Fed Helps the Stock Market Rally

By: PaddyPowerTrader

The Dow Jones surged yet another 120 points yesterday on the back of existing home sales which rose more than expected (due to lower prices). They stayed perky after the Fed assured us that the US economy was levelling out and that they weren’t taking away that summer punch bowl during 2009 as there is no sign of inflationary pressures.

Risky assets were already trading positively going into FOMC, brushing off the dour sentiment seen in Asia as the market mulled the signs of slower growth in China. The overriding mood of optimism was illustrated by Bloomberg’s latest survey of investor confidence, which produced a 19 point rise in the headline index to 58.1, the first reading above 50 since the survey began about two years earlier. Confidence in the US rose 18 points to 47.3, that in Europe rose 10 points to 41.1 whilst that in Asia jumped 15 points to 74.2, with Japan up 16 points to 50.0.

Whilst equity markets closed off their highs for the session, the S&P500 still managed a broad-based gain of 1.2%, with the price action reinforced by some more upbeat commentary in the insurance sector and better-than-expected earnings at luxury home builder Toll Brothers. The latter noted that its cancellation rate over the past quarter had declined to the lowest level since the housing meltdown began in 2006, helping the S&P homebuilders supercomposite close at a new high.

Today’s Market Moving News

• Though Asian stocks gained across the board this morning, they are still largely unchanged so far in August and investors were still uncertain what would support equities beyond bullish sentiment. The MSCI index of Asia Pacific shares traded outside Japan rose 1.7%, with the biggest gains spread out across sectors, including financials, technology and consumer discretionary shares. The index has been choppy in recent weeks but is up 72% since March 9, when a global equity rally began. Japan’s Nikkei share average edged up 0.6%, driven by a variety of big auto exporters and tech names.
• Commodity bulls have pushed oil prices further above $70 a barrel and lifted copper prices to a 10-month high, hoping for sustained demand for raw materials.
• BHP Billiton, the world’s largest mining company, published its Full Year 2009 results and included an outlook on the commodity markets. BHP believes “commodity re-stocking in China now appears largely complete with substantial build of specific commodities at the end-user level and in strategic stockpiles”. BHP also warned that “further improvements in commodity prices in the short term should be viewed in the context of the likely supply responses from latent capacity across the industry”. However, in the long term BHP continues to expect strong growth in demand for commodities.
• This European morning, mining stocks are looking bid. Rio Tinto shares are up 3% after it said that its Cloud Peak unit has filed an IPO statement in the US while Anglo American has climbed 2% after it concluded the sale of shares in Tongaat Hulett. The big loser this morning is insurer Aegon after announcing that it needs to raise 1bn in fresh capital through a rights issue (its off 9%).
• A majority of economists polled by the WSJ say the recession is over, and 71% of those same economists think Ben Bernanke will get to keep his job for another term.
• Note to Jim (the bottom of the housing market was in June) Cramer – foreclosure activity up 7% in July.
• Harry Markopolos, the whistleblower on Bernie Madoff, believes that there are evildoers out there who will make the Ponzi scum “look like small-time.”

The Jobless Recovery
Now it may be a lagging indicator but this chart of the average duration of unemployment in weeks is downright frightening. So maybe bit your lip before uttering those “I quit” words.

Irish Equity Snippets
Greencore has issued an Interim Management Statement. In it, there is evidence of positive progress in UK convenience foods and further revenue advances in the US. These trends, together with the benefits of efficiency programmes and some margin accretion, are underlining FY adjusted EPS forecasts of 16.4c, in line with market expectations. Greencore has had a tremendous run in the past week with its share price up 23%. Despite that, its dividend yield is over 5% and these comments should be supportive.

United Drug has announced a joint venture with Medco Solutions to provide home-based pharmacy care in the UK for patients covered by the NHS. This is a green-field investment with a significant global healthcare player, in a space in which United Drug has demonstrated an interest in the past. It has a number of pilot schemes in homecare running in the UK at the moment. The Medco deal is a 50/50 JV with a reasonably modest outlay: start-up costs are believed to be in the region of £4-5mln, with the investment beginning at the end of this financial year (end-September).

Data Ahead Today
At 10:00 Euro area GDP for Q2 will be released. The German and French economies unexpectedly grew in the second quarter, bringing an end to their worst recessions since World War II. Both economies grew by 0.3% despite economists predicting contractions of 0.3% in Germany and a 0.2% in France. EUR/USD climbed half a cent to $1.4262. These early big two numbers have blown away the consensus for a -0.4% contraction for the pan-European number.

US Retail Sales for July will be released at 13:30. Look for a sharp rebound in retail sales, due almost entirely to the “cash for clunkers” program with total retail sales rising +0.8%. But, excluding both autos and gas, I’d expect that retail sales in July were flat.

Earnings from Wal-Mart (at around 13.15), Kohl’s and Nordstrom

And Finally… More From Jim The Realtor

Disclosures = None

By The Mole
PaddyPowerTrader.com

The Mole is a man in the know. I don’t trade for a living, but instead work for a well-known Irish institution, heading a desk that regularly trades over €100 million a day. I aim to provide top quality, up-to-date and relevant market news and data, so that traders can make more informed decisions”.© 2009 Copyright PaddyPowerTrader - All Rights Reserved
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