While you were sleeping: Markets look to US earnings and growth stats

Tuesday 28th July 2009

US and European markets opened the week looking for direction from a slew of corporate earnings reports and US GDP numbers due on Friday, which should show a marked slowing in the recessionary impulse in the world's largest economy.

Across the board, key equities indices showed slight improvements on the previous week's sustained rally, with the MSCI world equity index rising 4.6% in the last week, a high point since last October and a 15% recovery from depths plumbed in January and the 43.5% collapse in the index last year.

In the US, there was a late surge in financial stocks, as housing starts for June showed an 11% increase, the strongest monthly jump in eight years and a further sign that there is light at the end of the tunnel for the US domestic economy although it may take house prices another three to six months to bottom out, chief US economist at Deutsche Bank Securities Jospeh LaVorgna told Bloomberg.

"We're barely past the housing bottom, this thing is still fragile," he said.

The Dow Jones Industrial Average index rose 0.17% to 9108.51, the S&P 500 index was up 0.3% to 982.18, and the Nasdaq showed a slight gain, rising 0.1% to 1967.89.

Among major stocks due to report second quarter earnings this week are Honeywell, Verizon, Time Warner, Exxon Mobil, Motorola, Deutsche Bank, BP and Shell.

Consensus forecasts for US GDP statistics out on Friday suggest the US economy will have shrunk 1.6% in the second quarter, compared with a 5.5% fall in Q1.

Meanwhile, the first tranche of a record US$115 billion in sales of longer dated Treasury bonds pushed yields, especially on 10 year notes, where they were at their highest in more than a month. US$6 billion in 20-year Treasury Inflation Protected Securities sold at a higher than expected yield of 2.387%, with two, five, and seven-year notes to be issued over the next three days.

On the political and regulatory fronts, US President Obama is hosting the largest ever delegation from China in Washington for trade and economic talks, while a US House of Reprsentatives document obtained by Reuters suggests that a fresh clampdown on the US$39 trillion credit default swaps market - the instrument at the heart of the global credit crunch - is imminent.

The document suggests Congress will consider banning speculation in that market, with a particular focus on speculation against borrowers' creditworthiness and a possible ban on so-called "naked" swaps, where there is no underlying asset held against the transaction.

On European equity markets, the picture was similar to the US, with a slight rise in most major indices. The Dow Jones Stoxx 600was up 0.42% to 220.59, while the FTSE 100 rose 0.21% to 4856.13. The CAC 40 at 3372.36 and DAX 30 at 5251.55 were similarly slightly improved, consolidating an eight month high point for European stocks as economic storm clouds continue slowly dispersing.

Gold prices consolidated at US$1953.05 an ounce, while copper prices reached a 10 month high, continuing the industrial metal's leading run-up on growing expectations of global economic recovery, rising 2.2% to $5,641 a metric ton in London trading. Likewise, crude oil prices remained around recent levels, up 0.5% at US$68.38 a barrel in New York.

Businesswire.co.nz

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