Daily Comments
USA: markets move higher on Bernanke’s encouragement
30.08.2010 8:11:00 Dmitriy Simonyan, Analyst, Global Markets (Finam)
On Friday, August 27, key economic data were expected to serve as a focal point for US stock markets, i.e. the revised second-quarter growth of the US GDP and the consumer sentiment index calculated by the University of Michigan.
In the meantime, macroeconomic figures looked rather ambivalent. Thus, according to the second preliminary reading, the US economy grew at a pace of 1.6% in the second quarter. US GDP changes are announced in annualized terms which are intended to measure what the annual change would be if the quarterly growth or contraction continues for a year, i.e. this year’s growth would stand at 1.6% if it remains unchanged in the next nine months. This metric proved to be better than economists had predicted (1.4%) but turned out to be considerably below the initial estimate of 2.4% and the final first-quarter reading of 2.7%, which reflected a slowdown in the US economic recovery.
The University of Michigan's final reading for August consumer sentiment index, which was released right after revised GDP figures, showed a rise in confidence to 68.9 from 67.8 seen in July, although it failed to hold at the preliminary estimate of 69.6, which was expected to remain unchanged in the final report.
Be that as it may, Federal Reserve Chairman Ben Bernanke’s speech delivered at an annual conference became the day’s focal point. The US Fed’s head pointed to a sharper-than-anticipated downturn in the economic recovery pace and confirmed, albeit in a very vague manner, the regulator’s willingness to provide further monetary accommodation, including additional purchases of debt. Bernanke also noted that Federal Reserve would strongly resist deflationary pressures if they seriously jeopardize the country’s stability.
After all recent misgivings over economic data and estimates, the markets were finally relieved by actual figures, which drove the benchmarks higher and helped them pare their previous losses. However, it was the third consecutive week when the indices closed in the red.
The Dow Jones Industrial Average increased 164.84 points, or 1.65%, to 10,150.65, while a weekly drop totaled 0.6%. The Standard & Poor's 500 Index added 17.37 points to its market value, or 1.66%, and closed at 1,064.59, chalking up a 0.7% weekly loss. The tech-heavy Nasdaq Composite Index moved 34.94 higher (1.65%) to 2,153.63, losing 1.2% in the past week.
The cream of the crop of the US economy, i.e. the country’s top 30 companies, almost unanimously delivered positive results, excluding the world’s premier manufacturer of personal computers Hewlett-Packard (-0.6%), which launched a bidding war with its key competitor Dell for data storage company 3Par. The largest gains were posted by such manufacturing heavyweights as DuPont (+3.9%), Alcoa (+3.1%), Caterpillar (+3.1%) and Boeing (+3.0%). Leading financial stocks were also among the outperformers, with American Express up 3.0% and JPMorgan Chase rising 2.7%.
SunPower, the US second-biggest supplier of thin-film solar modules, gained 11.9% after Soleil Securities upgraded the stock to Buy from Hold.
Aruba Networks, the largest equipment manufacturer for wireless networks and safety systems, soared 11% after reporting a 10% increase in quarterly profit, overshooting market expectations.
Women’s apparel retailer Bebe Stores Inc. advanced 6.8% after it posted quarterly profit above Wall Street targets.
Autogiant Ford Motor moved 3.5% higher on news the company is recalling about 575,000 Windstar vans from cold-weather US states and Canada because of the possibility that the rear axle may fracture due to corrosion.
Tiffany & Co., the world’s second-largest luxury jewelry retailer, retreated 3.2% as its USD 669-mn Q2 sales missed analysts’ forecasts.
COMEX gold futures for August delivery strengthened 60 cents, or less than 0.1%, to USD 1,236.00/oz. Gold appreciated slightly during choppy trading which was driven by reactions to Bernanke’s speech and US dollar’s fluctuations against major currencies. All in all, gold gained 0.7% during the week.
Light, sweet crude oil futures for October delivery rose USD 1.81 in NYMEX trading, or 2.5%, to USD 75.17/bbl.
A particularly impressive gain in the crude oil price was recorded at the final stage of Friday trading as crude oil moved in lockstep with US equity markets and reflected weakness in the dollar. Crude oil futures for October delivery rose 1.8% vs. last Friday’s close.
