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Stock markets take a cue from rising risk appetite; dollar falls

Stock markets take a cue from rising risk appetite; dollar falls
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First Published: Wed, Jul 15 2009. 09 06 PM IST

 Taking heart: Traders at the New York Stock Exchange on Monday. Markets worldwide rose on Goldman Sachs’ results, an upbeat forecast from Intel and hopes that the US economy could soon be growing aga
Taking heart: Traders at the New York Stock Exchange on Monday. Markets worldwide rose on Goldman Sachs’ results, an upbeat forecast from Intel and hopes that the US economy could soon be growing aga
London: World stock markets rose and the dollar fell on Wednesday after upbeat US earnings—particularly from Intel Corp. and Goldman Sachs—fuelled demand for riskier assets amid hopes that the US economy could soon be growing again.
Taking heart: Traders at the New York Stock Exchange on Monday. Markets worldwide rose on Goldman Sachs’ results, an upbeat forecast from Intel and hopes that the US economy could soon be growing again. Chris McGrath / Getty Images / AFP
In Europe, the FTSE 100 index of leading British shares was up 72.59 points, or 1.7%, to 4,310.27 while Germany’s DAX rose 94.11 points, or 2%, to 4,875.80. The CAC-40 in France rose 51.43 points, or 1.7%, to 3,133.30.
A solid opening was also expected on Wall Street, where earnings news will be limited. Dow futures were up 64 points, or 0.8%, at 8,368, while the broader Standard and Poor’s (S&P) 500 futures rose 8.4 points, or 0.9%, to 909.80.
“Market sentiment is positive and this is being reflected in the equity markets (which) took comfort from Goldman’s results yesterday and an upbeat forecast from Intel,” said Neil Mackinnon, chief economist at ECU Group, on Wednesday.
Goldman Sachs kicked off the US banks second quarter earnings season, reporting second quarter earnings of $2.72 billion (Rs13,246.4 crore), or $4.93 per share, after preferred stock dividends, up on last year’s $2.05 billion, or $4.58 per share.
Over the rest of the week, investors will be particularly interested to see if other big US banks such as Citigroup Inc. and Bank of America Corp. are in similarly good shape.
Not all the focus rests on the banks, though their improved financial condition could be a harbinger of higher lending to businesses and consumers, crucial for any sustained recovery.
Investors are closely monitoring earnings this week from retailers to industrialists and the world of technology.
Intel stoked hopes in an after-hours statement that the technology sector may be rebounding The company reported a better-than-expected net profit of $1 billion for the second quarter, or 18 cents a share. That figure, though, excluded a massive $1.45 billion antitrust fine from the European Union. Including the fine, Intel lost $398 million, or 7 cents per share.
Still, investors were heartened to hear the company’s chief executive Paul Otellini describe the second quarter growth as the best since 1988 and that he expected a “seasonally stronger second half”.
Otellini’s comments hark back to the hopes that underpinned the rally in equities from the middle of March to the start of June. Investors were then hopeful that the US economy in particular would recover from recession sooner than anticipated and that stocks were undervalued relative to their earnings potential.
But disappointing economic news over the last few weeks altered the mood prevailing among investors that a significant rebound in the US was possible. Since recent highs in early June, the S&P index and the Dow have dropped around 7%.
With earnings releases few and far between on Wednesday, investors may focus on the macroeconomic releases due, such as US June industrial production data and the Empire State survey into manufacturing conditions in and around New York.
Stuart Bennett, an analyst at Calyon Credit Agricole, said the numbers might well “prompt an increase in nervousness about the pace of recovery” despite comments from US treasury secretary Timothy Geithner that the recession may end in months.
Earlier in Asia, Japan’s benchmark Nikkei 225 stock average rose for the second day running, closing 7.44 points, or 0.1%, higher at 9,269.25. Previously it had fallen for nine straight sessions. And Hong Kong’s Hang Seng jumped 372.93, or 2.1%, to 18,258.66.
Elsewhere in Asia, South Korea’s Kospi, the region’s best performer, gained 2.6%, while Australia’s benchmark index gained 1.5% and China’s Shanghai index rose 1.4%.
Oil prices rose above $60 a barrel as investors looked to a weekly inventory report for clues on US petrol demand. Benchmark crude for August delivery was up $1 to $60.52 a barrel in electronic trading on the New York Mercantile Exchange.
The dollar fell 0.2% 93.41 yen while the euro rose 0.8% to $1.4086. In recent weeks, the dollar’s fortunes have fluctuated inversely with stocks. When risk appetite has been elevated, stocks have rallied and the dollar has dropped. Conversely, when shares have fallen, the dollar has tended to rise as it is widely considered a safe haven asset despite all the problems afflicting the US economy.
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First Published: Wed, Jul 15 2009. 09 06 PM IST