Today's Morning Report

U.S. Overnight Market Commentary 

U.S. stocks rose, with the Standard & Poor’s 500 Index capping its first three-day rally since April, as a drop in jobless claims and higher-than-forecast sales at some retailers bolstered confidence in the economy. DuPont Co. and McDonald’s Corp. climbed more than 2.5% to lead the Dow Jones Industrial Average higher. Boeing Co. gained 2.3% after reporting more than US$3 billion in new orders for its 737 airplane. J.C. Penney Co. and Abercrombie & Fitch Co. surged at least 6.7% after reporting June sales that beat estimates. The S&P 500 climbed 0.9% to 1,070.25 as of 4 p.m. in New York, extending its rebound from a 10-month low last week to 4.7%. The Dow rose 120.71 points, or 1.2%, to 10,138.99. “It’s a relief rally,” Russ Koesterich, the San Francisco-based head of investment strategy for scientific active equities at BlackRock Inc., which manages US$3.36 trillion in assets as the world’s largest asset manager. “There’s evidence that the global economy continues to recover. In the U.S., some retailers are doing well. Valuations are reasonable. The stock market may have found a short-term bottom.” U.S. stocks rallied yesterday, sending the S&P 500 up 3.1% for its biggest gain in six weeks, as banks advanced and retail-sales growth bolstered optimism that consumer spending is weathering a drop in confidence. Still, the S&P 500 remains 12% below its April 23 high after a sovereign debt-crisis in Europe rattled markets and economic reports from the U.S. and China suggested that the recovery is stalling. Initial claims for jobless benefits fell by 21,000 to 454,000 for the week ended July 3, Labor Department figures showed today in Washington. Economists had forecast applications would fall to 460,000 from an initially reported 472,000 for the prior week, according to the median of 36 projections in a Bloomberg survey. DuPont gained 3% to US$36.29, while McDonald’s advanced 2.5% to US$69.02. Boeing rose 2.3% to US$64.73. The world’s second- biggest commercial-jet builder said it still expects to deliver 460 to 465 airliners this year after an 8.8% drop in shipments last quarter, and announced US$3.05 billion in new orders for its 737 model.

 

Europe’s Overnight Market Commentary

European shares hit their highest in more than a week on Thursday as encouraging economic numbers tempered concern about the global economic recovery, while banks surged as more details of the sector's stress tests emerged. Positive earnings updates from some companies also improved sentiment and appetite for risky assets rose, with the VDAX-NEW volatility index falling to its lowest in more than two weeks. The lower the index, the more the market desire for risk. The FTSEurofirst 300 index of top European shares ended 1% up at 1,015.56 points, the highest close since late June. It ended higher for a third straight session after falling more than 7% in the previous two calendar weeks. "It was too far too fast on the downside. The market has now priced in the negative news flow and uncertainty," said Giuseppe-Guido Amato, strategist at Lang & Schwarz in Frankfurt. "Another trigger is positive expectations for the Q2 figures." Danish group A.P. Moller-Maersk upgraded its earnings guidance for the full year, while Primark owner Associated British Foods said third-quarter sales jumped 13%, boosting their shares 3.7% and 1.5%, respectively. According to Thomson Reuters data, quarterly earnings of S&P 500 companies are expected to rise 27.1% in the second quarter after surging 58.3% in the first quarter. Macro-economic data helped in soothing sentiment, hurt in the past weeks on a series of poor U.S. economic numbers, from housing to jobs. Figures showed new U.S. claims for unemployment benefits fell more than expected last week to their lowest level in two months, offering cautious hope for the economic recovery that had shown signs of fatigue. Several top U.S. retail chains reported better-than-expected June same-store sales, while German trade surged in May and industrial output jumped more than expected, fuelling hopes Europe's largest economy may have posted its strongest growth in over two years in the second quarter. European Central Bank President Jean-Claude Trichet, however, said the bank expects the euro zone's economic recovery to be moderate and uneven. The market showed little reaction after the ECB and the Bank of England both held interest rates on hold, as widely expected. Banks were the top gainers, with the STOXX Europe 600 banking index up 1.7%. Barclays, Lloyds, BNP Paribas and Societe Generale rose between 3.2% and 4.3%. "With many speculating that there will be no surprisingly bad news from European bank stress tests, investors appear to have got their risk appetite back when it comes to the financial sector and this wave of optimism has helped keep this a broad-based rally," said Yusuf Heusen, senior trader at IG Index. The Committee of European Banking Supervisors, conducting the tests, has said 91 banks across Europe were taking part, including many regional banks, seen as the weakest. However, it has yet to release certain key details about the tests. "When the market has been oversold and you're faced with an event which you are not sure about, it is wise to buy the market as you could be sitting on a nice profit," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

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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