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Stocks rally on banking sector hopes, oil gains

Stocks rally on banking sector hopes, oil gains
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First Published: Wed, Jul 07 2010. 11 43 PM IST
Updated: Wed, Jul 07 2010. 11 43 PM IST
New York: Global stocks rallied on Wednesday, spurred by a brighter outlook for banks on both sides of the Atlantic, while oil prices snapped a six-day slide on expectations US crude inventories will decline.
A bullish earnings forecast by State Street Corp, the world’s second-largest custodian bank, lifted US and European banking shares. Higher crude prices boosted stocks in the energy sector.
Shares of State Street jumped almost 10% after it forecast second-quarter operating earnings that were sharply above analysts’ expectations. Banks rebounded from recent heavy losses, driving the KBW bank index up 2.5%.
“Having a bank give this kind of pre-announcement is very encouraging,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “It’s giving a more positive tone to the market in general.”
MSCI’s all-country world equity index rose 0.8%, but its emerging market index remained in the red, down 0.2%.
The Dow Jones industrial average was up 142.74 points, or 1.46%, at 9,886.36. The Standard & Poor’s 500 Index was up 15.44 points, or 1.50%, at 1,043.50. The Nasdaq Composite Index was up 27.61 points, or 1.32%, at 2,121.49.
European shares reversed early losses in response to the State Street outlook and gained on optimism stress tests planned for banks in the euro zone and other countries might not be as bad as initially feared.
The FTSEurofirst 300 index of top European shares rose 1.5% to close at 1,006.01 points, capping a 4% rise over the past two sessions.
Spanish banks featured among top gainers, with heavyweights Banco Santander and BBVA up 6.5% and 6.3%, respectively.
“State Street’s statement makes people think banking earnings will be good for the quarter,” said Joshua Raymond, market strategist at City Index. “And there’s hope of transparency on the stress tests.”
The Committee of European Bank Supervisors was due to outline its methodology for a test that simulates the impact of a severe economic shock on about 100 banks and mimics last year’s US tests, sources close to the process said.
Oil rebounded, lifted by hopes of a strong earnings season that were stirred by State Street and on expectations data will show a drop in US crude inventories.
US crude was up $1.46 to $73.44 a barrel, having fallen to $71.44 earlier.
ICE Brent crude futures were up $1.50 at $72.95.
US Treasuries slid and Bund futures shed earlier gains to settle lower after the State Street outlook improved risk appetite and curbed demand for safe-haven government debt.
Bund futures fell to a session low of 129.12 as equities turned higher, but trading volumes were thin ahead of the European Central Bank’s monthly meeting on Thursday.
Treasury traders booked profits on recent safe-haven buying driven by worries the US economic recovery has hit a wall.
The modest pullback in bonds did not dispel chatter over a US double-dip recession. Recent disappointing data on the labor and housing markets have emboldened bond bulls who bet the Federal Reserve will keep short-term interest rates near zero well into the second half of 2011, analysts said.
The benchmark 10-year US Treasury note was down 6/32 in price to yield 2.96%.
“You are seeing a bit of an unwind of the moves into the back end of the curve. It’s just profit-taking,” said Jessica Hoversen, an analyst with MF Global Research in Chicago.
The euro fell from seven-week highs against the dollar on lingering concerns about the global economy as investors scrutinized the plans for European stress tests.
The euro was down 0.25% at $1.2591, against the yen, the dollar was down 0.40% at 87.20.
The US Dollar Index was break-even.
“The euro remains vulnerable to another downturn as investors begin to look to the 16-member bloc’s growth prospects amid a back drop of strict budget cuts and the potential for another downturn in the global economy,” said Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington.
Spot gold prices increased $2.65 to $1,194.90 an ounce.
Copper fell more than 1%, retreating after Tuesday’s rally as weaker data knocked the demand outlook and a rising dollar deterred non-US investors.
Asian stocks slipped as investors worried that global growth was faltering, with the MSCI index of Asia Pacific shares outside Japan shedding almost 1%. Japan’s Nikkei average ended down 0.6%.
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First Published: Wed, Jul 07 2010. 11 43 PM IST