Daily Market Reports | Jun 09 2010
By Rudi Filapek-Vandyck
Thanks to a live broadcast on CNBC the world was able to watch a nervous Fed Chairman answering questions at a high profile investor conference after Wall Street's closing bell yesterday.
Nerves were clearly affecting Ben Bernanke's public performance, but his cautious, though optimistic comments proved enough to inspire some buying activity on Asian equity markets.
Consider, for instance, the caveats built in to statements such as: “There seems to be a good bit of momentum in consumer spending and investment, so my best guess is that we'll have a continued recovery”.
It wasn't enough to inspire investors in Europe though. One might as well blame the Fitch Ratings Agency. Fitch said the UK faced a "formidable" task to cut government borrowings and needed to be more aggressive to reduce the deficit in the mid-term. It proved enough to push Bernanke's nervous performance in to the shadows and triggered continued selling on European equity markets.
German industrial production rose by a higher than expected 0.9% in April, but nobody was paying attention. The FTSEurofirst index fell by 1%, with the UK FTSE lower by 0.8% and the German DAX lost 0.6%.
Later on in the day, investors in the US were more willing to put aside their European worries and instead take guidance from Asian markets and Ben Bernanke's cautious optimism. Add the fact that half of the investment community was expecting some sort of a relief rally to kick in any time, plus public support for US equities expressed by the likes of Bob Doll from Blackrock, and all of a sudden risk assets were left with a cautiously supportive environment last night.
Later today this story will continue with more comments from Bernanke, alongside the release of the Fed Beige Book plus an update on US wholesale inventories.
All in all, US equities fluctuated between gains and losses after rising oil prices led to a rally in oil stocks, while semiconductor companies were equally in favour. UBS released some comments about European weakness possibly hurting shipments and this kept overall optimism on the cautious side.
At the end of the session, the DJIA was up 1.3% to 9940, the S&P 500 gained 1.1% to 1062 and the Nasdaq was 0.2% lower at 2171.
The Australian SPI 200 May 10 futures contract was up 10 points, or 0.2% to 4404.
Commodity markets finally saw an opportunity to rally, and so they did. The WTI futures contract for July 10 increased 0.8% to US$72.53 a barrel. LME copper rose 1.0% to US$6,165/tonne. Zinc, aluminium, lead and nickel increased by 6.6%, 2.9%, 3.5% and 1.5%, respectively.
Among the agris and the softs, US sugar rose 3.8% on expectations that production would increase in Brazil. Corn rose 0.4% on reports that the condition of the US crop deteriorated. Wheat ended flat, soybeans lost 0.4% and palm oil futures were 0.7% lower.
No surprise, spot gold took a step back, but only slightly so. Spot gold fell 0.2% to US$1,237.25/oz.
US bonds fell after the US government sold US$36bn of 3-year notes at a yield of 1.22%, in line with forecasts, with a bid to cover ratio of 3.23 times (forecast 3.02 times). The Fed Chairman's comments that the economic recovery remains intact also weighed on the treasuries. The yield on 2-year notes increased 3bps to 0.742%, while the 10-year yield increased 4bps to 3.184%.
Australian bond futures traded mostly in line with the US Treasuries. The implied yield on 3-year bond futures increased 2bps to 4.750% (price down 2bps to 95.250) and the implied yield on the 10-year bond futures gained 2bps to 5.340% (price down 2bps to 94.660).
In FX markets, the USD was mixed against the major currency pairs overnight. EUR/USD initially strengthened to a high of 1.2010, but later pared back some gains to open lower at 1.1970. GBP/USD opens lower at 1.4465 due to the negative comments from Fitch on the UK’s fiscal challenge. USD/JPY dipped to a low of 90.84, but later erased some losses to open at 91.50.
The AUD rose after gains in commodities and equities bolstered investor appetite for higher yielding assets. AUD/USD opens stronger on Wednesday morning at 0.8270 after rallying late in the night. AUD/EUR opens higher at 0.6910 after making some solid gains late in the session. AUD/JPY hit a low of 74.11, but later rebounded to open stronger at 75.70 and the AUD/NZD cross opens at 1.2390 after grinding higher overnight.
In Australia, today's calendar includes the release of the latest Westpac-MI read on consumer confidence and various local housing finance data.
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