While you were sleeping: Confidence renewed but for China

Wednesday 27th January 2010

A boost in U.S. consumer confidence paced Wall Street higher after a weak lead from Europe on renewed concerns about the strength of the global economic recovery.

China implemented plans to rein in some lending to keep inflation in check, Standard & Poor’s cut its outlook for Japan and while the U.K. recorded positive economic growth in the fourth quarter, the 0.1% advance was lower than expected.

At midday, the Dow Jones Industrial Average was 0.59% higher, the Standard & Poor’s 500 was up 0.35% and the Nasdaq Composite had added 0.46%.

Among the most actives were Bank of America, General Electric, Microsoft and Cisco. Shares in Apple rose 2.1% after it last night reported better than expected fiscal first-quarter earnings. Barnes & Noble surged 13% on hope that Apple’s new tablet computer, expected to be unveiled tomorrow, would contain a link to the book seller’s online store.

Earnings continued to be a key driver. Shares in Travelers rose 3.5% after the insurer reported its biggest quarterly profit. Shares in U.S. Steel dropped 8% after its fourth quarterly loss in a row. Delta Air Lines shed 3.2% after posting a wider than expected loss.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 7.98% to 23.38.

In Europe, the Dow Jones Stoxx 600 edged 0.1% higher to 248.61. The FTSE 100 gained 0.31%, Germany’s DAX was 0.67% higher and France’s CAC 40 added 0.67%.

Another bear market forecast came to the fore today. Technical analyst Robert Prechter told Reuters that he expected U.S. stocks to fall below their March 2009 lows. “We probably have begun the next phase of the bear market.”

Prechter, who runs Elliott Wave International, predicted the 1987 market crash.

“The bear market (in stocks) has a number of years left to run: four to six more years,” he said. “It makes it prudent to stay in the safest cash equivalents till it's over,” and perhaps keep some money under the mattress as well in case of problems in the banking system, he said.

And David Rosenberg, chief economist at Gluskin Sheff & Associates, told Bloomberg that investors needed to adopt a defensive position with a focus on consumer staples, healthcare, utilities and phone companies.

“We have a market that is high overvalued,” Rosenberg said. “2010 will be a reversal from what we saw in 2009, when there was overwhelming complacency.”

The U.K. economy expanded 0.1% in the fourth quarter, less than a forecast of 0.4% in a Bloomberg News survey. In Germany, business confidence rose to its highest in 18 months.

In a report today, the International Monetary Fund urged countries to maintain their stimulus measures until their economies were on a solid upward trajectory.

“For the moment, the recovery is very much based on policy decisions and policy actions. The question is when does private demand come and take over. Right now it’s ok, but a year down the line, it will be a big question,” said IMF chief economist Olivier Blanchard.

That said the IMF is more optimistic about what lies ahead.

“The global economy, battered by two years of crisis, is recovering faster than previously anticipated, with world growth bouncing back from negative territory in 2009 to a forecast 3.9% this year and 4.3% in 2011,” it said in a statement.

Along with the update to its forecast, the IMF also released a new assessment of global financial conditions. It said that financial markets have rebounded since the lows of last March, the result of improving economic conditions and wide-ranging policy actions by governments.

“Notwithstanding the recent sell-off, risk appetite has returned, equity markets have improved, and capital markets have reopened,” Jose Viñals, director of the IMF’s Monetary and Capital Markets Department, said.

On the U.S. economic front, the Conference Board said its consumer confidence index rose this month to its highest level since September 2008, a sign that some analysts said reflected a more stable labour market.

It’s the labour market’s performance that the Federal Reserve has said it’s watching like a hawk and will be a key determining factor in how its adjusts its stimulus efforts. The Fed’s policy committee began meeting at a regularly scheduled two-day meeting today. It is expected to release a statement on its deliberations tomorrow afternoon Washington time.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.26% to 78.39.

The dollar was down 0.7% at 89.61 yen, after hitting a five-week low at 89.35 yen, according to Reuters data. The euro traded 1.2% lower at 126.20 yen, off a nine-month low of 125.62 yen. The euro fell 0.5% to US$1.4085.

Sterling fell 0.5% against the dollar to $1.6155. The Australian and New Zealand dollars fell versus both the dollar and yen.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.77% to 274.59.

U.S. crude oil fell 29 cents to US$74.97 a barrel, having traded as low as US$73.82, the lowest intraday price since December 22. in London, Brent crude fell 28 cents to US$73.41 a barrel.

Spot gold hit a session low of US$1085.40 an ounce, but had recovered to US$1094.95 an ounce by 1507 GMT against US$1097.95 late in New York on Monday. COMEX gold futures for February delivery fell US$2.70 to US$1093.

Silver, platinum and palladium also fell.

Businesswire.co.nz

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