Second Day Rally; Bernanke Urges Fiscal Balance

Mukesh Buch
21 Jul, 2009
New York City

Earnings optimism lifted stocks for the second day in a row. Fed Chairman Bernanke urged lawmakers to balance the budget and noted that unemployment will remain high in 2010 and 2011. Industrial stocks edged higher but banks were weak.

[R]4:00 PM New York, 9:00 PM London, 6:00 AM Sydney – Earnings optimism lifted stocks for the second day in a row. Fed Chairman Bernanke urged lawmakers to balance the budget and noted that unemployment will remain high in 2010 and 2011. Industrial stocks edged higher but banks were weak.[/R]

Fed Chairman Bernanke in his prepared remark urged law makers to work on a plan to balance budget and indicated that final production and demand have shown signs of “tentative stabilization.”

He went on to note that unemployment will remain high in 2010 and 2011 and slow economic recovery in 2010 may accelerate in 2011. The remarks also noted that the Fed has several tools available to increase interest rate and unwind debt in the financial system including raising interest paid on the deposits with banks. Fed also lowered its lending exposure from $1.5 to trillion to $600 billion to central banks and other institutions.

He urged lawmakers to work on a plan to balance the budget and noted, “Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth.”

Regions Financial plunged on wider than expected loss in the second quarter. Caterpillar surged on positive outlook.

The UK government budget deficit jumps to 32-year record of £9.9 billion or 56.6% of GDP. Ryan Air plans to trim capacity at its hub in London Stansted airport. William Morrison surged after it lifted earnings outlook. Playtech plunged 24% after it offered weaker earnings outlook.

Stocks in Shanghai and Hong Kong edged lower after investors worried that prices may be ahead of fundamentals. China State Construction Engineering filed to raise as much as $7.3 billion. Mining related stocks closed lower.

Stocks in Japan surged on the back of a rally in New York. Metals, shipping and trading companies stocks closed higher. Convenience stores sales in June decreased for the first time in fourteen months. Prime Minister Taro Aso dissolved the parliament for the election scheduled on August 30.

Investors in India worried weak rain in the first 45 days of monsoon season may increase government deficit and lower rural spending. Tata Steel raised $500 million in an offering in Europe. Average sales have increased 11% and earnings 19% at the 230 companies releasing earnings so far.


North American Markets

Dow Jones Industrial Average increased 67.79 or 0.8% to a close of 8,915.94, S&P 500 Index increased 3.45 or 0.4% to 954.58, and Nasdaq Composite Index edged higher 6.91 or 0.40% to close at 1,916.20. Toronto TSX Composite Index decreased 25.39 or 0.2% to 10,515.32.

Of the stocks in S&P 500 index, 268 increased, 229 declined and 3 were unchanged.

CIT Group led decliners in the S&P 500 index with a loss of 21.6% followed by losses in Lexmark International of 19.7%, in Regions Financial of 15.4%, in Zions Bancorp of 12.60%, in Comercia Inc of 10.1% and in Lockheed Martin of 8.5%.

Caterpillar Inc led gainers in the S&P 500 index with a rise of 7.7% followed by increase in International Paper of 6.4%, in Merck & Company of 6.1%, in New York Times of 5.6%, in NetApp Inc of 5.5% and in Autodesk of 5.3%.

South American Markets Indexes

Mexico Bolsa Index decreased 280.04 or 1.1% to 26,004.02. Brazil Bovespa Stock Index increased 78.64 or 0.2% to 53,233.57.

Argentina Merval Index increased 0.2%. Chile Stock Market Select index edged higher 0.01%, Peru Lima General Index added 0.3% and Colombia IGBC General Index increased 0.8%.

Europe Markets Review

In London FTSE 100 Index closed higher 37.55 or 0.85% to 4,481.17, in Paris CAC 40 Index increased 31.95 or 0.98% to close at 3,302.89 and in Frankfurt DAX index higher 63.82 or 1.27% to close at 5,093.97. In Zurich trading SMI increased 8.26 or 0.15% to close at 5,636.19.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 256.70 or 2.73% to 9,652.02, Hang Seng index in Hong Kong decreased 0.64 or 0.00% to 19,501.73 and CSI 300 index in China lower 51.29 or 1.43% to 3,539.83. ASX 200 index in Australia increased 0.40 or 0.01% to 4,050.70. The FTSE Bursa KL Composite index in Malaysia closed lower 4.55 or 0.40% to 1,134.70.

The Kospi Index in South Korea increased 10.48 or 0.71% to close at 1,488.99. SET index in Thailand closed lower 3.84 or 0.63% to 609.83 and JSE Index in Indonesia increased 40.20 or 1.91% to 2,146.55. The Sensex index in India decreased 128.52 or 0.85% to 15,062.49.

Commodities, Metals, and Currencies

Crude oil decreased $0.21 to close at $65.08 a barrel for a front month contract, natural gas was unchanged at $3.69 per mBtu and gasoline increased 0.56 cents to 179.50 cents.

Wheat futures closed down 7.50 cents in Chicago trading to $5.34 a bushel. Sugar increased 0.06 cent in trading at 17.80 cents a pound. Soybean future closed down 18 cent to $9.05 a bushel.

Gold increased $11.40 in New York trading to close at $948.90 per ounce, silver closed down $0.09 to $13.53 per ounce and copper for the front month delivery decreased 1.60 cents to $2.45 per pound.

Dollar edged lower against euro to $1.422 and closed down against the Japanese yen to 93.72.

Yield on 10-year U.S. bond decreased to 3.48% and with 30-year maturities decreased to 4.39%.