NEW YORK, July 10 — Global equity markets extended gains yesterday and the dollar hit a three-year high, spurred by an optimistic tone among investors after a good start to the US earnings season and last week’s strong US June jobs data.
Investors were inclined to bet companies will surpass the low bar that has been set for earnings, hoping for better-than-expected results that could fuel future gains.
Adding to the optimism, the pace of hiring by US employers increased in May, the Labor department said in a report that was a positive sign for the American job market.
Equity markets initially responded favourably to aluminium producer Alcoa, traditionally the first major US company to report quarterly earnings, after it posted encouraging results late on Monday.
Nine of the S&P’s 10 industry sector indexes were higher. Industrial and material shares logged the biggest gains, though Alcoa closed down 0.01 per cent at US$7.91 a share after opening higher.
Alcoa said it sees solid growth in global demand this year.
The benchmark S&P 500 index ended the session one per cent below its all-time closing high of 1,669.16 reached on May 21.
“Whether we go through the 1,650 level is key, and if we do then we probably get a retest of the May highs,” said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania.
The Dow Jones industrial average closed up 75.65 points, or 0.50 per cent, at 15,300.34. The Standard & Poor’s 500 Index rose 11.86 points, or 0.72 per cent, at 1,652.32. The Nasdaq Composite Index was up 19.43 points, or 0.56 per cent, at 3,504.26.
According to Thomson Reuters data through early yesterday, analysts’ expectations are for earnings of S&P 500 companies to rise 2.9 per cent in the second quarter from a year ago, while revenue is forecast to increase 1.5 per cent in the period.
Of the 23 companies in the S&P 500 that have reported results, 65.2 per cent have beaten analyst expectations, 21.7 per cent reported earnings in line with expectations and 13.0 per cent reported results that were below expectations.
“I would think that the trend is going to be up,” said Jeff Meyerson, head of trading for Sunrise Securities in New York. “We could at any time have a substantial correction again, but I think we still have a trend that’s doing OK. That will be determined by how the earnings come out in the next few weeks.”
Miners powered European shares to their highest close in a month, boosted by adjusted profit and revenue at Alcoa that were above expectations and helped to buoy sentiment in the sector.
Comment from Deutsche Bank also helped basic resource stocks, which are still down 27.7 per cent on the year on earnings worries.
“There are seeds of recovery out there now that were not there a year ago,” said Robert Quinn, chief European equity strategist at Standard & Poor’s Capital IQ. “I think we are pretty close to a turning point in earnings downgrades for European companies.”
The FTSEurofirst 300 index of leading European companies hit its highest in a month before paring some gains as a deal to provide Greece the latest 6.8 billion euro installment of its bailout bolstered the upbeat mood.
The broad regional index rose 0.79 per cent to close at 1,188.95.
MSCI’s all-country world equity index rose 0.75 per cent.
Greece’s aid deal helped Greek and Portuguese bonds add to their gains of the last few days. It also helped lift the euro off the seven-week low it has been at since the European Central Bank made clear last week it is prepared to cut interest rates again.
The euro had dropped to a session low against the dollar after ratings agency Standard & Poor’s lowered Italy’s sovereign credit rating. The euro fell as low as US$1.2754, a three-month low, and was last down 0.68 per cent at US$1.2781.
The dollar rose toward recent three-year highs against a basket of currencies, with more investors betting on further gains as the Federal Reserve prepares to reduce its stimulus programme.
The dollar’s biggest gains were against the British pound after weaker-than-expected UK data drove sterling close to a three-year low and highlighted the divergence between UK and US monetary policy.
The dollar index, which measures the greenback against a currency basket, was up 0.53 per cent at 84.636.
The euro found some support after Greece secured aid that will prevent it from defaulting in August, but comments by European Central Bank policymaker Joerg Asmussen weighed.
US Treasuries prices held steady as investors prepared to make room for a US$32 billion (RM96 billion) three-year note sale, the first part of this week’s US$66 billion in coupon-bearing supply.
The 10-year US Treasury note was unchanged in price to yield 2.677 per cent.
Trading in Brent and US crude futures contracts was lacklustre for most of the session on thin volume, with late-day gains fuelled by a stock market advance.
Trading was lower early in the session as worries about supply disruptions in the Middle East kept investors wary.
Brent settled up 38 cents at US$107.81 a barrel. US crude rose 39 cents to settle at US$103.53 a barrel.
Investors were wary that more negative headlines from Egypt could trigger renewed volatility. — Reuters
