The Dow Jones Industrial Average and S&P 500 index continued to build on the prior day's gains today, after the International Monetary Fund raised its estimates for global growth this year, allaying earlier concerns of a double dip recession.
The IMF today raised its global growth forecasts for 2010 in advanced economies to 2.6%, up from an earlier prediction of 2.3%. It also said it expects the expansion in emerging markets to accelerate to 6.8% this year, up from an earlier estimate of 6.3%, following a strong first-half performance.
The IMF was somewhat cautious on its long term outlook, however, saying that although governments should concentrate on improving their finances, they should not cut spending too rapidly or early as this would endanger the nascent recovery.
'I doubt we'll have another global recession,' said Masayuki Kubota, a fund manager at Daiwa SB Investments. 'People are very sensitive to economic data from the US. If something good comes out, market sentiment easily rebounds. I'm buying sectors which were sold on excessive pessimism.' [1]
Investors also heaved a sigh of relief today when the US jobless claims data showed some signs of life returning to the labour market. The number of Americans claiming unemployment benefits for the first-time, initial jobless claims, fell by 21,000 to 454,000 in the week ended 3 July, better than the expectations of a drop to 460,000 from an initially reported 472,000 the week before.
The four-week moving average for initial jobless claims, a more reliable gauge since it removes weekly volatility in the data, fell to 466,000 from 467,250, also according to today's report.
Moody's Investors Services today said its European speculative-grade default rate fell to 5.8% in the second quarter, from 7.3% in the prior quarter. Moody's also said its trailing 12-month global speculative-grade default rate declined to 6.1% from 10.1% in the first quarter, and that it expects this barometer to decline further to 2.4% by the end of this year, and 1.8% by the second quarter of 2011.
Today's data comes as a welcome break from the generally pessimistic air we have witnessed over the past couple of weeks, and encouraged investors to plough back into the beaten-down equities.
This turn sent the Dow Jones up 46.01 points (+0.46%) to 10,064.29 and the S&P 500 2.36 points (+0.22%) moved above its previous close to 1062.63 by 4pm (London time).
A revival in risk appetite and bigger-than-expected inventory drawdown helped crude oil advance as well this afternoon. September crude rallied 1.5% to $75.78 a barrel this afternoon, after the Energy Information Administration (EIA) unveiled a bigger-than-expected five million barrel drop in crude oil stockpiles.
Other fuel categories were weaker, however, so the overall picture (as things stand) is certainly not strong enough to warrant crude oil prices above the $80 a barrel level any time soon, in my opinion.
Elsewhere, the Bank of England (BoE) and European Central Bank (ECB) interest rate decisions were in focus today and, as expected, there were no big surprises.
The BoE kept interest rates unchanged at a record low of 0.5% and left the size of its asset purchase facility unchanged at £200 billion, in line with consensus expectations. Further insight into today's decision will be provided in the minutes, scheduled for release at 9.30am on Wednesday 21 July.
Meanwhile, the ECB kept interest rates unchanged at 1% as well today. In a press conference following the announcement Jean Claude Trichet, the central bank's president, said rising market interest doesn't reflect any plan by the ECB to tighten monetary policy, suggesting he intends to keep interest rates at a record low for a while longer.
'It would be a complete mistake to interpret what we observe in the market as a monetary policy signal,' said Trichet at a press conference in Frankfurt. Higher borrowing costs are 'the consequence of the decision of the banks themselves, at the moment of renewal of their previous financing, to ask for less than they could have done.' He described the main rate as 'appropriate' at present. [2]
Source: [1][2] Bloomberg News (8 July 2010)
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'Spread Betting News 8 Jul 2010', Article by IG Index, last update: 8-Jul-10
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