Fed Speculation Drives Markets; Citi to Take $2.9 B Charge for Smith Barney

Bikram Pandey
11 Sep, 2012
New York City

U.S. and European markets rallied and the euro neared four-month high on the growing expectation of another round of stimulus. U.S. trade deficit was stable after exports decreased and lower oil price cut the import bill. Morgan Stanley and Citigroup agreed on $13.5 billion value for Smith Barney.

[R]4:10 PM New York – U.S. and European markets rallied and the euro edged to a four-month high on the growing expectation of another round of stimulus. U.S. trade deficit was stable after exports decreased but lower oil price cut the import bill. Morgan Stanley and Citigroup agreed on $13.5 billion valuation for Smith Barney.[/R]

U.S. indexes advanced on the growing speculation that the Federal Reserve may announce specific steps to stimulate the economy and alleviated the elevated unemployment rate.

S&P 500 index extended the gains to 14% in the year and has jumped more than 70% since President Barack Obama took office.

S&P 500 index has gained 14% in the year so far and extending gains for the fourth year in a row. The index gained 6.5% in 2011, added 5.9% in 2010 and jumped 23.5% in 2009 after plunging 39% in 2008.

Among earnings, Casey’s General ((CASY)) reported flat quarterly result and Five Below ((FIVE)) declined as second quarter net plunged 45%. Palo Alto fourth quarter loss narrowed. United Natural Foods Inc ((UNFI)) net surged 46% and estimated fiscal year sales to increase as much as 14%.

Morgan Stanley ((MS)) gained as much as 3.5% after the brokerage firm agreed to increase its stake in Smith Barney to 65% from the current 51%. Morgan Stanley will acquire the 15% stake in the joint venture with Citigroup ((C)) at $13.5 billion and acquire the rest of the stake by 2015.

Citigroup estimated the sale will result in a $2.9 billion charge in the third quarter.

Luxury accessories makers declined in New York trading after London based Burberry estimated annual net income at the low end of forecast on slower sales growth. Ralph Lauren ((RL)) declined 3%, Tiffany fell 1.4% and Coach Inc ((COH)) edged down 2% on a downgrade.

The European indexes declined on euro area woes ahead of the German court ruling. Germany’s Federal Constitutional Court is scheduled to issue its decision on whether the nation can ratify the 500 billion euro rescue fund also known as European Stability Mechanism.

German wholesale price index rose in August. The UK home prices declined in August and deficit narrowed in July. Philips plans to slash 2,200 positions and lower costs by as much as €1 billion.

Stocks in Tokyo trading were on the defensive after China reported weak economic data and U.S. employment rebound was less than expected. Electronic chip-equipment makers declined after Intel lowered its annual view last week and online social game makers closed higher after the prospect of government restraint receded.

Australian stocks declined after a 3-day rally ahead of the German court ruling that will decide the fate of permanent rescue fund in the euro zone. Mining companies closed mixed and iron ore prices rose to $95 a ton. CSL Limited won a U.S. government contract for influenza pandemic preparedness.

Commodities, Bonds and Currencies

The yield on 10-year bond increased to 1.70% and on 30-year bond closed up at 2.85%.

The U.S. dollar inched lower to $1.286 to a euro and decreased against the Japanese yen to 77.72 yen.

Immediate delivery futures of Texas crude oil increased 44 cents to $96.98 a barrel and Brent crude added 40 cents to $115.23, futures of natural gas added 0.18 cents to $2.99 per mbtu and gasoline price edged up 1.4 cents to 303.83 cents a gallon.

In metals trading, copper decreased 0.05 cents to $3.68 per pound, gold rose $2.40 to $1,734.20 per ounce and silver decreased 16 cents to $33.48.