US markets managed to end a poor month on a high yesterday with all three major indices rising more than 1.5%. January saw the Dow slide 4.6%, while the broader S&P 500 dropped 6.1% - its worst January since 1990. The Nasdaq suffered its worst January ever, tumbling 9.9% over the month. Yesterdays rally was fuelled by a rebound in financial shares, led in part by troubled bond insurer MBIA following comments by the company's CEO.
The Dow Jones rose 207.5 points to close at 12,650.4, the S&P 500 gained 22.75 points to end at 1,378.55. The Nasdaq advanced 40.86 points to finish at 2,389.86.
MBIA had started the session lower following a $2.3 billion quarterly loss as a result of a $3.5 billion write-down the company took on its uninsured credit derivatives portfolio. However, in a conference call hosted by top executives at the company, jittery investors were reassured that the company had enough capital to keep its triple-A rating. Shares jumped 11% to $15.50 and in turn lifted not only rival Ambac Financial, up 7.3% to $11.64, but the broader market as well.
Other financials benefiting included Bank of America which rose 5.1% to $44.35, American Express up 4.2% to $49.32 and Citigroup ending 2.4% higher at $28.22.
In earnings news, Amazon.com reported late Wednesday that quarterly earnings met estimates while revenue topped estimates. However, the company said they would face slower operating margins in 2008, causing shares to slip in the morning. But the internet retailer rallied later in the day in line with the rest of the market to close 4.7% higher at $77.70.
Elsewhere, the biggest riser on the Dow was Caterpillar Inc, up 4% to $71.14. Home Depot was also strong, adding 6% to $23.28, and even news that the company will cut 10% of its workforce due to the weak economy did little to effect the share price.
Treasury prices jumped, sending the yield on the 10 year note down to 3.59% from 3.68% late Wednesday.
US light crude oil for March delivery fell $0.58 to settle at $91.75 a barrel. COMEX gold for April delivery added $1.70 to $928 announce.
The Nikkei slid 95.3 points to close at 13,497.2 this morning. The fall came after banks reported lower earnings because of losses on subprime mortgage investments and Sony Corp cut its profit forecast on the stronger yen and worsening demand in the US. Mitsubishi UFJ Financial Group Inc and Mizuho Financial Group Inc slumped after Mizuho's earnings prompted HSBC Holdings to reduce its rating on the bank.
The Hang Seng is currently 636.7 points higher at 24,092.4. The index reverses earlier losses, led by oil producers after Credit Suisse Group lifted its rating on PetroChina Co to "neutral". Shares were also lifted by a newspaper reported that the city's Chief Executive Donald Tsang said China's plan to allow mainlanders to buy local shares has overcome hurdles.
The FTSE 100 Index staged a big afternoon turnaround yesterday as recovering bank stocks helped pull leading shares into the black. The blue-chip index was on course for one of its worst January performances, but it rallied late on to end the day 42.5 points higher at 5879.8. At one point it was down nearly 150 points, or 2%, as nervous investors braced for declines in New York.
Traders took advantage of cheaper-looking shares in the banking sector during the afternoon rally. The big players' stocks had earlier slumped around 5% amid the economic worries in the US, but they clawed back much of their early losses later in the session. Royal Bank of Scotland ended the day down 3.25p at 382p, with Barclays down 8.5p to 470p. HBOS ended up slipping 8.5p to 694.5p while Lloyds TSB finished 0.5p to 437.5p - around 20p higher than its low point.
Friends Provident stayed high on the fallers board after the City was left unimpressed by a major overhaul for the life and pensions company, including the loss of 600 jobs. Fears over current trading meant shares were down 16.4p to 138.8p. Standard Life, which lost its highly-rated retail head to Friends earlier this week, also slipped back - down 8.5p to 215.5p.
Building supplies firm Wolseley, which does most of its business in the United States, remained in the red with shares off nearly 2% to 686p. House builders Persimmon and Taylor Wimpey were also hit - off 31.5p to 771p and 5.2p to 179.3p respectively.
Shares in oil giant
Royal Dutch Shell failed to respond to its record profits haul of £13.9bn. The stock was flat at 1744p, reflecting disappointment at trading in the fourth quarter.
Economics
UK PMI Manufacturing (Jan) 0930 GMT
The CBI industrial trends survey was stable in January and is still pointing to impressive growth in the manufacturing sector. The decline in sterliong may have boosted confidence, but with news of global demand weakening, sentiment may not remain buoyant for long.
US Non-farm Payrolls (Jan) 1330 GMT/0830 EST
Analysts expect non-farm payrolls to rise by 120,000. Initial jobless claims have dropped to just over 300,000 in mid-January, consistent with a very low level of layoffs. Continuing claims and the insured unemployment figures also dropped back from their late December levels. Analysts think the unemployment rate in January may fall to 4.9% from 5.0%. The construction sector continues to see job losses, although this month's fall could be mitigated by relatively warm weather. Manufacturing, finance and information have also been soft. However, strong payroll growth in recent months has come from healthcare, professional and business services, food services and government.
Analysts think a 0.3% rise in average hourly earnings could push the yearly rate up to 3.9%. This month's report will also include annual benchmark revisions to the payroll and updated population controls for the household survey. The preliminary estimatefor the benchmark revision to payrolls was for March 2007 employment level to be reduced by 297,000, but the final revision may differ.
US ISM Manufacturing (Jan) 1500 GMT/1000 EST
The 19ppt collapse in the January Philly Fed to 20.9 raises the downside risks for ISM manufacturing, although some of the weakness may already be reflected in December's ISM reading, which fell to 47.7 from 50.8. The ISM-weighted average of the Philly components in January dropped to -7.1 from 7. The Empire survey componenets also softened, but to a lesser degree. Analysts look for ISM manufacturing to fall to 46. Prices paid could drop to 64, given that oil prices have declined since the beginning of the year.
US University of Michigan Confidence (Jan, final) 1500 GMT/1000 EST
The preliminary reading was impressive, rising 5ppt to 80.5. The risk is for some downward revision in the final release, given that equity markets are down sharply on the month and the weekly ABC/Washington Post readings remain soft. Analysts look for a reading of 78. Five year median inflation expectations fell to 3.0%, from 3.1% in the preliminary reading, while the one year median stayed at 3.4%.
US Construction Spending (Dec) 1500 GMT/1000 EST
Private Residential construction continues to slow, offset by increases in non-residential and public construction. Assuming a 1% decline in residential spending in December, analysts expect total construction spending to fall 0.3%.
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