AB: European markets subdued as US stocks heading for their best week
LONDON, Oct 9, (Agencies): European stocks fell modestly Friday at the end of a week when world markets shot higher amid mounting optimism about the global economic recovery. Chinese shares, though, rallied hard as traders returned to their desks following a weeklong holiday. Meanwhile, the dollar garnered some support after US Federal Reserve chairman Ben Bernanke spoke about the need — eventually — to raise interest rates to counter potential inflationary problems. Solid economic data around the world and an encouraging start to the third-quarter US earnings reporting season have helped stock markets around the world recover their poise after a few weeks of unremarkable progress. The second quarter earnings season was generally better than expected and helped fuel a big rise in share prices in July and August. However, the forecast-busting earnings were largely due to cost cutting that are unlikely to be repeated.
Early signs are that firms are growing more optimistic about the business environment. Aluminum company Alcoa Inc., which kicked off this earnings season, forecast an 11 percent increase in worldwide aluminum demand, largely on the back of robust growth in China. The earnings season in the US goes up a gear next week and the big investment banks, Goldman Sachs Group Inc. and JP Morgan Chase & Co, will be the main focus of attention.
However, with little on the calendar Friday, trading levels could remain subdued.
“It is a quiet day on the economic and earnings calendar in the States, so today’s trading could well be directionless, just consolidating the gains seen for the week so far,” said David Jones, chief market strategist at IG Index.
US
The US market kept its momentum going Friday, with stocks heading for their best week since July. Major stock indexes rose less than 0.5 percent in midday trading, led by gains in health care and utility stocks. Going in to Friday, the Dow Jones industrial average is up 300 points, or 3.2 percent, for the week. The Standard & Poor’s 500 index is up 3.9 percent.
Investors have cheered more signs this week that the economy is healing, including growth in the service sector, a surprise profit from aluminum maker Alcoa Inc. and the first gain in retail sales in over a year.
Moderating the market’s advance Friday was a rebound in the dollar, which weighed on energy and material stocks. The greenback recovered some of its recent losses against other currencies after Federal Reserve Chairman Ben Bernanke reassured markets that the US central bank will be able to wind down its extraordinary stimulus measures when the time is right.
Some investors interpreted Bernanke’s comments as a sign that the Fed might raise interest rates sooner than expected, which would boost the dollar versus other currencies. If the Fed raises rates too soon to support the weak dollar, investors fear the economy’s recovery could falter. But a continued sharp decline in the dollar is worrisome because it could lead to inflation.
“The dollar is really a mixed bag,” said Jordan Smyth, managing director at Edgemoor Investment Advisors. “What’s particularly concerning for investors is if there is a sharp, sustained move in one direction or another.”
Record low interest rates in the US and massive government spending have weakened the dollar this year, sending one widely used index of the dollar’s value down nearly 15 percent against other currencies since early March, when the stock market’s rally began.
The decline in the dollar has been a boon to both stocks and commodities this year. A weak dollar makes commodities more attractive to foreign investors. Likewise, it helps boost corporate profits at companies that have a strong presence in overseas markets.
The Dow rose 27.13, or 0.3 percent, to 9,814.00. The Standard & Poor’s 500 index added 0.49, or 0.1 percent, to 1,065.97, while the Nasdaq composite index rose 7.02, or 0.3 percent, to 2,130.95.
In other trading, the Russell 2000 index of smaller companies rose 3.30, or 0.5 percent, to 611.05.
Europe
European shares closed lower on Friday, dragged down by the telecommunications sector, as Telefonica disappointed investors, and mining stocks which tracked a fall in metal prices.
The pan-European FTSEurofirst 300 index of top shares closed down 0.3 percent at 998.17 points. The benchmark index is up 20 percent this year and has surged 54 percent since hitting a record low in early March and is up 3.6 percent this week, its best weekly performance since July.
The telecoms sector featured among the biggest fallers with Telefonica down 0.2 percent after investors questioned whether or not its upbeat business outlook was attainable. Traders said the underlying numbers looked less favourable than the headline figures. The company had announced a bigger than expected dividend, despite a planned acquisition, and gave an upbeat business outlook.
Miners were under pressure as metal prices slipped. Copper was down 1.7 percent, aluminium fell 0.4 percent and nickel was 2.7 percent lower.
Anglo American, Antofagasta, Eurasian Natural Resources Corporation and Xstrata were down 1.3 to 1.4 percent.
Across Europe, the FTSE 100 index was up 0.1 percent, Germany’s DAX was down 0.1 percent and France’s CAC 40 was 0.2 percent lower.
UK
Britain’s leading shares added 0.1 percent on Friday in very quiet trading, which saw small gains in energy issues and drugmakers just offset weakness in miners and banks.
At the close, the FTSE 100 index was 7.23 points higher at 5,161.87 having moved in a narrow 40 point trading range. For the week, however, the index was up around 3.3 percent, recovering from a fairly cautious start to the month.
“Markets were a bit quieter at the end of a fairly active week, with a rally by the quality stocks, particularly the banks and the miners, coming to a halt, and interest limited by a lack of fresh direction,” said Sam Wright, equity trader at Spreadex.
Weak miners were a drag on blue-chip sentiment as metals and gold prices retreated as a strengthening dollar made commodities more expensive for investors.
Eurasian Natural Resources, Antofagasta, Lonmin and Xstrata lost between 0.3 and 1.3 percent. Platinum group Johnson Matthey also suffered, down 2 percent.
Banks were mostly lower, with Lloyds Banking Group, Royal Bank of Scotland, and Standard Chartered losing 0.3 to 1.3 percent. However HSBC and Barclays bucked the sector trend, up 0.7 and 0.3 percent.
Asia
Most Asian markets rose Friday with Chinese shares surging nearly 5 percent after a weeklong holiday and Seoul advancing amid news the central bank left interest rates at a record low. European shares were modestly higher.
Tokyo, Shanghai, Hong Kong, and Seoul rose after improved U.S. jobs and retail sales data overnight. Investors are also looking to a slew of corporate earnings reports for more clues about the strength of the global economic recovery.
Japan’s benchmark Nikkei 225 index added 183.92 points, or 1.9 percent, to 10,016.39, helped by a weaker yen and with gamemaker Nintendo surging on an analyst upgrade. Hong Kong’s Hang Seng rose 6.54 points, less than 0.1 percent, at 21,499.44.
The Tokyo session was briefly dented by news Japan’s August core machinery orders, a key indicator of company spending, rose just 0.5 percent, short of the consensus forecast of 2.3 percent and fueling concern about company spending despite improving global demand.
“Japanese machinery orders data were quite disappointing,” said Dariusz Kowalczyk, chief investment strategist for SJS Markets in Hong Kong. “Markets were hoping for a stronger rebound,” Kowalczyk said. “There are concerns about the strength of global demand for capital goods.”
South Korea’s Kospi added 1.9 percent to 1,646.79 after its central bank left its key interest rate unchanged at a record low, saying it would stick to an “accommodative stance” for now. Korea is believed to be close to following Australia in raising rates, but the central bank said inflation does not appear to be a problem.
In China, the benchmark Shanghai Composite Index jumped 4.8 percent to 2,911.72 as markets reopened following a weeklong holiday. Elswhere, Singapore’s Straits Times Index was fractionally lower and Australia’s index fell 0.3 percent.
Oil
Oil prices were esentially flat to end the week after Federal Reserve Chairman Ben Bernanke said this week that interest rates will have to be raised when the US economy recovers in order to avoid inflation.
It has been the weak dollar that has attracted billions in investments in energy markets this year because oil is priced in the US dollar, essentially making crude cheaper globally. The dollar bounced back on Friday following Bernanke’s comments, and crude prices rose only 8 cents after they had rallied strongly Thursday wheat he US currency hit a 14-month low against the euro.
Benchmark crude for November delivery settled at $71.77 on the New York Mercantile Exchange.
The Paris-based International Energy Agency raised its expectations for oil demand in 2010, but not by much. The IEA said demand will increase by 1.7 percent, largely from rebounding economies in the Americas and in Asia.
Major corporations and consumers have pared back on energy use as they ride out the recession. Americans, the biggest energy consumers in the world, have cut way back on driving for the past year.
Yet it has been the falling dollar that has driven oil prices higher for months.
Bernanke said Thursday at a fed conference that interest rates will remain near a record low for an extended period.
In other Nymex trading, heating oil rose by less than a penny to $1.8528 and gasoline fell by 1.117 to settle at $1.768 a gallon. Natural gas for November delivery lost 19.3 cents to settle at $4.77 per 1,000 cubic feet.
In London, Brent crude rose 23 cents to settle at $70 per barrel on the ICE Futures exchange.
Currencies
The dollar inched up on the euro Friday on comment from Federal Reserve Chairman Ben Bernanke hinting that US interest rates could be on the rise.
The single European currency in late-day trade was at $1.4713 after $1.4791 late Thursday in New York.
The dollar was meanwhile trading at 89.48 yen against 89.48 yen, up from 88.39.
The euro slide came at the end of a week during which the single currency had risen steadily against the dollar, powered by strong stock market performances and increased public agitation for closer scrutiny of the dollar’s status as the world’s reference money.
The euro at one point came close to hitting its year-long high of just over 1.48 dollars. Japan has not intervened in the foreign exchange market since March 2004, although Finance Minister Hirohisa Fujii has said Tokyo would consider taking action in the event of “abnormal” currency movements.
In London on Friday, the euro was changing hands at $1.4713 against $1.4791 late on Thursday, at 131.96 yen (130.74), 0.9263 pounds (0.9203) and 1.5188 Swiss francs (1.5178).
The dollar stood at 89.48 yen (88.39) and 1.0297 Swiss francs (1.0260).
The pound was at $1.5922 (1.6068).
Gold
On the London Bullion Market, the price of gold edged up to $1,051.50 an ounce at the fixing from 1,045 dollars an ounce late on Thursday. Gold had reached a record-high $1,061.55 an ounce on Thursday in London.
