Today's Morning Report

U.S. Overnight Market Commentary 

U.S. stocks fell, slowing a global rally, as the Standard & Poor’s 500 Index failed to remain above levels watched by traders and optimism about China’s plan to relax the Yuan’s fixed rate to the dollar faded in the last hour. Commodities pared gains and Treasuries trimmed losses. The S&P 500 slipped 0.4% to 1,113.2 at 4 p.m. in New York after jumping as much as 1.2% in the first hour. The Reuters/Jefferies Index of commodities trimmed a 1.6% rally to less than 0.3%. Ten-year Treasury yields rose 3 basis points to 3.25% after surging 8 basis points. The losses in U.S. stocks weren’t enough to erase gains in the MSCI World Index, with the developed-markets gauge rising 0.5% for a 10th straight advance, the longest streak in 11 months. Retailers had the steepest decline among 24 groups in the S&P 500, losing 1.7% collectively, amid concern a stronger Chinese currency will boost the cost of importing goods from the country. U.S. equities extended losses as the S&P 500 failed to stay above a level marking a recovery of 50% of its bear-market plunge from a 2007 record and remained below its average levels over the past 50 and 100 days. “The announcement out of China elicited an emotional response from the market,” said Alan Gayle, senior investment strategist at RidgeWorth Investments in Richmond, Virginia, which oversees US$63 billion. “A closer look at the announcement suggests China’s approach is very gradual and it is continuing at its own pace. It’s a less dramatic move when looked at more closely.” All 30 stocks in the S&P 500 Retailing Index retreated, with Macy’s Inc. and J.C. Penney Co. leading with declines of more than 3%. Amazon.com Inc. was the biggest drag on the group after cutting the price of its Kindle electronic reader by 27%. Microsoft Corp. and Apple Inc. lost more than 1.4% as technology companies had the second-biggest retreat among 10 groups. Early gains in the U.S. stock market were led by commodity producers and industrial companies amid speculation China’s plans signalled the global economy is gaining steam and a stronger yuan would boost demand for raw-materials and machinery. Industrial companies and materials producers were the only two S&P 500 groups to end the day higher among 10 industries. The People’s Bank of China pledged on June 19 to make the Yuan more flexible, while ruling out a one-time revaluation of the currency that’s been held at about 6.83 Yuan per dollar since mid-2008. The global economy is “gradually recovering and the upturn in the Chinese economy has become more solid,” it said in a statement announcing the action.

 

Europe’s Overnight Market Commentary

European shares rose for a ninth straight session on Monday to a seven-week closing high as China's move to allow a flexible Yuan raised hopes for a recovery in the global economy and boosted demand outlook for commodities. Mining and energy shares were among the top gainers, taking strength from firmer metal and oil prices which climbed on expectations a stronger Chinese currency would lift purchasing power for foreign goods in the world's third-biggest economy. The FTSEurofirst 300 index of top European shares ended 1% firmer at 1,055.38 points, the highest close since early May. It is up more than 7% in nine sessions, but is up just 0.8% for the year as worries about debt levels in the euro zone hurt sentiment in April and May. The Yuan surged on Monday by the most of any day since its landmark revaluation in 2005 after the country's central bank announced over the weekend that it would allow more flexibility for the currency. "This can be viewed as a vote of confidence by the Chinese officials in the strength and the resilience of the Chinese economy and that is being taken as positive," said Klaus Wiener, head of research at Generali Investments. "We had a nine-day spell of good performance. We may see a setback at some point, but on balance, we will see a slightly positive drift in equity markets for 2010." Equities across the world rose on expectations that China's move would ease political tensions with the West and encourage investors to snap up riskier assets. A higher Yuan would also help temper inflation in the country, which could mean Beijing would have less need to tighten monetary policy aggressively. "It is a powerful story for equity markets," said Mike Lenhoff, chief strategist at Brewin Dolphin. "China's readiness for further exchange rate reform is just what is needed. Together with interest rates on hold at the major central banks, it provides another means of reflation for the global economy." Among miners, BHP Billiton, Rio Tinto and Vedanta gained 4.7% to 6%, while oil companies Royal Dutch Shell, Repsol and Tullow Oil added 1.4% to 2.3%. "It's totally on the back of China, and miners are the best performers, which shows you where the drive in the markets is coming from. We're also seeing generic higher appetite for risk," said Joshua Raymond, market strategist at City Index. But BP fell 2.2%. An internal BP document released by a U.S. lawmaker estimated a worst-case scenario rate for the Gulf of Mexico oil spill could be about 100,000 barrels per day, far higher than the current U.S. figure. Shares in European oil services firms got a boost from news that Oslo-listed oilfield services provider Acergy has agreed to buy rival Subsea 7 in an all-share deal set to create a leader in undersea engineering. Subsea and Acergy rose 9.1% and 9.6% respectively, while France's Technip gained 5.5%. Investors' appetite for risky assets also helped banks, with the STOXX Europe 600 banking index rising 0.8%. Standard Chartered, HSBC, Barclays and Societe Generale rose 1.5% to 1.7%.

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

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