Today's Morning Report

U.S. Overnight Market Commentary 

U.S. stocks slid overnight, while Treasuries and the dollar rallied, as Federal Reserve Chairman Ben S. Bernanke said the economic outlook remains “unusually uncertain” without offering additional measures to stimulate growth. Oil dropped on an unexpected increase in inventories. The Standard & Poor’s 500 Index fell 1.3% to 1,069.59 at the 4 p.m. close in New York, halting a two-day advance. The yield on two-year Treasuries sank to a record low for the fourth time in five days and the Dollar Index surged 0.6%. Oil slipped below US$77 a barrel, while copper rallied 3% after Freeport-McMoRan Copper & Gold Inc. said the outlook for the metal is “positive.” Equities slid to their lows of the session as Bernanke said central bankers “remain prepared” to act as needed to aid growth, without providing any specific details. U.S. stocks staged a late-day rally yesterday as investors speculated Bernanke would announce plans today to stimulate the world’s largest economy. “Bernanke didn’t say anything positive,” said Sarah Hunt, research analyst at Alpine Mutual Funds in Purchase, New York. Alpine oversees US$6.5 billion. “People were waiting for some, ‘By the way, we’re going to make some announcement that we’re going to fix the world.’” JPMorgan Chase & Co., Bank of America Corp. and Hewlett- Packard Co. lost more that 2.4% to help lead the Dow Jones Industrial Average down 109.43 points, or 1.1%, to 10,120.53. Yahoo! Inc. slumped 8.5% and spurred a retreat in technology and media companies after sales missed analyst estimates on a drop in ad revenue from online searches. U.S. equities opened the session higher after Morgan Stanley, Apple Inc. and Wells Fargo & Co. joined the 83% of S&P 500 companies that have beaten the average analyst estimate for second-quarter profit so far in the earnings reporting season, according to data compiled by Bloomberg. The S&P 500 has rallied 4.6% from a 10-month low on July 2 amid optimism earnings growth will signal a stabilising economy. Equities turned lower when Bernanke’s prepared testimony was released at 2 p.m. While Fed officials plan to eventually raise interest rates from almost zero, “we also recognise that the economic outlook remains unusually uncertain,” Bernanke said today in testimony to the Senate Banking Committee. “We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilisation of our nation’s productive potential in a context of price stability.”

Europe’s Overnight Market Commentary

European shares made significant gains for the first time in more than a week on Wednesday, with banks rising after strong results from U.S. financials and on optimism that stress tests will boost the sector's outlook. The FTSEurofirst 300 index of top European shares rose 1.1% to close at 1,017.88 points, though it had been up more than 2% earlier. The index is still down more than 8% from a mid-April peak on worries about debt levels in Europe and the strength of economic recovery. European banks to gain included BNP Paribas, Barclays, Credit Suisse, HSBC and UBS, up between 1.3% and 2.4%. U.S. bank Morgan Stanley reported higher than expected second-quarter profit in spite of weak industry trends, sending its shares up more than 9%. "Good corporate earnings numbers from the banking sector helped," said Bob Parker, vice chairman of asset management at Credit Suisse. "And we bounced off good technical resistance points, having fallen earlier in the week." The stress tests, the results of which are due to be released on Friday, will be rigorous and have credibility, said Parker, adding: "Most will pass, and for those that don't there will be a plan to deal with them." The market's rally was fairly broad-based, though miners were another strong performing sector. Copper rose to its highest in more than three weeks on Wednesday due to strong physical buying and falling inventories. Antofagasta, Fresnillo, Kazakhmys, Vedanta and Xstrata rose between 3.1% and 7%. BHP Billiton rose 2.5% after reporting a 16% jump in quarterly iron ore output, taking annual production to a record. Fiat surged 6.7% after the Italian car maker's quarterly profit beat expectations and it said it might raise its targets later this year. Consumer brand company SSL International rose 33.5% after consumer goods firm Reckitt Benckiser agreed to buy the Durex condoms and Scholl sandals maker for 2.5 billion pounds (US$3.8 billion). BP rose 3.2% after announcing it would sell US$7 billion of assets to Apache. BP needs to raise funds following an oil spill in the Gulf of Mexico, and its shares are still down more than 39% from a mid-April peak, before the scale of the problem became apparent. Drugs giant GlaxoSmithKline ended the day 1.1% up after its results. The Euro STOXX 50, the euro zone's blue-chip index, rose 0.5% to 2,639.52 points, having earlier gone through a key resistance level of 2,669.29, the index's 38.2% Fibonacci retracement of the April high to the May low. In an effort to calm investors' jitters over the potential impact of the euro zone debt crisis on Europe's banking system, regulators are assessing how 91 banks across Europe would cope with another economic downturn, and the results are due on Friday after the closing bell.

Sources: AFR, Bloomberg, CBS, CNN, Dow Jones News Wires, Financial Times, Reuters, Pulse and Wall Street Journal.

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

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