While you were sleeping: Bernanke upbeat; stress tests loom

Wednesday 6th May 2009

Federal Reserve Chairman Ben Bernanke said the US housing slump may be near its bottom, stoking optimism the recession in the world’s largest economy will end this year.

Still, he warned that his more upbeat outlook was predicated on the financial system avoiding another credit shock that would slow the recovery.

“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke said in testimony to the congressional Joint Economic Committee. “A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.”

Bernanke’s comments came as the Institute for Supply Management’s index of non-manufacturing businesses rose to a seven-month high 43.7, edging closer to the 50 level which is the cut off between contraction and expansion.

Stocks on Wall Street ended the session lower, having rallied the previous day. The Dow Jones Industrial Average slipped 0.2% to 8410.65 and the Standard & Poor’s 500 fell 0.4% to 903.80, while holding above 90 for a second session.

The Nasdaq Composite fell 0.5% to 1754.12.

JPMorgan Chase slipped 2.7% to US$34.82, leading the Dow lower, while American Express declined 2.6% to US$26.57.

Walt Disney climbed 1.3% to US$23.15. The world’s largest media company posted a 46% drop in second-quarter profit to US$613 million on lower earnings from television and theme parks.

Citigroup rose 3.4% to US$39.41. The lender is working to finalise a brokerage venture using its Smith Barney unit with Morgan Stanley, locking in a US$5.8 billion gain to convince regulators it doesn’t need more capital, Bloomberg reported, citing people familiar with the matter. The firm is aiming to complete the deal by June 1, creating a brokerage with US$1.7 trillion of assets that is 51% owned by Morgan Stanley.

The stress tests may show about 10 of the firms need more capital if they are to survive the economic slump, Bloomberg said.

The US dollar advanced against the euro for the first time in three days after Bernanke’s comments and optimism the latest economic data points to a trough in the recession. Also weighing on the euro, figures showed European producer prices had their biggest slide in 22 years.

The dollar strengthened to $1.333 per euro from $1.3406 yesterday and advanced to 98.82 yen from 98.80. The euro slipped to 131.68 yen from 132.45.

Stocks rose in Europe. The Dow Jones Stoxx 600 Index gained 0.6% to 205.07, led by a 29% surged for National Express the UK mass transit company, and Bank of Ireland, which climbed 21%. Switzerland’s UBS AG rose 2.3% after posting a smaller first-quarter loss and an increase in capital.

In London, the FTSE 100 jumped 2.2% to 4336.94, led by a 12% gain for British Airways. Resource stocks climbed when the market re-opened after a holiday, on reaction to figures showing manufacturing in China rose for the first time in nine months.

Rio Tinto jumped 2.8% and Vedanta Resources jumped 12%. Lloyds Banking Group gained 10%.

Standard Chartered gained 8.5% after forecasting a record profit.

Gold climbed in New York. Gold futures for June delivery rose 0.9% to US$910 an ounce on the New York Mercantile Exchange.

Crude oil slipped from a five-month high amid speculation US Energy Department figures due tomorrow will show rising inventories of crude.

Crude oil for June delivery fell 1.2% to US$53.84 a barrel on the New York Mercantile Exchange. Copper for July delivery fell 2.8% to US$2.0835 a pound.

Businesswire.co.nz

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