip maker Elpida Memory Inc. The support would be provided through a state-backed bank.

Meanwhile, Reuters reports that Japanese fund managers cut their global stock weighting to a new six-year low in June, worried that share prices may have risen too far without sufficiently strong evidence of a recovery for the world economy. They also lifted their bond allocations to a record level on the view that the recent debate about inflation and the search by central banks for eventual exit strategies from current easy policies has been overdone in light of the fragile state of the global economy. “For share prices to rise further from here, investors need to see corporate earnings improve in line with what they have been hoping for,” said Kenichi Kubo, senior fund manager at Tokio Marine Asset Management. The poll of 11 fund managers, taken June 16-24, showed their average stock allocation fell to 48.2 in June — their lowest level since May 2003 — from 49.7 in May. “Expectations of a bottoming-out in the global economy have been driving share markets since March. I think markets have already priced in such expectations. Markets are due for a correction in the coming three months or so,” said Yoshinori Nagano, senior strategist at Daiwa Asset Management.

Ahead today

• Eurozone M3 will be released at 09:00. M3 should grow at a slower rate of 4.6%. The focus will be on the growth rate of loans to the private sector, which is expected to decline to a second consecutive record low.
• At 09:30, UK GDP Q1 is due and should be revised to a below-consensus -2.2% on weaker construction. Household income data should show a sharp fall in debt-funding costs, with the saving ratio edging up.
• At 10:00, we get Eurozone CPI for June and the flash estimate of annual inflation should be negative for the first time since 1953 i.e deflation. I expect an above-consensus -0.1%, although there is a significant chance of a flat reading.
• US S&P/CaseShiller composite-20 house prices is released at 14:00. House prices are yet to stabilise and should be 18.6% below the level of a year ago.
• Also at 14:00 US consumer confidences should show that confidence bounced from 54.9 to an above-consensus 59.
• US Chicago PMI for June is at 14:45. The PMI should bounce from 34.9 to 39, which still indicates a sizeable contraction in activity.

Here we have the unintended consequences of rushed legislation a shock for GE, and we know who picks up the bill.

The helicopter Ben fan club.

And Finally… Here Is Our Favourite Old Chestnut

Disclosures = None