Daily Market Reports | Jun 16 2010
By Rudi Filapek-Vandyck
Risk appetite returned to global risk asset markets, and it did so with a vengeance. No technical barriers were going to stop this rally!
US equities lost their gains in the final half-hour of Monday's session as lingering doubts and technical resistance levels triggered profit taking and selling orders, but last night there simply was no room for any such doubt or darker considerations. US markets started off on a positive note and they continued on that positive note throughout the whole session.
Market bulls would have been very pleased with the Dow Jones Industrial Average soaring 213.88 points, or 2.1%, to 10404.77, leaving the average within 24 points of its 2009 close.
More importantly, for the first time since May 19, the DJIA closed above its 200-day moving average, a key level watched by technicians as a potential indicator of future strength.
The S&P500 equally closed above the 200 M/A, closing up 2.4% and breaking back into the black for the year, boosted by gains in every sector.
The Nasdaq Composite was already above the 200 M/A, but the index has now also turned positive for the year after a rally of 2.8% last night.
Direct responsibility for the return of buyers was, on one hand, due to successful debt auctions in Spain and Belgium, which allayed concerns euro-zone countries could face problems in tapping international capital markets. The euro hit a two-week high above US$1.23 on the news.
The other catalyst was an announcement by electronics chain Best Buy about strength in notebook PC sales, an area of high profit margins for computer makers. Best Buy's comments helped to push the Philadelphia Stock Exchange's Semiconductor Index up 5.5%.
More positives were taken from economic data, with the US Empire Manufacturing for June jumping to 19.57, indicating that the manufacturing sector continues to gain momentum and support the economic recovery.
There were some negatives too, with the US NAHB Housing Market Index falling in June to 17, as US home builders lost confidence after government tax credit expired. In Europe, the EU ZEW Economic Sentiment Survey disappointed too.
Overall sentiment was probably best characterised by the President of the US Federal Reserve Bank of St. Louis, James Bullard:
“While the sovereign-debt crisis in Europe is indeed a serious matter, the global recovery at this point looks very strong and seems unlikely to be derailed… The US is benefiting from a flight to safety effect in world financial markets, which has driven down US Treasury yields… If the situation in Europe continues to spark market volatility, the flight to quality will sustain lower yields in the US than would otherwise be the case.”
And so the buying continued… (The bears will point out that overall volumes remain low, but few investors in Australia will pay attention to this in today's session).
The positive sentiment extended to commodity markets and currencies in general. The WTI futures contract for July 10 increased 2.6% to US$77.04 a barrel. Spot gold increased 1.1% to US$1,235.05/oz. LME copper rose 0.3% to US$ 6,680/t, while other base metals equally traded positive with zinc, aluminium and lead increasing 2.4%, 0.9% and 2.6% respectively. Nickel ended 0.4% lower.
European equities equally closed in the positive. The DJ Euro Stoxx 50 increased 1.2% to 2716, the German DAX increased 0.8% to 6175 and the UK FTSE was 0.3% higher at 5218.
Spot gold refused to retreat, but the USD did last night as global risk appetite returned to financial markets. EUR/USD rallied to a two-week high of 1.2350, while GBP/USD strengthened to a 1-month high close to 1.4840 ahead of next week’s UK emergency budget. USD/JPY gained steadily overnight to trading just shy of 91.50.
AUD/USD is now trading around 0.8660, while AUD/EUR recovered much of yesterday's decline to be currently trading around 0.7020. AUD/JPY has improved 2% to around 79.2 and AUD/NZD has improved to above 1.2380 after gaining steadily through the overnight session.
The Australian SPI 200 June 10 futures contract is currently up 68 points ,or 1.5% to 4590.
US bonds sold off after an improvement in the manufacturing sector spurred a rally in equities reduced the safe-haven appeal of government debt. The yield on 2-year notes increased 2bps to 0.750%, and the 10-year yield increased 5bps to 3.306%.
Australian bond futures underperformed US Treasuries. The implied yield on 3-year bond futures rose 7bp to 4.920% (price down 7bp to 95.080) and the implied yield on the 10-year bond futures rose 6bps to 5.435% (price down 6bps to 94.565).
The Australian calendar for today shows the release of the Westpac leading indicator.
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