US markets made strong gains yesterday as investors shrugged off credit market woes and turned their attention towards better than expected results in the tech and housing sector. Stocks have swung erratically in recent weeks and it has been speculated that the Federal Reserve may step in. Yesterday indexes had been positive for almost the whole session, except for the last half hour where they suffered a pullback on rumours that Goldman Sachs were to make an announcement in relation to one its hedge funds - Goldman denied that any announcement was pending.
The Dow Jones jumped 153.6 points to close at 13,657.9, the S&P 500 rose 20.8 points to end at 1,497.5. The Nasdaq climbed 51.38 points to finish at 2,612.98.
Home builders were prominent following strong preliminary results from Toll Brothers and a sharp increase in mortgage applications. The luxury home builder reported sales that exceeded analysts forecasts and revenue that although fell 21% was about $1.21 billion, again beating expectations. Beazer Homes USA was also on the front foot, up 24.7% to $15.01. A Dow Jones index of home builders rallied 6.6%.
The financial sector made strong gains helping the S&P financial index to rise 2.2%. Citigroup Inc added 1.9% to $49.49, while American Express advanced 4.2% to $62.96 - the latter was the Dow's top gainer. American International Group continued to rise ahead of its results which were due after the close, shares added 1.4% to $66.48. After the bell the world's largest insurer reported results ahead of expectations, sending shares a further 2.3% higher to $68.00.
The tech sector was driven higher by Cisco Systems after the company raised its revenue target while reporting earnings that exceeded expectations. The world's largest maker of computer networking equipment surged 6.7% to close at $31.68, having hit $32.25 earlier in the session - its highest level since 2001. Elsewhere, Broadcom Corp jumped 9.8% to $35.98 after Nokia said it had contacted the company with a view to producing advanced chips for its phones.
US light crude oil for September delivery slipped $0.22 to $72.20 a barrel. COMEX gold for December rose $4 to $686.30 an ounce.
Treasury prices dropped, lifting the yield on the 10 year note to 4.86% from 4.77%.
The Nikkei rose 141.3 points to close at 17,170.6. Strong earnings by companies including Softbank Corp and AOC Holdings Inc boosted investor confidence. Exporters such as Canon Inc gained after the yen weakened and as US stocks rallied.
The Hang Seng is 93.5 points higher at 22,630.2 this morning. China Construction Bank Corp led gains among mainland lenders after the Wall Street Journal said the company will raise $6.5 billion in a share sale. Swire Pacific Ltd advanced on speculation it would report higher first half earnings and Morgan Stanley raised its share price estimate.
A second session of strong advances helped the London market regain ground lost amid recent concerns over credit tightening and US sub-prime mortgages. The FTSE 100 Index was up 85.1 points - more than 1% - at 6393.9 thanks largely to takeover speculation involving Alliance & Leicester, and the latest quarterly inflation report from the Bank of England. The Bank hinted that rates may need to rise to 6%, but appears under no urgency to make the move, and markets already factoring in another quarter point rise would be unsurprised by a further hike.
Meanwhile Alliance & Leicester gained 6% on the back of trader talk over a possible bid from National Australia Bank, sending the stock 63p up to 1107p. But real estate group Liberty International led the day's share risers, up 7%, or 69p to 1130p. The gains added to yesterday's advances seen after Credit Suisse published an upbeat review of the sector. Fellow real estate stock Segro also made advances, up 31.5p at 565p, while Land Securities increased by 83p to 1778p and Hammerson lifted 46p to 1270p.
An upgrade from Deutsche Bank for Standard Life helped the insurer move almost 5%, or 15p, higher to 341p following strong results yesterday. Royal & Sun Alliance likewise saw better-than-expected results offset £120m of flood-related losses. Investors were also cheered by the firm's plans to make an additional £70m a year in cost savings, moving shares 5p higher at 141p, a gain of 4%.
Broadcaster ITV also enjoyed a strong session, up 4p at 109.7p, after revealing that trading had improved in the early stages of its third quarter. But engineering company Smiths Group moved in the opposite direction, leading the share fallers after saying that the continuing weakness in the US dollar would result in flat headline operating profits in the year to the end of July. Shares were off 29p at 1008p.
Water company Severn Trent was also down, by 26p to 1336p, as it said that flooding disruption could cost it up to £35m, with only some of the figure set to be claimed back through insurance. Financial stocks were leading the way in the FTSE 250, with F&C Asset Management benefiting from the results of parent company, Friends Provident. Shares were 27.5p higher at 217.5p, while car insurer Admiral also rose 87.5p to 940p as positive sentiment swept the sector. Engineering group FKI fell 6% as it said it was no longer the subject of takeover interest, leaving the stock 6p lower at 100.75p.
This month's bulletin warrants more attention than usual. The reason is simply that although ECB head Trichet gave a press briefing last week and used the "strong vigilance" expression, this was not in the context of a complete introductory statement. Furthermore, he declined to comment on whether rates were on the "accommodative side" and/or "financing conditions favourable". This means the ECB could have a slight problem with this month's editorial of the bulletin. The editorial normally includes all the policy messages and is similar to an introductory statement, even if the month's meeting was just a phone conference without a press conference. One solution is that the ECB just chooses a very brief first paragraph similar to the introductory words last week, but then also would need to stay clear of key expressions in the remainder of the text. In any case, it is worth keeping an eye on the release, especially the editorial.
A modest improvement in the trade balance is expected as import growth slows by more than export growth, on the back of weaker retail spending.
Initial claims have been low, with the 4 week average at 305,500. This week's claims are seen increasing to 315,000.
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