Global Market Overview

Last updated: January 9, 2013 9:29 pm

Stocks rise on earnings hopes

Wednesday 21:15 GMT. Global stocks resumed their new year rally after Alcoa set a mildly positive tone for the US fourth-quarter earnings season.

The FTSE All-World equity index rose 0.4 per cent after the Asia-Pacific region added 0.4 per cent. The FTSE Eurofirst 300 gained 0.7 per cent and London’s FTSE 100 added 0.7 per cent to close just shy of the 6,100 mark amid demand for banks and mining shares.

In New York the S&P 500 advanced 0.3 per cent to 1,461, within just a few points of a fresh five-year peak. The CBOE Vix index, Wall Street’s “fear gauge”, earlier fell close to 13, flirting with its lowest level since before the start of the financial crisis in 2007. The index later rebounded to trade at 13.82 at the close.

In keeping with the more optimistic theme many industrial commodities were firmer, with copper up 0.9 per cent to $3.70 a pound – though Brent crude fell 26 cents to $111.68 a barrel following news of a hike in US energy inventories.

US Treasury bonds reversed earlier declines and rose slightly, pushing 10-year yields down 1 basis point to 1.86 per cent. The US Treasury sold $21bn in 10-year notes today as part of its refunding programme this week, worth $66bn in securities.

The dollar index, however, which tends to dip when the market feels more chipper, rose 0.2 per cent as the euro fell 0.1 per cent to $1.3067. Gold declined $3 to $1,656 an ounce.

The surge in many growth-sensitive products seen across the new year period had faded for the first two days of this week, with many traders deeming that it represented a healthy consolidation.

Bunds in demand

Bunds are outperforming Treasuries after a solid auction of German five-year paper and following weaker than expected industrial output in November for the eurozone’s biggest economy. The yield on the 10-year Bund is down 1 basis point to 1.48 per cent. The spread over US Treasuries hit a nine-month high of 45bp last week.

The S&P 500 in just four sessions to Friday’s close had jumped 4.6 per cent to a five-year high, while Treasuries slumped, pushing 10-year yields over the same period up 20 basis points to a high of 1.97 per cent, an eight-month peak.

The advance was fuelled by relief that politicians in Washington reached a budget deal, evidence of improving economic conditions in the US and China and continued support from many major central banks.

Now, investors’ focus is turning to the corporate earnings season.

It started in solid, if unspectacular fashion, with the results from US aluminium producer Alcoa on Tuesday.

Results in the US will quiet down for a few days before Wells Fargo on Friday starts the ball rolling on big bank earnings – a sector with much to live up to, given the KBW Bank index is up 27 per cent over the past year.

Earlier in Asia, Tokyo’s Nikkei 225 rebounded 0.7 per cent as investors welcomed another dip in the yen. The dollar is up 0.5 per cent to Y87.42 with traders absorbing news that the Japanese government is preparing another huge stimulus package and on hopes the Bank of Japan will ease monetary policy again this month.

China’s Shanghai Composite index recovered initial losses to close flat after Reuters reported that Beijing would freeze the initial public offerings market until the end of March, a move that would be expected to reduce the supply of shares and potentially support prices.

The move is the latest attempt by the authorities to bolster the mainland’s stock market after it slumped late last year to the lowest level since February 2009.

Additional reporting by Jamie Chisholm in London

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