Today's Morning Report

U.S. Overnight Market Commentary 

U.S. stocks fell overnight, Treasuries gained and the dollar strengthened against the euro after reports showed American housing starts declined the most in 14 months and FedEx Corp.’s profit forecast trailed estimates. Oil rose to a six-week high. The Standard & Poor’s 500 Index slipped 0.1% to 1,114.61 at 4 p.m. in New York as about three stocks slumped for every two that rallied on U.S. exchanges. The measure had fallen as much as 0.7% earlier. Yields on 10-year Treasuries lost 4 basis points to 3.26%. The U.S. currency climbed 0.2% to US$1.2312. Crude oil futures rose 0.9% to US$77.67 a barrel. Retailers, manufacturers, transportation companies and commodity producers dropped in U.S. stock trading as FedEx’s full-year profit outlook and the biggest drop in housing starts since March 2009 overshadowed better-than-estimated growth in industrial production. BP Plc’s 1.4% gain in New York equity trading following an agreement to pay US$20 billion to victims of the Gulf of Mexico oil spill wasn’t enough to turn the S&P 500 around. “The recovery is not accelerating, it’s decelerating, and there is reasons for investors to take a step back and evaluate,” said David Kovacs, head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages US$19 billion. FedEx “is a barometer of economic activity, and the fact that they missed relative to estimates indicates there are some clouds on the horizon.” FedEx, the world’s largest air-cargo carrier, declined 6% in U.S. stock trading for the biggest drop since December. The company forecast annual profit that trailed the average analyst estimate as labour costs climb in a “moderate” economic recovery. Indexes of consumer stocks in the S&P 500 lost more than 0.5%. Fannie Mae and Freddie Mac, the mortgage firms 80% owned by U.S. taxpayers, plunged after regulators told them to delist their common and preferred shares from the New York Stock Exchange. Fannie Mae dropped 39% and Freddie Mac slumped 38%. Speculation that BP would put the US$20 billion into an escrow account helped its shares as well as the S&P 500 recover from losses. BP maintained gains even after cancelling it’s US$10- billion-a-year dividend for the first three quarters of 2010. Credit investors are pricing in a 36% chance BP Plc will default within five years as it tangles with the Obama administration over cleanup costs and claims for the biggest oil spill in U.S. history.

 

Europe’s Overnight Market Commentary

European shares rose on Wednesday for the sixth straight session, hitting a near five week closing high, as gains in the oil sector offset Nokia slumping after it issued a profit warning. The pan-European FTSEurofirst 300 index of top shares closed up 0.2% at 1,039.25 points, its highest close since May 13. The index is still down around 6.6% from a mid-April peak on concerns about the euro zone debt crisis. “We have had a decent run over the past few days and obviously there are limits to the extent which optimism is going to recover," said Peter Dixon, economist at Commerzbank. "U.S. housing starts were also weak and that is going to weigh on market sentiment to a degree." The markets had earlier fallen after U.S. housing data fell to a five-month low. The energy sector provided support as crude touched its highest level since mid-May. BG Group and Total were up 2.1% and 1.2% respectively. But BP slipped 1.5% and is down 48.2% since the oil spill started in April after a report it had agreed to President Obama's demand to place about US$20 billion in escrow, to pay claims resulting from the Gulf of Mexico oil spill, the worst in U.S. history. Nokia dropped 8.9%, wiping about €2.7 billion (US$3.3 billion) off its market capitalisation. The company warned that profitability at its key phones unit would be weaker than expected this quarter. Sentiment was fragile after the premium investors demand to hold 10-year Spanish government bonds over German bunds hit a euro lifetime high following a report that the European Union, the International Monetary Fund and the U.S. Treasury were drawing up a liquidity plan for Spain.

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Hanuman Investments Pty Limited trading as Hanuman Private Wealth - AFSL No. 313416

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