U.S. Stocks Up After Bernanke Comments, China GDP Expansion

Bikram Pandey
13 Jul, 2011
New York City

U.S. stocks turned positive after market took a surprise note on the Fed

[R]4:00 PM New York – U.S. stocks turned positive after market took a surprise note on the Fed’s accommodative stance. Chairman Bernanke said Fed is prepared to look at unconventional steps if needed to counter the persistent weakness in the economy. Chinese economy expanded at 9.5% in the second quarter.[/R]

U.S. indexes gained after the testimony of the Fed Chairman Bernanke to lawmakers. The indexes turned up sharply after Bernanke said Fed is prepared to offer more stimulus if needed and cautioned that unemployment is likely to remain high in the near future.

He went on to add that the current weakness in the economy and inflation pressure is “transitory” and not “permanent” and once the “temporary shock” passes the economy will expand “once the impact of the policy accommodation is reflected.”

Bernanke also discussed three options that the Fed has at its disposal to pursue if the economic weakness persists.

Fed can provide more stimulus, or provide more “explicit guidance” to the commitment that rates will remain low for extended period, or pay interest rates to banks on their reserves and put a downward pressure to short term rates.

In the economic news import prices fell 0.5% in June and applications for U.S. home mortgages slid for the fourth consecutive week.

On the merger front, private equity consortium acquired Kinetic Concepts for $6.3 billion. Electronic Arts agreed to buy PopCap for $750 million. Validus Holdings agreed to acquire Transatlantic for $55.95 a share.

Earnings calendar showed Adtran second quarter net income rose and Capital One second quarter net income surged to $911 million. Investors are awaiting earnings from JP Morgan Chase, Citigroup Google and Yum Brands Inc.

European indexes inched higher after China reported faster than estimated second quarter economic growth. Euro-zone industrial production growth eased to 0.1% in May. ASML net soared 81% and Gerresheimer surged 8% after quarterly earnings increased.

Euro area industrial output eased in May. German wholesale price inflation declined but Spanish inflation eased in June. Norwegian home prices rose in the second quarter. Finnish retail sales increased in May.

The UK indexes edged higher after China reported positive GDP data. The UK jobless rate was 7.7%. Ireland's government bonds cut to junk status. News Corp. withdrew its bid for BSkyB after company faces systemic problems with news gathering techniques.

Japanese stocks rebounded after the Bank of Japan stepped its purchase of Japanese equities and stronger than expected economic expansion in China. The yen strengthened for the third week in a row and traded below 79 to a dollar and 110 to one euro.

Chinese economy expanded at 9.5% in the second quarter after growing at 9.7% in the first quarter.

Australian stocks rebounded after steep losses last week. Resources linked companies gained after China expanded at 9.5% in the second quarter. David Jones estimated net profit to decline as much as 2%.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield increased to 3.13% and 30-year U.S. bond traded up to 4.37%.

The U.S. dollar decreased at $1.4143 to one euro and fell against the Japanese yen to 78.95 yen.

Immediate delivery futures of Texas crude oil increased $0.43 to $97.86 a barrel and futures of natural gas increased 0.05 cents to $4.38 per mbtu and gasoline price gained 4.50 cents to 309.60 cents a gallon.

In metals trading, copper decreased 0.6 cents to $4.38 per pound, gold soared $17.50 to $1,579.80 per ounce and silver increased $2.38 to $38.01.