Today's Morning Report

U.S. Overnight Market Commentary 

U.S. markets surged overnight, sending benchmark indexes up the most since May, while the dollar and Treasuries slid as growth in American retail sales bolstered optimism in the earnings season and investors speculated European banks will pass stress tests. The Standard & Poor’s 500 Index extended a two-day rebound from a 10-month low, rallying 3.1% to 1,060.27 at 4 p.m. in New York for its best gain since May 27. The Stoxx Europe 600 Index climbed 1.4% as Spanish and Italian lenders surged. The Dollar Index lost 0.2% to a two-month low of 83.888 and 10-year Treasury yields rose six basis points to 2.99%. Oil climbed from a four-week low and copper jumped. Retailers advanced as the International Council of Shopping Centres said sales were growing at the fastest pace since 2006, easing concern that a slump in consumer confidence will undermine the economic recovery. Banks led the rally as State Street Corp. reported a profit and people with knowledge of the talks said European stress tests may assume a 17% loss on Greek bonds, half of the worst-case scenario estimated by JPMorgan Chase & Co. “The market is very oversold,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees US$550 billion. “The improvement in retail sales numbers was enough to get some people back in. Over the next few weeks, we’ll probably get both economic and earnings data that will show that we’re not going to go back into recession.” The S&P 500 has tumbled 13% from its 2010 high in April amid a deceleration in the manufacturing and service industry expansion, a slow-to-recover job market and concern over Europe’s debt crisis and China’s steps to cool its economy. The gauge’s 14-day relative strength index, a measure of market momentum, fell to 30 on July 2, the day the S&P 500 closed at its lowest since September. An RSI of 30 often signals that stocks fell too far, too fast to analysts who study charts. The Dow Jones Industrial Average rose Tuesday for the first time in eight days, snapping its longest losing streak since the financial crisis of 2008. Cisco Systems Inc., JPMorgan, American Express Co. and General Electric Co. surged more than 4.6% today to lead the 30-stock gauge to its first back-to-back advance in almost three weeks. The Dow surged 274.66 points, or 2.8%, to 10,018.28 for its first close above 10,000 this month. Profit for S&P 500 companies is projected to increase 34% in 2010, compared with the 27% estimated on March 29, according to more than 8,000 estimates compiled by Bloomberg. The Dow’s second-quarter earnings season starts next week when Alcoa Inc. reports on July 12.

 

Europe’s Overnight Market Commentary

European shares reversed losses and traded higher in afternoon trade on Wednesday, with banks up on an upbeat statement from State Street and on optimism that stress tests may not be as bad as feared. State Street, the world's second-largest custody bank, forecast its second-quarter operating earnings would beat analysts' expectations, which reinforced hopes of strong earnings from some financials, lifted the bank's shares by 9% in early trade and led Wall Street higher. At 1406 GMT, the FTSEurofirst 300 index of top European shares was up 0.8% at 999.17 points, after falling to as low as 976.63 earlier in the session. The index rose 2.6% on Tuesday but is still down about 11% from a mid-April peak, on worries about economic growth. Spanish banks Banco Santander and BBVA featured prominently among the gainers, up 3.2 and 3.1% respectively. Other banks to rise included France's Natixis and Societe Generale, up 4.4% and 3.2% respectively. Banks have suffered in recent weeks on worries about stress tests, but sources said they may not be as bad as feared. "State Street's statement makes people think banking earnings will be good for the quarter," said Joshua Raymond, market strategist at City Index. "Bear in mind that banks account for 37% of the entire IBEX weighting, which is why the IBEX is outperforming so handsomely now," a trader in Paris said. Despite Wednesday's surge, Spain's IBEX is still down 18% so far in 2010, underperforming the FTSEurofirst 300, down 4.7% year-to-date. Irish building materials group CRH slumped 7.5% after saying full-year sales would be hit harder than anticipated due to concerns over fiscal deficits in euro zone countries and a softening in the pace of U.S. recovery.

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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