While you were sleeping: Bernanke's testimony, Caterpillar's earnings

Wednesday 22nd July 2009

Federal Reserve Chairman Ben Bernanke said there are signs of improvement in the US economy though the central bank is likely to keep its stimulatory monetary policy for longer.

The Fed “believes that a highly accommodative stance of monetary policy will be appropriate for an extended period," Bernanke told the House of Representatives Financial Services Committee.

"Better conditions in financial markets have been accompanied by some improvement in economic prospects," he said. “Despite these positive signs, the rate of job loss remains high."

Bernanke said the Fed was ready to halt its stimulus measures of keeping interest rates near zero and pouring cash into the banking system should signs emerge that inflation is rebounding.

“In light of the substantial economic slack and limited inflation pressures, monetary policy remains focused on fostering economic recovery,” he said.

US Treasuries rose after Bernanke’s statement while stocks on Wall Street pared their gains.

The yield on the 10-year Treasuries tumbled 13 basis points to 3.48% while the yield on the 30-year bonds fell 14 basis points to 4.38%.

The Standard & Poor’s 500 rose 0.4% to 954.58 and the Dow Jones Industrial Average gained 0.8% to 8,915.94. The Nasdaq Composite increased 0.4% to 1,916.20.

Caterpillar, the maker of heavy earth-moving equipment, climbed 7.7% to US$39.46, leading gainers on the Dow, after reporting second-quarter profit of 72 cents a share, more than three times higher than expected. The company cut jobs, benefited from a lower tax rate and a pickup in demand as a result of the government’s stimulus efforts and easier credit.

Caterpillar raised its 2009 earnings forecast and said there are prospects for the world’s biggest economy to resume growing by the end of the year.

“We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” said chief executive Jim Owens.

Merck climbed 6.1% to US$29.65 having posted a smaller-than-expected drop in second-quarter profit, after it eliminated jobs and boosting sales of its Singulair asthma treatment. Pfizer gained 2.9% to US$15.70.

CIT Group Inc. tumbled 22% to US$0.98 after saying it will post a second-quarter loss of more than US$1.5 billion and may yet need to file for bankruptcy if it can’t meet repayments on US$1 billion of floating rate notes on August 17.

Lockheed Martin Corp. fell 8.5% to US$75.13 after the US Senate voted to end production of the F-22 fighter jet, having ordered 187. The decision is a victory for President Barack Obama, who had threatened to veto any measures approving funding for more of the aircraft.

“At a time when we’re fighting two wars and facing a serious deficit, this would have been an inexcusable waste of money,” Obama said.

The Defense Department’s 2010 budget will be US$680.4 billion under plans the Senate is to pass this week.

Exxon Mobil rose 2.2% to US$70.47 after the price of crude oil gained.

Oil climbed above US$65 a barrel, a two-week high, as better-than-expected earnings stoked optimism demand for fuel will revive.

US crude gained 74 cents to US$64.72 a barrel, having earlier reached as high as US$65.53. August US futures expire at the close of trade on Tuesday in the US.

The front-month August US contract expires at the close of trade Tuesday and will be replaced by the September contract, which gained 32 cents to US$65.61.

Gold futures for August delivery fell 90 cents to US$947.90 an ounce on the New York Mercantile Exchange.

The US dollar rose from a six-week low after Bernanke’s testimony and amid renewed concern about bankruptcy at CIT Group.

The dollar rose to $1.4196 from $1.4231, having earlier weakened to as low as $1.4277. The greenback slipped to 93.66 yen from 94.19. The yen strengthened to 133 per euro from 134.05.

In Europe, stocks rose for a seventh straight session. The Dow Jones Stoxx 600 Index rose 0.8% to 233.11. The UK’s William Morrison Supermarkets led the European benchmark index higher, climbing 8.2% after raising its full-year earnings forecast on stronger-than-expected sales and cost cutting.

BASF SE, the world’s largest chemicals company, rose 2.3% after rival DuPont Co. posted earnings that beat expectations.

Finland’s Kone, the elevator company, rose 5.1% after reporting higher-than-expected second-quarter earnings of 146.3 million euros. Nokia Oyj, the world’s biggest manufacturer of cell-phone handsets, fell 2.5% after Morgan Stanley cut the shares to ‘underweight,’ because of increased competition.

The UK’s FTSE 100 climbed 0.9% to 4,481.17 and Germany’s DAX 30 rose 1.3% to 5,093.97. France’s CAC 40 rose 1% to 3,302.89.

Businesswire.co.nz

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