Daily Market Reports | Apr 15 2010
By Greg Peel
The Dow rose 103 points or 0.9% while the S&P gained 1.1% to 1210 and the Nasdaq leapt 1.6%.
The big move in the Nasdaq was kick-started by the strong Intel result posted in Tuesday's after-market. Intel is also a Dow component, as is leading bank JP Morgan Chase which posted its result before last night's open.
JPM posted earnings per share of US74c on revenue of US$28.2bn versus expectations of US64c and US$26.5bn. Management noted that small business credit demand was returning as the economy improves and that loan losses had peaked. An increase in dividend is under consideration and the bank is looking to employ 5,000 new staff.
In short, JPM “ticked all the boxes”. With two strong earnings report out before the opening bell, attention then moved to economic data.
The bout of warm weather after the February snow had retail sales jumping 1.6% in March against expectations of a 1.2% gain. Volatile auto sales rose 6.7% for their best result since October, but a gain of 0.6% in sales ex autos was still seen as impressive.
Business inventories rose 0.5% in February which is the biggest gain since July 2008.
The headline consumer price index rose 0.1% in March in accordance with expectation. The core CPI (ex food & energy) was flat against expectation of a 0.1% rise. The subdued inflation result provides support to the Fed's cemented policy of a near zero cash rate in place for an extended period.
This gave heart to investors who continue to worry every time there is positive economic news, and now that earnings season has kicked off with a bang one could be forgiven for suggesting there is pressure on the Fed to raise rates. But Bernanke remained resolute in his testimony to Congress last night, suggesting increasing private sector demand was enough to replace earlier government stimulus, but that economic growth would be no better than moderate and that challenges, such as a weak housing sector and high unemployment, still need to be overcome.
What Bernanke did not do, nevertheless, was specifically restate his hackneyed “exceptionally low rates for an extended period” mantra. Queried on this subject, Bernanke suggested the minutes of the Fed last meeting were clear in that rates would remain low as long as the above challenges remain but could be moved quickly if circumstances changed. He also warned Congress that ongoing deficit blow-outs would provide pressure to raise rates.
In the meantime, the Fed's monthly Beige Book noted economic activity had improved “somewhat” nationally and that eleven of the twelve Fed districts showed a level of growth in activity. St Louis was the exception.
Strong earnings results, strong economic data, subdued inflation and a central bank committed to keeping funding costs low – what more could you ask for a stock market? It is little wonder the S&P surged past the 1200 barrier and into “blue sky” post the Lehman collapse in September 2008.
And there was more to come. After the bell KFC-owner Yum Brands posted a result which beat on both earnings and revenue and parcel service UPS came in with a pre-announcement of its own result. UPS had previously expected a weak first quarter but instead lifted profits by 33% year-on-year, posting earnings per share of US71c versus US57c expectation. Unsurprisingly, UPS raised full-year guidance.
Yum Brands is currently up 2.6% in the after-market, and UPS is up 4.3%. Wall Street's momentum will continue to be to the upside tonight.
The US dollar index slipped slightly to 80.21 last night. The big news in the forex markets was monetary policy tightening from the Singapore central bank which affected a revaluation of the bank's undisclosed target trading band for the Singapore dollar (against the USD). The move came after Singapore posted a 32.1% (not a typo) seasonally adjusted and annualised first quarter GDP. In the previous quarter GDP contracted by 2.8%.
This took Singapore's year-on-year GDP growth estimation to 13.1% versus 10.8% expected and came about because of a rather astonishing 139% increase in manufacturing output, quarter on quarter.
In the meantime, Greece's successful bill auction on Tuesday was quickly forgotten as the yield on the Greek ten-year bond began to rise once more last night, blowing out by 21 basis points to 395bps above the German bond. The euro was nevertheless little changed.
The dip in the US dollar index was enough to send gold up US$3.70 to US$1154.80/oz. Zinc jumped 2%, nickel 3% and aluminium 1% but copper's slight rise to US$7960/t again indicated the magic US$8000/t level is proving a hard nut to crack.
I mentioned yesterday that analysts' weekly oil inventory expectations are never right, and last night reasserted that consistency. Crude inventories showed a decrease when an increase was expected, allowing oil to shake off recent weakness and jump US$1.62 to US$86.73/bbl.
Despite the low CPI result, the failure of Ben Bernanke to specifically restate his exceptional/extended mantra was enough to see the yield on the US ten-year yield tick up by 4bps to 3.86%. Many on Wall Street still consider 4% a potential trigger of stock market weakness but sufficient bond demand is keeping the ten-year in check for now.
The Aussie continued its rally last night gaining 0.6 cents to US$9350.
The SPI Overnight was up 32 points or 0.6%.
Stand by today for the latest round of monthly Chinese data and the Chinese first quarter GDP. Tonight in the US sees another busy round of data as well and the earnings results will keep flowing.
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