Earnings Optimism Drives Global Indexes to 5-month Highs

Bikram Pandey
10 Jan, 2012
New York City

U.S. stocks traded higher and indexes hovered near 5-month high as earnings optimism lifted broader indexes. Banks in Europe were in focus as several banks prepare to raise capital to meet revised capital guidelines. Tiffany dropped more than 10% after it lowered annual outlook.

[R]4:30 PM New York – U.S. stocks traded higher and indexes hovered near 5-month high as earnings optimism lifted broader indexes. Banks in Europe were in focus as several banks prepare to raise capital to meet revised capital guidelines. Tiffany dropped more than 10% after it lowered annual outlook.[/R]

The U.S. indexes gained on the earnings optimism and Alcoa kicked off earnings season with a loss that was less than expected by most analysts. However, the global economic worries persisted in trading as European leaders struggled to develop a solution to the growing debt contagion and China reported mixed economic data.

Banks were in focus ahead of earnings next week and four largest U.S. banks, JP Morgan Chase, Bank of America, Citigroup and Wells Fargo gained. Banks in Europe also advanced on the optimism but road ahead may be lot more difficult.

European banks are preparing to meet revised capital guidelines this year and may need to raise at least 145 billion euros in the next eighteen months. Italy based UniCredit SpA struggled to gain investors’ attention even after 40% discount for its rights offering.

In corporate news, Alcoa fourth quarter net swung to $191 million. Canada based Corus Entertainment first quarter net rose to $52.7 million. Shoe retailer, DSW raised its annual diluted earnings per share outlook and Jones Group cut its fourth quarter revenue outlook. WD-40 first quarter net declined 25%. Tiffany dropped 10% after it lowered annual earnings outlook.

European markets traded higher on the positive earnings outlook in the resource sector but UniCredit SpA struggled to raise capital. At least 90 banks in the euro zone are expected to raise capital in the rights offering when the bank sector stocks are down at least 30% in the last one year. The rights offerings are expected to drop stocks further in the sector.

The Netherlands completed the sale of €3.1 billion of bond sale at a low yield and demand met the debt management office estimate. Italian bond yield traded above 7.1% and Spanish bonds hovered near 5.6% and German bund traded near low of 1.86%.

In economic news in the region, manufacturing turnover in Germany eased, French industrial production rose, but retail sales in Denmark decreased in November. Swedish December budget deficit was lower than estimated by the debt office.

The UK indexes traded higher after banking and mining stocks rose and retail sales improved but home prices continued to fall in December. Irish manufacturing output declined in November.

Stocks in Tokyo traded higher on the first day of trading after a 3-day weekend. Resources linked stocks traded higher but banks and insurance stocks faced headwinds. The yen rose to an 11-year high against the euro.

Chinese trade surplus increased to $16.5 billion in December after exports rose at a slower pace of 13.4% from a year ago in December, slower than the 13.8% growth in November. Imports rose 11.8% from last year in December.

The trade surplus advanced to $16.52 billion in December, from the $14.5 billion in November.

The benchmark index in Mumbai traded higher 2.2% ahead of the earnings season on the optimism that domestic companies are likely to show at least 12% earnings increase in the latest quarter to December. Consumer staples and resources linked companies are expected to lead the earnings advance.

Australian stocks advanced on the earnings optimism in the resource sector and residential buildings approvals increased 8.4% in November. Pacific Brands soared 14% after it received unsolicited takeover offer from the U.S. based leveraged buyout firm KKR.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond increased to 1.98% and 30-year bond closed up at 3.04%.

The U.S. dollar edged down 0.2% to $1.278 to one euro and traded lower against the Japanese yen to 76.83.

Immediate delivery futures of Texas crude oil increased $0.93 to $102.24 a barrel and futures of natural gas fell 0.08 cent to $2.90 per mbtu and gasoline price added 1.8 cents to 277.67 cents a gallon.

In metals trading, copper increased 8.9 cents to $3.50 per pound, gold increased $25.80 to $1,636.30 per ounce and silver increased $1.12 to $29.89.