21/07/09

A report from Goldman Sachs released Monday increased its 2009 target for the S&P500 index to 1060 from 940, a 13 percent jump in the index. The report also cautioned that "the US economic backdrop represents the most significant risk to our equity market forecast", and that "the risk of a double dip recession is significant".

This week, 145 of the S&P500 companies, or 23 percent of the broad index, are due to report quarterly results. Among them, 12 Dow components, including American Express, Microsoft, Coca-Cola and Merck are set to release results.

Texas Instruments reported earnings after the closing bell. The company posted sales that fell 27 percent from the year ago period and net income that plunged 56 percent from the same quarter a year ago. Compared to the first quarter of 2009, however, sales and profits jumped.

In economic news, the index of leading economic indicators rose 0.7 percent in June, according to a report from the Conference Board. Economists were expecting the index to have risen by 0.5 percent in June. LEI rose 1.2 percent in the previous month.

Treasury prices rose, with the yield on the 10 year note falling to 3.61 percent from 3.64 percent.

In currency trading, the dollar fell against the euro and the pound, but rose against the yen.

US light crude for August delivery rose 42 cents to close at $63.98 a barrel on NYMEX.

Comex gold for August delivery rose $11.30 to $948.80 an ounce.

The Nikkei average climbed to its highest close in two weeks, as optimism grew about a recovery in the US economy, reviving investor appetite for riskier assets and lifting blue chip exporters such as Canon Inc. The Nikkei average rose 256.70 points to close at 9652.02.

UK stocks closed higher on Monday, with banks leading the surge and commodity stocks jumping on stronger crude oil and metal prices. The FTSE100 closed 54.87 points higher at 4443.62, the highest close since June 11. Banks rose after US lender CIT Group's tentative deal with bondholders improving sentiment. HSBC, Standard Chartered and RBS rose 1.6 to 3.6 percent. Lloyds Banking Group rose 6.7 percent, support by a Sunday Telegraph report saying it would post a first half profit.

Insurers were boosted after Morgan Stanley raised its rating on the European insurance sector to 2 percent overweight from neutral. Aviva, Legal and General, Old Mutual and Prudential added between 2.9 and 7.6 percent. Friends Provident gained 2.4 percent after Resolution sweetened its proposed offer for the company.

Energy stocks were in demand after crude rose 0.2 percent to trade above $63 a barrel. BG Group, Cairn Energy, Royal Dutch Shell and BP climbed between 1 and 1.7 percent.

Mining stocks were in demand as metal prices rose, with copper hitting a nine month high on the improved economic outlook. Randgold Resources, BHP Billiton, Eurasian Natural Resources and Antofagasta rose between 2.8 and 7.6 percent. Rio Tinto jumped 3.7 percent as Cazenove resumed its coverage on the company with an outperform rating.

GlaxoSmithKline rose 2.6 percent after the success of its partner firm in a lupus drug clinical trial, if turned into a blockbuster drug, could see profits being split between GlaxoSmithkline and partner Human Genome Sciences.

Smith and Nephew fell 2.4 percent after Cazenove downgraded its rating on the stock to in line from outperform.

Housebuilders gained after data from Rightmove showed house price falls appeared to be bottoming out. Bellway added  5.3 percent and Taylor Wimpey rose 7.9 percent. Bovis Homes gained 5 percent after UBS upgraded it from neutral as it saw continued signs of strengthening in the UK housing market.

Economics
UK Public finances (Jun) 09:30 BST

Given the threat of a downgrade by the S&P ratings agency due to the rise in public sector debt, the public finance releases will be important for all markets. Net borrowing in June is expected to be GBP16bn, and borrowing for the 2009/10 tax year as a whole is expected to hit GBP190bn for the 2009/10.

US Bernanke monetary policy testimony 15:00 BST

The last time Bernanke made his semi-annual testimony in February, the unemployment rate was 7.6%. Just five months later, it is now 9.5%. Yet despite this, Bernanke will sound more upbeat on future growth prospects, largely because financial conditions have improved markedly in recent months, even though it is too early to tell whether this will lead to a pick-up in bank lending growth. So despite tentative signs that the recession is ending, Bernanke will probably repeat the tone of the latest FOMC minutes, namely that the economy remains vulnerable. Bernanke will also highlight his thoughts on an exit strategy for the Fed’s inflated balance sheet, such as ending some liquidity programmes next February if conditions warrant. But given that the FOMC’s new forecasts have unemployment remaining high all the way out until the end of 2011, Bernanke might surprise by advocating loose policy for a longer period than expected while so much slack remains in the economy.

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