While you were sleeping: US, European stocks surge; bank bonuses attacked

Friday 31st July 2009

European and North American markets had another strong rally overnight, as early earnings season results continue to outperform expectations and money markets digested a huge US Treasuries offering better than expected.

The big Wall St story of the day, however, was banking industry bonuses, which topped US$32.6 billion in 2008 among nine top US banks, which received US$175 billion in taxpayer bailout funds during the same year.

All three key US stock indices rose, with the Standard & Poors 500 rising 1.2% to 986.75 and the Dow Jones Industrial Average gaining 0.9% to 9154.46 The Nasdaq Composite rose 0.8% to 1984.30, having climbed above 2,000 in intraday trading for the first time since October.

There was a similar picture in European markets, the FTSE 100 index, Germany's DAX and France's CAC 40 rose 1.7% to 2.1% on strong gains by numerous banking institutions and improved news from Europe's largest telecommunications companies. Telefonica of Spain, France Telecom, BT and Belgium's Belgacom were all gainers.

"It is clear from the corporate pronouncements that in the vast majority of cases, companies' assessment of the situation is that the worst is over and that the outlook for the second half is improving," UniCredit Research equity strategist Tammo Greetfeld told Reuters.

Merrill Lynch and Citigroup were among the group targetted in a report by the US State Attorney, Andrew Cuomo, who called his resulting report "No Rhyme or Reason: Bank Bonus Culture."

“When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well,” the report from Cuomo’s office says.

“When the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.”

Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co. paid bonuses totalling almost twice total earnings, at US$18 billion in bonuses in 2008 while receiving a combined total of US$45 billion in taxpayer dollars through the TARP troubled assets bailout plan.

The number of Americans continuing to make unemployment claims after their first week fell by 54,000 to 6.197 million in the week ended July 18, the lowest level since April. Initial claims for benefits rose by 25,000 to 584,000 last week, according to Labor Department figures, more than expected.

The US dollar fell on the decline in the number of people continuing to collect jobless benefits, buoying optimism that the recession is abating and sapping demand for the largest currencies as a haven.

The dollar traded at $1.4073 versus the euro, compared with $1.4050 and strengthened to 95.52 yen from 94.99.The yen traded at 134.44 from 133.45.Copper rose the most in two weeks on optimism about the global economic outlook.

Copper for September delivery rose 3.5% to US$2.564 a pound on the New York Mercantile Exchange.

Crude oil jumped more than 5% to on optimism demand for fuel will increase as recession abates. US crude climbed 5.7% to US$66.94 a barrel in New York.

Businesswire.co.nz

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