Market Review

Stocks rallied on hopes that a resolution to the US budget and debt ceiling crises is within sight.

United States
After turning in a lackluster performance in the previous session, stocks moved sharply higher over the course of the trading day on Thursday. The markets benefited from optimism about an end to the budget deadlock in Washington. US stock indices rallied the most since January. Stocks surged as House Republican leaders proposed a short term increase in the debt ceiling that would reduce the prospects for a US default. The plan would push the lapse of US borrowing authority to November 22 from October 17 but would not end the 10-day old partial shutdown of the federal government. According to Jay Carney, the White House press secretary, President Barack Obama would support a short increase in the US debt limit with no “partisan strings attached,” though he prefers a longer extension. The Dow Jones industrials and S&P jumped 2.2% while the Nasdaq was 2.3% higher.

Boeing gained. Nike advanced after the company said yesterday that annual sales will rise to US$36 billion by the end of fiscal 2017. Financial shares including Wells Fargo, JPMorgan, MetLife and Prudential Financial increased. Netflix increased, snapping a three day slide. While Netflix fell 12% this week through yesterday, the stock has more than tripled since the start of the year. Time Warner Cable jumped after the cable company and Univision Communications agreed to extend their partnership and deliver more Univision content to Time Warner subscribers.

UnitedHealth Group surged after the insurer had the outlook on its credit rating raised to positive from stable by S&P on expectation that the company will improve its leading market positions and pricing flexibility. Citrix Systems declined after the technology company reported preliminary third-quarter earnings of 68 US cents to 69 US cents per share, missing analysts’ expectations.

Gold at the afternoon London fixing was down US$5.50 to US$1,298.50. Copper futures were up 0.5% to US$3.25. WTI spot crude was down US$1.31 to US$102.92. Dated Brent spot crude was up US$2.80 to US$111.86. The US dollar was up against the yen and Swiss franc. It was virtually unchanged against the euro and Canadian dollar. However, it declined against the pound and the Australian dollar. The Dollar Index was up 0.1%. The yield on US Treasury 30 year bond was unchanged at 3.74% while the yield on the 10 year note was up 4 basis points to 2.69%.

Europe
Stocks rallied after declining for three consecutive sessions and finished solidly in positive territory. The positive performance was driven by optimism about a potential end to the budget deadlock in Washington. News that President Barack Obama would meet House Republicans later Thursday raised hopes that an agreement can be reached to raise the US debt ceiling and the partial government shutdown may soon end. The FTSE was up 1.5%, the CAC gained 2.2%, the DAX advanced 2.0% and the SMI was 1.2% higher on the day.

Banks including Commerzbank, Deutsche Bank, Société Générale, BNP Paribas and Crédit Agricole advanced. Auto makers including Volkswagen, BMW, Daimler, Renault and Peugeot were up on the day. Suedzucker climbed after announcing financial results. Aixtron declined after a broker downgrade. AXA advanced after a broker upgrade as did ProSiebenSat.1 Media. WH Smith surged after the retailer reported a higher annual profit and announced increased dividend as well as a share buyback program for additional £50 million.

The Bank of England kept its key interest rate at 0.5% and its bond purchase program at £375 billion. The Bank introduced forward guidance in August, linking the interest rate outlook to unemployment for the first time in its history. August industrial output in France was up 0.2% — the first increase in four months. A similar measure of output in Italy dropped 0.3% in August.

Asia Pacific
Shares were mixed after the release of the minutes from the Federal Reserve's September 17 and 18 meeting revealed officials struggled to decide whether to curtail its bond purchase program. Losses were capped amid signs of progress in Washington to end a political stalemate over the US budget and prevent a debt default.

The Nikkei was up 1.1% amid hopes of a breakthrough in the US fiscal impasse after the White House announced a series of meetings with lawmakers from both parties to discuss the crisis. The yen declined to one week lows against the US dollar after the Fed minutes showed that most members favor scaling back the Fed's stimulus program this year. Sentiment was also boosted after official data showed Japan's core machinery orders increased a seasonally adjusted 5.4% in August, beating forecasts for an increase of 2.0% following the flat reading in July. Toyota Motor gained after the company said it is slashing the base price of its 2014 Prius Plug-in by US$2,010 to US$29,990 to boost sales of electric vehicles. Panasonic slipped on reports it will exit from the plasma TV business by the end of the financial year.

The Shanghai Composite dropped 0.9% while the Hang Seng was 0.4% lower. S&P/ASX and All Ordinaries slipped 0.1%. Banks ended little changed but miners retreated. Australia's September unemployment rate fell unexpectedly to a four month low of 5.6% from 5.8% in the previous month, helped by a fall in workforce participation and some modest job creation. The economy added 9,100 jobs, less than the anticipated gain of 15,200. The Kospi slipped 0.1% after the Bank of Korea kept its benchmark interest rate unchanged at 2.50% for a fifth month but slashed its 2014 economic growth forecast.

Looking forward*
Japan posts its corporate goods price index for September. Germany and Italy post September consumer price data. Canada releases its September labour force survey. US October preliminary consumer sentiment will be released. September producer prices and retail sales along with August business inventories are postponed due to government shutdown.

Link: https://www.fidelity.co.uk/investor/news-views/daily-market-review/details.page?whereParameter=global_market_update/11-10-2013