While you were sleeping: Investors focus on the positive

Wednesday 23rd December 2009

Investors continued to push stock prices higher in both Europe and on Wall Street, looking through the downgrade of Greece’s debt rating and the mix of economic reports in the UK and the US to more gains in 2010.

The Dow Jones Stoxx 600 Index rose to a five-week high, while US shares gained for a third day.

The stock activity came even after Moody’s joined Fitch and Standard & Poor’s in downgrading the quality of Greece’s national debt and after comments by Goldman Sachs’ chief economist to Bloomberg News that the stability of the euro could be at further risk if the fiscal situation deteriorates in other euro-member economies.

Amid the gloom, the UK statistics agency said the economy shrank less than expected in the third quarter. That came a day after the Confederation of British Industry increased its forecast for growth for 2010.

Most strategists see better days ahead for European equities next year, as earnings recover, predicting an 11% advance for stocks, according to a Bloomberg survey. Goldman Sachs and Bank of America expect shares in the region to rise more than 20% in the next 12 months.

A rally next year, Bloomberg said, would extend the biggest advance since 1999 for the Dow Jones Stoxx 600 Index, the measure most commonly used by the strategists surveyed. Banks and resource shares have paced the gains this past year.

On Wall Street, the three main benchmarks rose as investors focused on a report that showed existing home sales surged last month to their highest level since before the recession. That helped investors dismiss the first report of the day which showed the US economy expanded at 2.2% in the third quarter, less than an earlier estimate of 2.8%.

At midday, the Dow Jones Industrial Average was up 0.44%, the S&P500 Index gained 0.27% and the Nasdaq Composite Index was 0.42% higher. The Chicago Board Options Exchange Volatility Index, or VIX, fell below 20 for the first time since August 2008.

Purchases of existing homes increased 7.4% to a 6.54 million annual rate, the highest since February 2007, from a revised 6.09 million pace the prior month, the National Association of Realtors said today in Washington. The median sales price declined 4.3% from the same month a year earlier, the smallest decrease since November 2007.

KB Home led an advance in all 12 companies in an index of US homebuilders. DR Horton rose 2.3%.

Among other advancing stocks were most US airlines after UBS raised price targets Alaska Air Group, AMR Corp, UAL Corp, Continental Airlines and Delta Air Lines.

The Stoxx 600 climbed 0.6% to 251.15, the highest close since mid November. The UK’s FTSE 100 added 0.7%. France’s CAC 40 rose 0.7%, while Germany’s DAX gained 0.3%.

The price of oil edged lower after OPEC agreed, as expected, to keep production at current levels. Crude also eased in anticipation of a drop in US inventories.

The new front-month February contract for US crude futures fell US50 cents to US$73.22 a barrel by 1500 GMT (10 a.m. EST). The January contract expired on Monday down US89 cents at US$72.47, pressured by the stronger dollar.

London Brent crude for February fell US53 cents to US$72.46, slipping below US crude for the first time in a month.

As for gold, the precious metal slid to a six-week low in part because of a rally in the US dollar. Analysts said gold could test lows in the near term after breaking through US$1100, as investors close positions before the end of the year.

Spot gold was US$1086 an ounce by 1454 GMT (9:54 a.m. EST), versus US$1092.85 an ounce last quoted late in New York on Monday. Prices hit US$1085.10, their lowest since November 5.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.42% to 273.62.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.16% to 78.24.

The US dollar rose on Tuesday to its highest level in nearly two months against the yen and was last up 0.7% at 91.75 yen after touching as high as 91.82 yen, according to Reuters data, its strongest since late October. The euro was down 0.3% on the day at US$1.4242.

The yield on the benchmark 10-year note rose seven basis points, or 0.07 percentage point, to 3.74% at 11:43 a.m. in New York, according to BGCantor Market Data, the highest level since August 13. The two-year note yield gained two basis points to 0.88%.

The US plans to sell two-year notes on December 28, five-year debt on December 29 and seven-year securities on December 30. The total amount is forecast to be US$118 billion, according to Wrightson ICAP LLC, an economic advisory firm in Jersey City, New Jersey.

Credit-default swaps on the Markit CDX North America Investment-Grade Index, used to speculate on the creditworthiness of 125 companies in the US and Canada or to protect against losses on their debt, declined 1.5 basis points to 84 basis points as of 10:08 a.m. in New York, according to broker Phoenix Partners Group.

Businesswire.co.nz

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