Today's Morning Report

U.S. Overnight Market Commentary 

U.S. stocks rose, adding to the biggest rally in the Standard & Poor’s 500 Index since July, and Treasuries fell as an unexpected jump in home sales and a drop in jobless claims tempered concern the economic rebound is weakening. Oil advanced for a second day. The S&P 500 climbed 0.9% to 1,090.10 at 4 p.m. in New York, bringing its two-day gain to 3.9%, the most since July 8. The 10-year Treasury note’s yield increased 5 basis points to 2.62%. Oil added 1.5% after a platform in the Gulf of Mexico was struck by an explosion. Nickel rallied 2.9% to lead metals higher. The Swiss franc approached US$1 for the first time this year. The 5.2% growth in pending home sales and 6,000 decrease in initial jobless claims follow reports yesterday showing better-than-estimated expansion in U.S. and Chinese manufacturing, which triggered a 3% surge in the S&P 500. Economists on average forecast that government data tomorrow will show private employers added 40,000 jobs in August, while a reduction in census workers dragged total payrolls down by 100,000 and pushed the unemployment rate up to 9.6%. “Better housing sales, that’s encouraged people,” said John Carey, Boston-based money-manager at Pioneer Investment Management, which oversees about US$230 billion. “The economy is still growing, if slowly, and it would be nice to see some progress on the unemployment.” The S&P 500’s rally yesterday wiped out most of its 4.7% tumble in August, which was triggered by concern the economic recovery is slowing. The index remains 10% below its high for the year in April. Consumer and industrial companies led gains in nine of 10 groups in the S&P 500 today, with Home Depot Inc. and Honeywell Inc. climbing more than 2.5%. Today’s month-over-month increase in contracts to purchase previously owned homes defied economists’ average forecast for a drop of 1%, while the 472,000 initial jobless claims trailed the median estimate of 475,000 in a Bloomberg survey. “With initial claims in the range of what was expected, given the generally more positive way investors have greeted economic statistics, this will do no harm,” said Bruce McCain, who oversees US$25 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “The more important number is going to be tomorrow: the payrolls number.”

 

Europe’s Overnight Market Commentary

European equities edged lower on Thursday after the previous session's jump, though auto shares were buoyed by sales data in a market mostly holding its fire ahead of more U.S. economic data due later in the day. By 1155 GMT, the FTSEurofirst 300 index of top European shares was down 0.2% at 1,054.10 points after surging 2.9% on Wednesday, their biggest gain since May, on upbeat manufacturing data from China and the United States. The market showed little reaction to Thursday's decision by the European Central Bank to keep interest rates on hold at a record low, as expected, amid tepid economic recovery and persistent concerns about the banking sector. Analysts expect the euro zone central bank to extend its liquidity safety net to banks, offering unlimited funding until early next year at fixed interest rates. ECB President Jean-Claude Trichet will announce the decision on liquidity supplies at a news conference starting at 1230 GMT, when he will also reveal new staff economic forecasts. Tammo Greetfeld, equity strategist at UniCredit, said an extension of the ECB's liquidity support into the first quarter of 2011 would be a "double-edged sword". "On the one hand, we know that life for banks in the euro zone will be easier until the date the ECB announces, but on the other hand it also signals that the interbank money market does not function properly enough despite the publication of the bank stress test results. "My opinion is that this negative aspect would be a dominant factor," Greetfeld said. Utilities shares were among the top decliners on the index, with Centrica, E.ON and Energias de Portugal falling 0.1 %to 1.8%. But losses were limited by stronger carmakers, with the STOXX Europe 600 Automobiles & Parts index rising 1%. Daimler gained 1.9% after saying late on Wednesday that U.S. sales of Mercedes Benz and Smart brand vehicles rose 7.4% in August. Porsche gained 1.2% after reporting that sales of its cars surged 33% in the United States during the month. BMW, Volkswagen AG and Renault were up 0.8% to 1.3%. Investors are waiting for more U.S. data later in the session, including weekly jobless numbers and pending home sales, to give further indications on the strength of the recovery in the world's biggest economy.

 

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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