While you were sleeping: Bernanke bets on recovery

Thursday 10th June 2010

Equities rose overnight, with investor optimism renewed after Fed Chairman Ben Bernanke said the US economy was on a sound footing and that the central bank remained prepared to assist the recovery.

The Federal Reserve said the US economy, driven partly by consumer and business spending, strengthened in all 12 of the central bank’s regions in April and May, while noting growth in many districts was subdued.

“Economic activity continued to improve since the last report across all 12 Federal Reserve Districts, although many Districts described the pace of growth as ‘modest,’” the Fed said in its Beige Book business survey, published two weeks before the Federal Open Market Committee meets to set monetary policy.

While Bernanke said the economy had made an "important transition" where it was in less need of government support, his emphasis on the struggles of the US jobs market suggested the central bank was in no rush to raise interest rates.

Policy makers, who next meet June 22-23, committed in April to keep borrowing costs near zero for an “extended period.”

In late trading, the Dow Jones Industrial Average rose 0.10%, the Standard & Poor’s 500 Index gained 0.04% and the Nasdaq Composite advanced 0.21%.

Among the most active stocks on Wall Street were BP Plc, CBS Corp, Baker Hughes Inc, Freeport-McMoran Copper & Gold Inc and Viacom Inc.

BP fell after a broker said there was a 50% chance that the oil company wouldn’t pay its next quarterly dividend, while Caterpillar Inc rose after increasing its quarterly dividend.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, dropped 3.80% to 32.42.

The Stoxx Europe 600 Index advanced 1.9% to 244.6.

The U.K.’s FTSE 100 gained 1.15%, France’s CAC 40 rose 1.96% and Germany’s DAX climbed 1.98%.

Among the most active stocks in Europe were BP Plc, Rio Tinto Group, STMicroelectronics NV and Inditex SA.

U.S. Treasuries pared losses after the US$21 billion auction of 10-year notes attracted higher demand than traders forecast.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.24, compared with an average of 2.95 for the previous 10 sales.

Government debt fell earlier in the session after Bernanke said the impact of Europe’s sovereign-debt crisis on the U.S. would likely be modest.

The 30-year bond yield rose two basis points, or 0.02 percentage point, to 4.13% at 2.42pm in New York, according to BGCantor Market Data.

The yield on the 10-year note increased one basis point to 3.20% after earlier rising six basis points. The two-year note’s yield was little changed at 0.74% after earlier gaining 2 basis points.

The three-month euro London interbank offered rate rose to 0.65250%, the highest since early January, daily fixings from the British Bankers' Association showed.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.62% to 87.85.

The euro rose against the US dollar, bolstered by options-related demand and renewed market hopes that Europe's debt crisis might not put the brakes on global growth.

Talk that Chinese exports in May likely grew sharply bolstered confidence, as did Bernanke’s comments that the US recovery was on solid footing.

That provided traders with an opportunity to take profits on the euro's recent slide, which took it below US$1.19 on Monday to its lowest level since early 2006.

Few were ready, however, to declare the euro's woes over. Banks' overnight deposits at the European Central Bank hit a record, highlighting widespread worries about the health of the financial system.

In afternoon trading in New York, the euro rose 0.3% to US$1.2012. The euro has shed nearly 16% against the U.S. dollar this year.

The euro also gained against the yen, rising 0.2% to 109.86 yen after hitting an eight-year low beneath 109 yen on Monday.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 1.19% to 253.06.

Oil rose more than 3% after a report of buoyant Chinese exports eased concerns over the pace of growth in the world's No 2 oil consumer and data showed a drawdown in U.S. crude inventories.

Chinese exports grew about 50% from a year earlier in May, sources told Reuters on Wednesday, in a sign the economy of the second-largest oil user was roaring ahead.

The export figure in the Reuters report, which came ahead of Thursday's official release, far exceeded expectations.

Further support came after the U.S. Energy Information Administration reported a 1.8 million barrel drop in said crude inventories, confirming a previous report by the American Petroleum Institute of a hefty crude draw.

U.S. crude for July delivery gained US$2.53 to US$74.52 a barrel by 1.03pm ET, off earlier highs of US$74.96. July ICE Brent rose US$2.05 at US$74.35 a barrel.

US copper futures rallied as much as 3.2% Wednesday morning in New York trading, tracking similar strength in overseas markets.

Gold slipped from the previous session's record high.

Spot gold was bid at US$1,224.75 an ounce at 1540 GMT, against US$1,233.63 late in New York on Tuesday. US gold futures for August delivery fell US$18.20 an ounce to US$1,227.4.

"Risk appetite has returned a bit after people parked their money in gold to try and shelter from the storm," Daniel Major, an analyst at RBS Global Banking and Markets, told Reuters.

Businesswire.co.nz

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