July 2010

European Equities Gain Now That Stress Test Uncertainty is Gone – Or is it?

Europe Session Key Developments

• Investors Continue to Digest Friday’s Stress Test Results
• Newfound Risk Appetite Drives Equities Modestly Higher

European Equities Gain now that Stress Test Uncertainty is Gone – Or is it?

The Committee of European Banking Supervisors’ bank stress tests failed to trigger the price action many had expected from the long-awaited report. Perhaps this was a result of the convenient timing of the release, which was after Friday’s close of the European equity markets, when only North American traders had just a few illiquid hours to digest all 55-pages. However, even after the weekend, investor sentiment was still largely undecided regarding the results of the bank stress tests.

Many investors have questioned the accounting practices employed by the CEBS, which has led to questions regarding the “stressfulness” of the stress tests. The methodology used in the test ignored the possibility of a sovereign debt default, as officials claimed the European Union would never allow for such an event to occur. Recall that, according to Friday’s report, only seven of the 91 banks tested failed had failed; five of the seven were Spanish Cajas, one was an already nationalized Greek bank, and the last was the government-controlled German Hypo Real Estate. To some, it seems unreasonable that in the event of an “adverse scenario” (the situation devised by the CEBS to represent the worst ‘what-if’ imaginable), only one Greek bank would fail in light of the nation’s recent sovereign debt crisis. Regardless, countless officials in Europe have praised the test and asserted that it proves the “robustness” of the European financial system.

European equities responded Monday by closing higher across the board, though the sustainability of such a move is still in question. It will be interesting to see if any form of rally will surface on the (allegedly) more stable economic playing field. Here’s how the specific indices performed:

FTSE 100                      5351.12                   +38.50               +0.72%

The FTSE 100 finished another 38.50 points higher, or 0.72 percent, to close at 5351.12 after intraday trading. The British index’s recent performance has been impressive, as it is only down 1.14 percent on a year-to-date basis. The index was led higher by its financial and oil & gas sectors, which gained 1.66 percent and 1.44 percent respectively. The financial sector, which accounts for over 20 percent of the entire FTSE 100, was led higher by Barclays PLC, which gained 4.52 percent today. The announcement that embattled BP chief executive Tony Hayward would step down sent the company’s stock markedly higher, gaining 4.60 percent. The index’s Health Care sector was the main underperformer, losing 0.94 percent, led by Glaxo’s 1.26 percent retracement.

CAC 40                     3,636.18                  +29.13                 +0.81%

The CAC 40 index closed 29.13 points higher, or 0.81 percent, after Monday’s trading session. The French index was led by its impressive financial sector, which gained a remarkable 2.92 percent today. The sector’s performance is likely attributable to Friday’s bank stress test results, in which no French banks failed. Societe Generale was the most impressive individual performer, managing to gain 5.24 percent. Shares of BNP Paribas added 2.37 percent today to close at an even 51.00, back above the midpoint of its 52-week range.

DAX 30                        6194.21                    +27.87           +0.45%

The DAX 30 added another 27.87 points today, or 0.45 percent, to close at 6194.21. The German index remains the only major European equity index to remain in positive territory year-to-date, up 3.97 percent. As was the case with the FTSE and the CAC indices, the DAX was led higher by its financial sector. The sector gained 1.19 percent intraday, led by Commerzbank, which added 3.46 percent. The financial sector’s success can also be attributed to Friday’s CEBS report; Hypo Real Estate was revealed to be the only German bank to fail the stress test. The index’s basic materials sector was the worst performing sector; it lost 0.35 percent on Monday.

IBEX 35                     10506.70                   +118.50                 +1.14%

The IBEX 35 was the top performing European equity index on Monday, adding over 118 points, or 1.14 percent, to close back above 10500. The Spanish index is particularly vulnerable to the performance of its financial sector, which comprises over 40 percent of the entire index by weight. As such, today’s dramatic increase is not surprising; financial service companies and banks outperformed across the board today. BBVA was a noteworthy performer, adding 2.54 percent to close at 10.09. Banco Santander, the nation’s biggest bank, gained 1.04 percent. The only sector to finish lower was basic materials sector, which lost 0.70 percent.

S&P/MIB                        20819.96                    +215.88                  +1.05%

The Italian index gained a remarkable 215.88 points, or 1.05 percent, following the results of the CEBS’ stress tests. All Italian banks managed to pass, which sent to the MIB higher Monday. Despite its recent surge above the psychologically significant 20000 level, the index remains down 10.45 percent year-to-date.

Written by Jay B. Steinberg, CFD Trading Analyst
For Questions/Comments, please contact him at JSteinberg@fxcm.com

U.S. Stocks Gain on Increased Earnings Forecasts

U.S. Session Key Developments

•    Home Sales, Leading Indicators Beat Expectations
•    Profit Forecasts Raised For Multiple Firms
•    Crude Oil Rallies To Eleven-Week High

U.S. stocks followed their European and Chinese counterparts higher, as better-than-expected home sales and improved earnings forecasts helped boost investor sentiment regarding the economic recovery.  The positive news sent stocks on the Dow Jones Industrial over 1 percent higher to 10322, while shares on the S&P 500 gained over 2 percent to 1093.  On the earnings side, companies ranging from United Parcel Service Inc. to AT&T Inc. improved their earnings outlooks as executives see growing demand from overseas.  Qualcomm shares, for example, rose 8.2 percent as the chipmaker said today that it expects higher profits and selling prices for its products this year.  As for the economic docket, home sales fell 5.1 percent in June to a 5.37 million annual rate, but this decline was better than the 9.9 percent decrease expected.  It was the second consecutive monthly decline for purchases, which may continue to struggle as the federal incentives to buy homes cease.  Also released today was the leading indicators, which declined 0.2 percent, less than the 0.3 percent drop expected.  Leading indicators, which point to the direction of the economy over the next 3-6 months, have declined in 2 of the past 3 months.

DJIA 30                         10,322.30                              +201.77                         +1.99%
The broad-based Dow Industrial Average rallied nearly 2 percent today, led by Boeing Co. which rallied over 5 percent to $66.  The Chicago-based planemaker announced that it won over 200 jetline orders worth nearly $30 billion at this week’s Farborough Air Show.  This was more than three times the number of orders announced in Paris a year ago and showed a huge rebound in demand.  Other firms posting large gains on the day included American Express, which rose 4.9 percent, and Du Pont, which added over 3 percent.

S&P 500                         1,093.67                               +24.08                           +2.25%
The S&P 500 posted its largest gain since July 7, as all ten of its index sectors closed in the black.  AT&T gained over 2 percent after announcing that its 2Q profits beat analyst estimates, while the KBW Bank Index rose nearly 4 percent on a positive quarterly profit release from Fifth Third.  Shares of Xerox and 3M Co. climbed 7 percent and 3 percent, respectively, after each company boosted its full-year revenue forecast.

NASDAQ                        2,245.89                             +58.56                           +2.68%
Shares on the tech-heavy Nasdaq posted the largest gain among major U.S. indices, as Microsoft announced fourth-quarter earnings that topped analyst estimates.  Furthering bullish momentum for the technology sector was Qualcomm, which added over 8 percent after raising its 2010 profit forecast and reporting better-than-expected third quarter sales.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

U.S. Stocks Rebound As Traders Look Towards Bernanke Speech

U.S. Session Key Developments

•    Market Participants Await Fed Bernanke’s Semiannual Senate Address Tomorrow
•    Housing Starts Fall in June to Lowest Level Since October
•    Crude Oil Rallies For Second Day, Gold Rebounds Nearly 1 Percent

U.S. stocks rallied today, erasing an initial slide following worse-than expected housing starts and building permits data.  Investors looked past the data and towards Federal Reserve Chairman Ben Bernanke’s Senate address tomorrow, speculating that the Fed Chairman would announce new plans to help revive the economy.  The positive sentiment helped boost equities, driving the S&P 500 over 1 percent higher to 1083, while the Dow Jones Industrial Average gained 0.7 percent to 10229.  One rumor circulating regarding Bernanke’s speech tomorrow, is that the central bank plans to cease paying interest to private bank reserves currently being held at the Fed.  This maneuver would, in theory, encourage banks to lend out that money into the real economy because there would be no payout for holding it as reserves within the Fed.  Such a move could provide a major boost to asset prices and help ward off deflationary forces that many economists see as problematic in the current economic environment.

The Fed rumors had an immediate impact on commodities, as energy and precious metal prices moved higher on the session.  Crude oil rallied 1.1 percent to $77.44, while gold rose 0.8 percent to $1192.  As for Treasuries, the 2-year and 10-year yields declined 1 basis point each to 0.576 percent and 2.948 percent, respectively.  The 30-year yield was unchanged at 3.978 percent.

DJIA 30                         10,229.96                              +75.53                         +0.74%
The broad-based Dow Industrial Average rallied for a second day as twenty-three of its thirty bluechip stocks closed higher.  Home Depot led the index with a 3.1 percent gain, while retailer Walmart and aluminum giant Alcoa rose over 2.5 percent each.  IBM was the biggest laggard, declining 2.5 percent on weak 2Q earnings, while Pfizer and Johnson&Johnson dropped over 1 percent each.

S&P 500                         1,083.48                               +12.23                           +1.14%
The S&P 500 posted the largest gain among the major U.S. indices today, as nine of its ten sectors closed higher on the day.  Health care stocks were the lone exception, but their losses were trumped by a 3 percent rise in basic materials shares and at least 1.5 percent gains for industrials, consumer goods, and energy stocks.  Gold and copper miner Freeport McMoRan rallied over 5 percent to boost basic materials, as investors speculate on further quantitative easing from the Federal Reserve.

NASDAQ                        2,222.49                             +24.26                           +1.10%
Shares on the tech-heavy Nasdaq rallied as technology shares gained 1.2 percent.  Shares of search engine giant Google gained over 3.3 percent on the day, while Apple rebounded from a sour two weeks, closing 2.6 percent higher.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

European Equity Trade Mostly Lower Amid Corporate Earnings Season, Stress Test Drama

Europe Session Key Developments

• Equities Respond to Corporate Earnings as 2Q Results Continue to Emerge
• Investors Remain Uncertain Regarding the Upcoming Bank Stress Tests

European Equity Trade Mostly Lower Amid Corporate Earnings Season, Stress Test Drama

European Markets finished generally lower after Tuesday’s trading session as corporate earnings reports continue to disappoint and investors begin to fear the results of the bank stress tests due for release on July 23rd. As has been a continuing trend throughout the second quarter earnings season, companies seem to be missing estimates on their revenue figures, inciting fears that demand remains low and the economic recovery may not be as sustainable as originally believed. In the last 24 hours alone, blue chip firms such as Goldman Sachs, International Business Machines, and Texas Instruments have reported weaker-than-expected revenue figures. Companies that managed to beat EPS estimates have seen declines in their respective share prices. As a result, many of the major indices tested significant psychological barriers during intraday trading Tuesday. Nearly all of last week’s gains have been retraced as investors tone down their demand for riskier asset classes such as equities in favor of safe-haven assets, i.e. U.S. Treasuries. Bond yields in the United States have been falling in recent days, possibly in response to growing uncertainty surrounding the bank stress tests set to come out later in the week. A rumor emerged yesterday that Hypo Real Estate, a German bank nationalized during the financial crisis, was the first company to fail the stress test. The report sent shockwaves through the market as investors anticipate the other 91 stress tests due for release. Looking ahead, expect price action to remain choppy as investors avoid risky investment leading into Friday’s big announcement.

FTSE 100                      5139.46                   -8.82               -0.17%

Despite testing the 5100 level during intraday trading, the FTSE 100 finished nearly even. On Tuesday, the index lost just 8.82 points, or 0.17 percent, to close at 5139.46. As of today’s closing bell, the English index has completely retraced its gains from a week ago, when optimistic earnings reports and a return of risk appetite sent the index higher towards 5300. The basic materials sector’s performance was an impressive outlier; it managed to gain 2.87 percent on the day (the financials sector was the only other index to close higher). A 4.08 percent gain in Rio Tinto PLC’s stock price was the sector’s leading performer, though all thirteen companies closed in the black.

CAC 40                        3,468.02                   -18.31                 -0.53%

After opening nearly 20 points higher, the CAC 40 index fell sharply past the psychological 3500 level to close down 18.31 points, or 0.53 percent, to 3468.02. The French index had actually plummeted all the way to 3420 before retracing during the opening hours of the US session. Though not as notably as its English counterpart, the CAC index was led by its basic materials sector. It gained 0.71 percent Tuesday, led by Arcelormittal, which gained 2.13 percent. The financial sector was a disappointment (down 0.36 percent), dragged lower by BNP Paribas, which closed below 47 after peaking near 52 during last week’s rally.

DAX                             5967.49                    -41.62             -0.69%

On Tuesday, the DAX 30 index crossed below the psychological 6000 level for the first time since its impressive rally beginning July 7th. The German index, which has been the best performer among the major European equity indices this year, lost 41.62 points, or 0.69 percent, to close at 5967.49 today. The DAX now sits just 0.17 up on a year-to-date basis; it is the only index that can boast any gains in 2010. The consumer goods sector was the biggest loser on the day, giving back 1.37 percent as a whole. Daimler AG dragged the sector and entire index lower, losing 2.84 percent during intraday trading. The utilities sector was the only one that closed higher, gaining 0.23 percent. However, this sector only comprises roughly twelve percent of the total index and as such, was unable to counteract the broader decline.

IBEX 35                     10061.30                   +131.50                 +1.32%

The IBEX 35 was the outstanding performer on Tuesday, earning the title of the only major European equity index to finish higher. The Spanish index actually managed to a significant gain, adding 131.50 points, or 1.32 percent, to close back above the significant 10000 level at 10061.30. More than one third of the IBEX’s total increase can be attributed to its largest component, Banco Santander, which gained 2.13 percent during intraday trading. SAN alone comprises 22.91 percent of the entire IBEX 35, which makes the broader index particularly vulnerable to the bank’s performance. The health care and consumer goods sectors were the only two that finished lower on Tuesday, losing 1.60 and 0.07 percent respectively.

S&P/MIB                        19985.32                    -132.22                  -0.66%

The Italian index lost 132.22 points, or 0.66 percent, to close back below the 20000 level at 19985.32 on Tuesday. The index has now lost over 14 percent year-to-date, which is approaching the losses incurred by the IBEX 35 (-15.73 percent YTD) as the largest among all the major European equity indices.

Written by Jay B. Steinberg, CFD Trading Analyst
For Questions/Comments, please contact him at JSteinberg@fxcm.com

Global Equities Slump as U.S. Confidence Hits Eleven-Month Low

U.S. Session Key Developments

•    University of Michigan Consumer Confidence Falls to Lowest Level Since August 2009
•    Consumer Prices Decline in June for Third Consecutive Month
•    Japanese Yen Rises to a 2010 High Versus Greenback

U.S. stocks posted their worst day since June 29, following weakness in foreign markets and an unexpectedly poor consumer confidence reading from the University of Michigan.  The S&P 500 shed 2.8 percent to 1064, continuing the bearish momentum that began with a 2.8 percent plunge for Japan’s Nikkei 225 overnight.  The main catalyst for risk aversion during the U.S. session was the University of Michigan’s confidence indicator, which showed that consumer confidence unexpectedly fell from 76.0 to 66.5 in July, its lowest reading in eleven months.  The reading showed that a record-low share of Americans expect their incomes will rise in the next 12 months, making a strong rebound in consumer spending seem unlikely.

As for commodities, the risk sell-off led to a third consecutive decline in crude oil prices as well as declines in precious metals despite their “safe haven” qualities.  NYMEX Crude fell 0.9 percent to $75.87, while COMEX gold shed 1.3 percent and COMEX silver dropped 2.7 percent to close at $1192 and $17.85, respectively.  The U.S. Dollar Index, on the other hand, ended a three-day skid, while the Japanese Yen gained against all of its major cross-currencies.  U.S. Treasuries also rallied, as 10-year bond yields fell to 2.923 percent.

DJIA 30                         10,097.90                              -261.41                         -2.52%
The broad-based Dow Industrial Average fell for a second day as all thirty shares on the index closed in the red.  Bank of America plunged 9.1 percent to lead the descent, on news that the bank’s second quarter revenues fell short of analyst expectations.  Other stocks falling sharply on the Dow were American Express, General Electric, and Home Depot, which fell over 4 percent each.

S&P 500                         1,064.88                               -31.60                           -2.88%
The S&P 500 gave back all of its gains this week, as financials plunged 4 percent and industrial, basic materials, and consumer services dropped over 3 percent each.  Seventy-one of the largest seventy-two S&P companies by market cap closed lower, with Goldman Sachs being the lone exception after settling its pending SEC lawsuit after hours yesterday.  Overall, the S&P index is down 4.5 percent year-to-date.

NASDAQ                        2,179.05                             -70.03                           -3.11%
Shares on the tech-heavy Nasdaq posted the largest loss among major U.S. indices as technology shares declined over 3 percent.  Google plunged 6.9 percent after the internet search giant’s second quarter earnings missed analyst estimates, while Research in Motion, Cisco, and Dell dropped over 4 percent.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

Dour FOMC Growth Forecasts Reverse Crude Gains, Energy Traders Turn to Chinese GDP

North American Commodity Update

Crude Oil (LS NYMEX) -  $76.84  //   -$0.31   //  -0.40%

Through the end of the US session, NYMEX-based crude would settle the day little changed. If we were simply examining the day-to-day close, it would seem that the day was relatively quiet. A look to the CBOE’s Crude Oil Volatility gauge would second this assessment as it hovers near its lowest level of implied activity in two months (33.2 percent). However, mute activity does not correspond to the fundamental activity on the day. In fact, an intraday chart offers a picture of high volatility with a dramatic 2.3 percent rally through the opening hours of New York floor trading. After briefly trading above $78/barrel around mid-day (the highest level for the market in two weeks), bullish convictions would fall apart; and the commodity would reverse course. It is worth nothing that most of the day’s selling pressure (resulting in a $0.60 drop) would occur over the span of 10 minutes. Given the timing of the move, it was clear that a particular catalyst was responsible for the drive.

Through the morning hours of the US trading session, the brief rally to new highs was spurred by a mild advance in sentiment and a bullish surprise from the Department of Energy’s (DoE) weekly inventory figures. Feeding risk appetite initially was the follow through on the previous day’s strong upswing and the news that another round of European government debt auctions met some level of success. A mild sense of hesitation would start to sway speculative buying, however, after the US government reported retail sales through June had dropped 0.5 percent. That being said, the surprise 5.1 million barrel drop in crude oil inventories was impressive enough to shift the supply/demand equilibrium behind price. Considering this sharp reduction followed a similar sized withdrawal the week price, this reading was remarkable enough to offset the fact that total holdings of the precious commodity are still near a record high for the season. Heading into the final hours of the active trading day, few energy traders were likely expecting a remarkable reaction to the FOMC minutes from the last rate decision. However, a downgrade on the range for growth expectations in 2010 and 2011 along with a warning for “some risk of deflation” would spur a steep decline as the reality of a cooler outlook for global growth tempers energy consumption forecasts.

Looking ahead to the next 24 hours of trade, the economic activity theme will carry over to another day with the release of an important round of Chinese data. The world’s second largest energy producer is expected to print a slip in second quarter growth alongside June readings for industrial production and retails sales. For market-moving impact, the GDP reading will be the top release. The annual pace of activity is expected to cool from the previous three months 11.9 percent pace to a 10.5 percent clip. What will it mean for the other major economic players (the UK will release data next week and the US the week after) if the leader of the global recovery starts to pull off its pace? For futures traders, it should also be noted that the August 2010 Brent Oil crude contract expires tomorrow; and the market will roll out to the next liquid contract. The NYMEX rollover will occur on Friday.

Commodities – Metals

Spot Gold -  $1,209.65   //   -$2.70   //   -0.20%

With risk appetite easing off its pace; the traditional capital asset classes were struggling for direction. For gold, the traditional drivers do not apply. However, the preferred safe haven for portfolio managers and those looking to avoid currency volatility would still end the day much like its speculative counterparts. This is somewhat unusual considering there was another wave of uncertainty coming out of the European financial system – the primary source of fear for the markets at large. A silver lining in a round of government debt auctions seemed to overwhelm concern related to the trouble that Spain is facing. Testing the market, Portugal would sell 877 million euros worth of debt at a much higher rate; Italy would 6.76 billion euros on instruments tuned to meet the best supply/yield combination; and Germany easily covered its 4.3 billion euro sale. It seems that both core and periphery EU economies are able to tap the capital market for funds (but the cost is certainly rising up). Not drawing enough respect though is the fact that the Bank of Spain reported the nation’s banks tapped the ECB for 126 billion euro sin loans through the month of June. This is one-quarter of the total asked by the region and is a clear sign that this particular economy is facing serious trouble. Nonetheless, the reaction to this news would prove tepid.

Yet, despite the lack of reaction to the financial uncertainty for the day; the precious metal was not without its remarkable moments. Around mid-day during the US trading hours, gold rallied 0.8 percent in a matter of minutes and would shortly after tumble 1.3 percent to completely reverse the swing. Where did this strength come from? It is highly probable that this remarkable move was simply a speculative or operational move in the market. According to the CBOE’s volatility index for gold, expectations for activity are at the lowest level since April 23rd; and aggregate volume on US futures is holding at depressed levels. A large order on either side of the market can have a greater impact on price action under these conditions.

What is further interesting is the lack of response to the FOMC’s minutes. Though the policy group did not change the benchmark lending rate, they did lower their expectations for growth and inflation. A lack of growth is a predecessor to a drop in investment for traditional asset classes; while a lack of price pressures diminishes the need for an inflation hedge (another of the metal’s roles). We will see whether the Chinese 2Q GDP figures can add to the fundamental picture.

Spot Silver  -  $18.35   //  $0.11   //   0.58%

Silver was following the tempered pace of risk appetite through the early hours of Wednesday’s trading session; but the metal would not move in lockstep with equities or gold as the day progressed. Instead, the commodity would follow the path that the industrial metals would set out. If this relationship holds, China’s GDP release could invite a significant boost in volatility in the hours ahead.

Discuss gold and oil trading with other traders in the DailyFX Forum

Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

U.S. Equities Reverse Morning Losses, Goldman Sachs Settles SEC Suit After Hours

U.S. Session Key Developments

•    Goldman Sachs Pays Record $550 Million to Settle SEC Suit
•    Financial Reform Regulation Passes Following 60-39 Senate Vote
•    Initial Jobless Claims Fall to Lowest Level Since August 2008

U.S. stocks managed to overcome weakness in Asia and Europe today, as the S&P 500 rallied to its highest closing level since June 21.  Initially, the index fell to 1080 as a better-than-expected jobless claims report failed to overcome weakness in foreign equities overnight.  The S&P then traded flat for most of the day until the bulls found their footing in the last 30 minutes, pushing the S&P to a 1096 close.  Overall, investors appeared more confident about the fate of the U.S. financial sector, as JPMorgan Chase beat its 2Q earnings estimates and financial regulation finally found the 60 votes needed to pass the Senate floor.  Although some analysts believe the financial reform bill could reduce bank profits, many realize that Wall Street avoided a “tougher” bill and the current bill’s passage provides clarity to investors.  Furthering bullish sentiment in financial shares, was a rumor that Goldman Sachs would be settling its SEC lawsuit with the U.S. government after trading closed.  Forty minutes after close, the SEC announced that Goldman agreed to pay a record $550 million and change its business practices to settle claims that it misled investors in collaterized debt obligations linked to subprime mortgages.  Goldman Sachs acknowledged it made a “mistake” and that marketing materials for certain financial instruments had “incomplete information.”

As for the economic docket, initial jobless claims fell to 429,000 in the week ended July 10, the lowest level since August 2008 and better than the expected reading of 438,000.  Continuing claims, on the other hand, rose to nearly 4.68 million in the week ended July 3, worse than the 4.44 million expected reading.  Also disappointing investors was a drop in Empire Manufacturing from 19.57 to 5.08 in July and a decline in the Philadelphia Fed Index from 8.0 to 5.1 in the same month.  Also released this morning were wholesale prices, which fell 0.5 percent in June, signaling a lack of inflationary pressures in the current economic environment.

DJIA 30                         10,359.31                              -7.41                         -0.07%
The broad-based Dow Industrial Average closed lower for the first time since July 2, as a 2.1 percent decline in Travelers and a 1.7 percent drop in Bank of America shares weighed on the index.  Overall, ten of the thirty index stocks closed in the red.

S&P 500                         1,096.48                               +1.31                           +0.12%
The S&P 500 was the lone major U.S. index to close higher today, thanks to strong gains for utilities and consumer services.  Nextera Energy and American Electric rose over 1 percent each to lead utilities, while Target shares rose 2.3 percent to boost consumer services.

NASDAQ                        2,249.08                             -0.76                           -0.03%
Shares on the tech-heavy Nasdaq dipped slightly lower on today’s session, although technology stocks closed up 0.03 percent.  Blackberry-maker Research in Motion gained over 1.4 percent to lead the major tech stocks, while shares of NetApp also added over 1 percent.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

European Equities Retrace as Risk Appetite Wanes

Europe Session Key Developments

• Dovish FOMC Comments Lead to a Slowdown of Risk Appetite
• Earnings Reports Continue to Drive Equity Performance
• Disappointing Manufacturing Figures out of the US Hurt Equities

European Equities Retrace as Risk Appetite Wanes

All major European equity indices retraced Thursday as investors seemingly lost confidence in the notion of a sustained global economic recovery following dovish Federal Open Market Committee’s meeting minutes and multiple disappointing economic indicators. After the closing bell had sounded on the European session, the FOMC released the minutes for its previous meeting that revealed a somewhat dim outlook for the world’s largest economy. Traders could be seen drawing their money out of riskier assets and into safer investments, such as US treasuries, whose yields fell today. Even a better-than-expected earnings report from JP Morgan was unable to stimulate demand for equities. The bank posted $1.09 2Q EPS, which far exceeded analysts’ expectations of just 70 cents per share. As it turns out, the real market-moving economic release was not until late in the European session, when a slew of economic indicators out of the U.S. sent stocks permanently lower. The United States’ Empire Manufacturing figure for July came in at 5.08, far below an expected 18.00. The Philadelphia Fed’s survey figure was also disappointing, coming in at 5.1 vs. 10.0 expected. These statistics, when combined with yesterday’s disappointing Retail Sales figure and today’s dovish FOMC commentary, likely explain why equities fell back today. It remains to be seen if the European equity indices can hold on to their gains from earlier in the week or if they will continue to decline.

FTSE 100                      5211.29                   -42.23               -0.80%

The FTSE 100 fell for the second straight day, dropping over 42 points, or 0.80 percent, to close at 5211.29. The index had traded slightly higher intraday, but closed noticeably lower after disappointing manufacturing reports from the United States restored concern over the sustainability of the global economic recovery. The FTSE was dragged downward by both the basic materials and financials sectors, which closed 2.11 percent and 1.44 percent lower, respectively. Rio Tinto PLC’s performance was particularly disappointing; the company’s share price dropped 3.32 percent to close at 3030.50. The health care sector was the only sector to finish higher Thursday, managing to post a 0.57 increase. It was led by GlaxoSmithKline, which benefitted from the news that its drug Avandia would be allowed to remain on the market.

CAC 40                          3,581.82                  -51.16                 -1.41%

The CAC 40 index lost over 50 points on Thursday, or 1.41 percent, to close back below 3600 at 3581.82. Though all sectors finished lower by day’s end, the French index’s financial sector took the biggest hit, giving back 3.06 percent after its impressive gains from earlier in the week. BNP Paribas continued its descent from yesterday; the company’s share price fell by over four percent today, completely retracing its gains from Tuesday and then some. It is now trading below the midpoint of its 52-week range after closing at 48.71.

DAX  30                         6149.36                    -60.40             -0.97%

The DAX 30 ended down nearly a full percentage point Thursday after falling 60.40 points to close at 6149.36. As was the case with the other major European equity indices, the German index was dragged down by its lagging financial sector, which lost 1.66 percent. All components of the DAX finished lower Thursday except for the lone telecommunication stock, Deutsche Telekom. The company’s share price added 0.99 percent to close at 10.18. The DAX 30 remains the lone major index that is still in positive territory on a year-to-date basis.

IBEX 35                       10160.20                   -118.30                 -1.15%

The IBEX 35 followed other major European equity indices lower Thursday, losing 118 points of its own, or 1.15 percent. The Spanish index suffered largely in part to a 2.14 percent decline in its financial sector. Note that movements in the IBEX are particularly sensitive to the performance of its financial components, as the sector in particular comprises over 40 percent of the entire index. Not surprisingly, Banco Santander’s 2.45 percent decline Thursday accounted for a 58.79 point drop, or nearly half, of the index’s losing performance. SAN shares are now trading at 9.87, just above the midpoint of its 52-week range of 7.22-12.14.

S&P/MIB                   20480.08                    -324.29                  -1.56%

The Italian index was the worst performing major European equity index today, losing over 324 points, or 1.56 percent to close at 20480.08. Over the past two trading sessions, the MIB has retraced a portion of its gains from earlier this week. It remains down almost 12 percent year-to-date.

Written by Jay B. Steinberg, CFD Trading Analyst
For Questions/Comments, please contact him at JSteinberg@fxcm.com

European Equity Trade Nearly Flat Amid Mixed Economic Releases, Earnings

Europe Session Key Developments

• Equities Manage to Hold on to Most of Yesterday’s Gains
• Earnings Reports Continue to Drive Equity Performance

European Equity Trade Nearly Flat Amid Mixed Economic Releases, Earnings

European Markets were mixed during Wednesday’s trading session but remained mostly even as a whole. After yesterday’s near two percent increase across the board, all the major indices changed by less than 0.3 percent during an uneventful day of trading. A couple of economic releases were likely responsible for today’s equity price action, namely additional corporate earnings reports and the U.S. Advance Retail Sales report. After yesterday’s closing bell in the U.S., Intel announced that it had earned 51 cents per share, which greatly exceeded analyst expectations of 42 cents per share. Intel CEO Paul Otellini referred to 2Q of 2010 as “the best quarter in the company’s 42-year history.” However, positive sentiment following the earnings report did not last long; the U.S. Advance Retail Sales report yielded a contradictory result, showing that retail sales had slid by 0.5 percent vs. -0.3 percent expected. Mixed economic indicators led to mixed sentiment among investors, which could explain the European equity market’s overall choppy performance. It remains to be seen how the remainder of the 2Q earnings season will impact risk appetite; if the reports continue to impress, equity markets could benefit from investors’ restored desire to resume investing in riskier asset classes.

FTSE 100                      5253.52                   -17.50               -0.33%

After yesterday’s impressive two percent increase, the FTSE index retraced slightly as investor sentiment slowed. The index dropped 17.50 points, or 0.33 percent, during intraday trading Wednesday. Most sectors traded relatively flat on the day with the exception of the technology and industrial sectors. The tech stocks, which only comprise 1 percent of the FTSE index, managed to post a cumulative 0.94 percent gain. The largest index-mover on the day was none other than BP PLC, which lost 2.28 percent and accounted for nearly a third of the broader index’s decline.

CAC 40                     3,632.98                   -4.78                 -0.13%

The CAC 40 index traded mostly flat Wednesday, losing just 0.13 percent by the end of the European session. The CAC had tested the 3600 level during intraday trading but managed to close at 3632, successfully holding on to its astounding gains over the last week. As was the case with the FTSE index, the French index’s technology sector was the top performer, gaining 1.71 percent. However, its relatively small size within the sector was unable to counteract the decline posted in the larger financial sector, which lost 0.75 percent as a whole. BNP Paribas, after gaining nearly three percent yesterday, gave back 1.38 percent to close at 50.74.

DAX                         6209.76                    +18.63             +0.30%

The DAX 30, which has become the strongest major European equity index, did not disappoint Wednesday. The German index managed to finish higher by the day’s close, adding 18.63 points, or 0.30 percent, to close above the 6200 level. Only the utilities and consumer goods sectors ended lower, which was most likely a retracement from yesterday’s impressive gains in BMW, Daimler, and Volkswagen. The disappointing U.S. Retail Sales figure may also have contributed to the automobile companies’ descent today. Merck was the most impressive DAX component Wednesday, adding 2.83 percent to close at 63.90.

IBEX 35                     10278.50                   +19.00                 +0.19%

The IBEX 35 finished higher on the day, joining the DAX as the only major indices to do so. The Spanish Index closed 19.00 points higher, or 0.19 percent, largely attributable to a strong telecommunications sector (21 percent of the total index). The telecommunication company Telefonica added just 0.12 points, or 0.76 percent, but it drove the IBEX higher 16.43 points on its own. The index was held back by its largest component, the financial sector, which traded mostly flat on the day. Banco Santander, Spain’s largest bank, retraced slightly following yesterday’s gains, losing 0.15 percent on the day.

S&P/MIB                        20804.37                    -47.48                  -0.23%

The Italian Index retraced slightly following yesterday’s impressive 334 point rally to close at 20804.37 after Wednesday’s trading session. Despite being down nearly 10 percent YTD, the MIB has staged an impressive rally in the last week, gaining almost eight percent.

U.S. Equities Extend Winning Streak on Earnings Optimism

U.S. Session Key Developments

•    Alcoa Beats Expectations to Open Earnings Season for DJIA Companies
•    Small Business Confidence Declines to Three-Month Low
•    Dollar Index Falls to Lowest Level Since May 4

U.S. stocks followed their European counterparts higher today on investor optimism following a better-than-expected Alcoa earnings report.  The S&P 500 gained for a sixth consecutive session, rising 16 points to 1095.  The Alcoa release came out just after market close on Monday and showed per share profits of 13 cents, better than the consensus 11 cents per share that analysts expected.  This release helped boost U.S. equity futures overnight, but positive investor sentiment was tested throughout the session by poor economic releases.  Just prior to market open, the NFIB announced its Small Business Optimism reading fell from 92.2 to 89.0 in June, a three-month low and significantly below the 91.2 expected reading.  In the afternoon, the U.S. government announced its 21st consecutive monthly budget shortfall of $68.4 billion, although the reading was better than economists predicted.  Other news released during the trading session was that the U.S. trade deficit unexpectedly widened to $42.3 billion in May from $40.3 billion in April and that the IBD/TIPP economic optimism reading declined from 46.2 to 44.7 in July.

Despite the poor set of economic figures, investors extended their recent appetite for risk, driving equities and commodities higher.  Crude oil posted its largest gain since June, rising nearly 3 percent above the $77 per barrel level, while gold and silver futures gained over 1 percent each to $1213 and $18.25, respectively.  The bullish move in crude was likely attributable to the Alcoa earnings, as executives at the aluminum giant forecast growing global demand and an improved economic outlook going forward.  As for currencies, the Euro posted its biggest gain against the U.S. Dollar since June 10, pushing the EURUSD exchange rate to $1.2724, its highest closing level since May.  The U.S. Dollar Index fell nearly a full percent to 83.518, its lowest reading since May 4.  Looking ahead, tomorrow’s session could find direction from the advanced retail sales release at 8:30 AM ET, while all eyes will be on earnings releases from JPMorgan Chase, Bank of America, and Citigroup on Thursday and Friday.

DJIA 30                         10,363.02                            +146.75                         +1.44%
The broad-based Dow Industrial Average traded higher across the board, led by banks and basic materials shares, which increased nearly 2 percent each.  Alcoa’s positive positive earnings report helped boost the basic materials sector, while investors appeared confident that earnings releases from JPMorgan Chase, Citigroup, and Bank of America could boost bank shares later this week.  JPMorgan Chase gained 3.2 percent, while Bank of America added 3 percent.

S&P 500                         1,095.34                               +16.59                           +1.54%
The S&P 500 rallied over 16 points as financials, consumer services, and basic materials gained over 2 percent each.  Overall, 95 percent of S&P stocks traded higher and all ten index sectors finished the day in the black.  The index closed above 1095 for the first time since June 22.

NASDAQ                        2,242.03                             +43.67                           +1.99%
Shares on the tech-heavy Nasdaq posted the largest gain among major U.S. indices, despite a modest 1.5 percent move in technology stocks.  The sector was boosted by a 5 percent gain from Baidu and 3 percent gains for Research In Motion and Yahoo!  Shares of Apple, on the other hand, fell over 2 percent.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

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