Wednesday, 20 July 2011

Stocks jump, US housing starts rise

Investors turned optimistic on Tuesday. Bloomberg reports:

Stocks surged, sending the Standard & Poor’s 500 Index to its biggest gain in four months, and Treasuries rallied amid optimism lawmakers were moving closer to a deal that would cut the U.S. budget deficit and avoid default. Oil helped lead gains in commodities and the dollar fell.

The S&P 500 jumped 1.6 percent to 1,326.73 at 4 p.m. in New York, its biggest gain since March 3. The S&P GSCI Index of 24 commodities advanced 1 percent as oil surged 1.6 percent to $97.50 a barrel. Ten-year Treasury note yields lost five basis points to 2.88 percent and the Dollar Index, a gauge of the currency against six major peers, slipped 0.5 percent. Nasdaq-100 Index futures climbed 0.7 percent at 5:12 p.m. after Apple Inc. (AAPL) beat earnings estimates.

Stocks added to an early advance and Treasuries climbed after President Barack Obama endorsed a deficit-cutting proposal by a bipartisan group of senators known as the “Gang of Six.” Earlier gains in global equities were triggered by higher-than- estimated results at companies from International Business Machines Corp. to Coca-Cola Co. and Novartis AG...

The Markit iTraxx SovX Western Europe Index of swaps on 15 governments fell 9.6 basis points to 296.85 basis points, retreating from an all-time high...

Economic data in the US supported the rally. From Bloomberg:

Housing starts in the U.S. jumped more than forecast in June as better weather allowed the struggling industry to break ground on delayed projects.

Work began on 629,000 houses at an annual pace, up 15 percent from May and the highest level in five months, figures from the Commerce Department showed today in Washington. The level topped the most optimistic forecast in a Bloomberg News survey of 71 economists. Building permits, a sign of future construction, unexpectedly climbed 2.5 percent.

Reports from Europe were less supportive. Eurostat reported a fall in construction output.

In the construction sector, seasonally adjusted production fell by 1.1% in the euro area (EA17) and by 0.9% in the EU27 in May 2011, compared with the previous month. In April, production increased by 1.2% in the euro area, but decreased by 0.5% in the EU27.

Compared with May 2010, output in May 2011 dropped by 1.9% in the euro area and by 1.0% in the EU27.

And German investor confidence fell more than expected in July. Bloomberg reports:

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, fell to minus 15.1 from minus 9 in June. That’s the lowest since January 2009. Economists expected a decline to minus 12.5, according to the median of 42 estimates in a Bloomberg News survey.

The IMF also had discouraging news for Europe. Again from Bloomberg:

Greece’s sovereign-debt crisis risks contaminating the rest of the euro region even if officials avert a default, the International Monetary Fund said.

Both the European Commission and the European Central Bank “considered that a sovereign default or a credit event would likely trigger contagion to the core euro-area economies with severe economic consequences,” according to an IMF staff report on the region’s economy released yesterday. “Staff however also saw serious risks of contagion, even under a strategy which tries to avoid default or credit events.”

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