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While you were sleeping: Focus on fundamentals

Thursday 13th May 2010

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Stocks in Europe and the US rose on promises by governments in the UK and Spain to reduce their budget deficits, on better-than-expected European growth in the first quarter and on strong company earnings in Europe and North America.

In late trading, the Dow Jones Industrial Average rose 1.46%, the Standard & Poor’s 500 Index gained 1.48% and the Nasdaq Composite advanced 2.14%.

Among the most active were International Business Machines Corp, predicting earnings per share might nearly double by 2015, and Intel Corp, forecasting an increase in gross margins.

Morgan Stanley fell 2.6% on a Wall Street Journal report that US prosecutors were investigating its dealings in mortgage derivatives.

“We’ve got good fundamentals happening,” James Thorne, chief investment officer for equities at MTB Investment Advisors in Baltimore, told Bloomberg News. “We just need to get over this fear that what’s happening in Europe is going to knock the global economic recovery off its rails.”

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, fell 10.35% to 25.39.

Blackstone Group LP, Thomas H. Lee Partners LP and TPG Capital are in talks to pay more than US$15 billion including debt for Fidelity National Information Services Inc,  Bloomberg reported.

The Stoxx Europe 600 Index gained 1.5% to 256.6, the highest close in more than a week. The benchmark gauge has risen 8.2% this week after the European Union unveiled a 750 billion-euro rescue plan backed by European Central Bank bond purchases aimed at preventing the escalation of the region’s fiscal crisis.

The UK’s FTSE 100 rose 0.92%, France’s CAC 40 climbed 1.10% and Germany’s DAX advanced 2.41%.

Among the most actives were A.P. Moeller-Maersk A/S, ING Groep NV and Allianz SE. Both Maersk and ING reported better than expected results.

Spain’s IBEX 35 rose 0.8% as the government said it would cut public wages by 5% this year and suspend a planned increase in pensions. The measures will lower the deficit by an additional 1.5 percentage points of gross domestic product over two years, taking the shortfall to 6% of GDP in 2011.

SAP AG is close to buying Sybase Inc for about US$6 billion, according to Bloomberg.
In the UK, newly sworn in Conservative Prime Minister David Cameron began work leading the country’s first coalition government since World War II, with ministers pledging to lower a record budget deficit.

Europe’s economy expanded at a faster pace than economists forecast in the first quarter as a global recovery boosted exports. GPD in the 16 euro nations rose 0.2% from the fourth quarter, the EU’s statistics office said.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.42% to 84.82.

The euro declined against the greenback, bringing this year’s slide to 11.7%. In midday New York trading, the euro was down 0.1% at US$1.2642, after earlier rising to US$1.2739, according to Reuters data.

Against the yen, the euro was up 0.1% at 117.46. The US dollar rose 0.3% to 92.94 yen.

"It's the much longer term and much more fundamental, negative outlook for the euro zone that is keeping the euro under pressure," Brian Dolan, chief currency strategist at in Bedminster, New Jersey, told Reuters.

US Treasuries fell as the US government auctioned US$24 billion of 10-year notes.

The securities drew a yield of 3.548%, compared with a forecast of 3.582% in a Bloomberg News survey of 12 of the Federal Reserve’s 18 primary dealers.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of 10-year securities offered today, was 2.96, compared with an average of 2.98 for the past 10 sales.

Indirect bidders, an investor class that includes foreign central banks, bought 41.9% of the notes, compared with an average of 41.5% for the past 10 sales. At the April sale, the securities drew a yield of 3.9%.

The US Treasury 10-year yield rose 3 basis point to 3.56% in early afternoon trade in New York, according to BGCantor Market Data.

The US will sell US$16 billion of 30-year bonds tomorrow.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, gained 0.44% to 266.11.

Gold surged to a record high, with demand for coins, bars and bullion-backed exchange-traded funds all climbing.

Spot gold reached US$1,244.45 an ounce.  It was bid at US$1,238.45 an ounce at 10.41am from US$1,232.05 late in New York the previous day. US gold futures hit a record US$1,245.40 an ounce.

Appeal of gold has increased amid investor concern a US$1 trillion rescue package will not be enough to solve Europe’s debt crisis.

Gold priced in euros extended its record high to 982.51 euros an ounce, and has risen 28% since early February, outstripping dollar gold's climb.

Spot silver rose to US$19.68 an ounce, its highest since March 2008, from US$19.28 yesterday.

Platinum was bid at US$1,731.50 an ounce from $US1,702 and palladium at US$537.50 from US$532 on Tuesday.

US crude futures declined on government data showing rising oil inventories in the world's top consumer. Inventories at Cushing, Oklahoma, the delivery point for the New York Mercantile Exchange futures contracts, rose to a record 37 million barrels in the week to May 7, according to the US Energy Information Administration. Total US crude inventories rose more than expected.

Rising inventories at Cushing, which currently has a capacity of more than 53 million barrels, according to Reuters estimates, sent the premium of London Brent crude to US oil futures to the highest level since February 2009.

US crude for delivery in June fell 58 cents to US$75.79 a barrel at 1.16pm EDT, after trading as low as US$74.91 in the session.

Brent crude rose 77 cents to US$81.26 a barrel, supported by confirmation from ExxonMobil it has declared force majeure on shipments of Qua Iboe crude from Nigeria, which could tighten the Atlantic basin market.

US copper futures rose on industrial output data in Europe.

Copper for July delivery rose 1.20 cents to US$3.2185 per pound by 10.16am EDT on the New York Mercantile Exchange's COMEX division.

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