The majority of major global equity markets kicked off 2010 on a positive note amid rising hopes for a global economic recovery. U.S. stock futures suggest a strong start for 2010 as the Federal Reserve’s top two officials send a signal that the Fed Funds rate will likely stay at historically low levels for an extended period.
In overseas equity markets this morning, Asian markets finished mixed. Japan's Nikkei 225 index jumped 1.0 percent or 108 points to 10,655. China's Shanghai Shenzen index is down 1 percent and Hong Kong's Hang Seng fell 0.2 percent on inflation concerns.
India's Sensex index rallied 0.5 percent, Australia's ASX 200 index edged higher by 0.1 percent, and South Korea's Kospi index advanced 0.8 percent. The Tel Aviv Stock Exchange (TA-25) gained 0.4 percent on Monday.
European equity markets were higher this morning. The German DAX index is up 0.8 percent. Britain's Footsie 100 index rose by 0.9 percent.
U.S. stock futures are higher this morning by just over half a percent as the Federal Reserve’s top two officials suggest that interest rates will be kept low for months.
While at the American Economic Association in Atlanta, Georgia, Federal Reserve Chairman Ben Bernanke said in a speech on Sunday that lax regulatory and supervisory policies, rather than monetary policy, were to blame for the housing bubble. Citing comparisons with other large industrialized economies, he showed that countries with relatively higher interest rates had housing bubbles even larger than in the U.S. He said the largest cause of the bubble was exotic mortgages and the decline in underwriting standards. Greater global capital flows explained about 30 percent of the rise in housing prices and low interest rates about 5 percent according to the Fed Chief. Bernanke concluded, “The magnitude of house-price gains seems too large to be readily explainable by the stance of monetary policy alone.”
Looking forward, Fed Vice Chairman Donald Kohn said that a tighter Fed Funds policy to head off perceived threats from asset price increases “could be expensive.” Kohn said the economy is likely to grow more slowly than its potential for an extended period. He also indicated inflation is likely to be lower than the Fed’s target of 2 percent.
Traders see the comments by these Fed officials as strong hints that short-term interest rates will remain low for some time.
Crude oil prices moved higher this morning by $1.60 a barrel or 1.9 percent with the front month contract trading just under $81 a barrel.
The price of gold jumped overnight by $18 an ounce or 1.6 percent. Spot gold was selling for $1,115 an ounce this morning.
Treasury bonds continue their sell-off into the new year, with the 10-year note yield rising 2 basis points to 3.86 percent – the highest level since June 2009.
In foreign exchange markets, the dollar is under pressure as investors gain a stronger risk appetite. The DXY index is 77.54, off 0.4 percent or 0.33 from the previous close of 77.87.
On the economic front for the week, the Institute for Supply Management’s manufacturing index will be released this morning at 10 AM. The index is projected to rise from 53.6 to 54.8 percent. A rising index value is a positive sign. Any value above 50 signals growth in manufacturing activity. The November report dropped 2.1 points. Most economists believe that the slowdown in November was temporary.
On Wednesday, the Federal Open Market Committee will issue minutes of its meeting from three weeks ago. Traders will be looking for clues about Fed sentiment going into the new year.
The most anticipated economic report for the week will come on Friday morning with the Labor Department’s estimate of December’s employment situation report. Economists expect the nonfarm payrolls forecast to be flat in comparison to the previous month. They also are forecasting the unemployment rate, which was 10 percent in November, will remain the same.
In company news, the second-largest U.S. energy producer, Chevron Corporation (CVX) may rise as much as 20 percent over the next 12 months according to a Barron's report. Analysts expect crude oil prices to climb in 2010 and the company has several global exploration projects in the pipeline.
Wealth management firm Baird boosted Intel (INTC) to outperform from a neutral rating based on higher computer procurement forecasts for companies during the first half of 2010. The company is expected to outperform peers in the semiconductor industry for 2010.
Wal-Mart Stores (WMT) said it plans to cut costs by combining purchasing for several countries, according to a Financial Times report. The company estimates that shifting to direct purchasing could reduce costs from 5 percent to 15 percent across the supply chain over the next five years. Potential savings are targeted in the range of $4 billion to $12 billion.
On the earnings front, fast food company Sonic Corp. (SONC) will report earnings per share on Tuesday with analysts expecting 14 cents per share.
Also on Tuesday, fertilizer manufacturer The Mosaic Company (MOS) will release earnings. The consensus estimate is a 35 cent profit per share.
Agriculture operator Monsanto (MON) will report earnings on Wednesday with expectations of breaking even for the most recent quarter.
Other companies expected to report earnings this week include: AngioDynamics (ANGO), Synnex Corp. (SNX), Bed Bath & Beyond (BBBY), Family Dollar (FDO), Ruby Tuesday (RT), Shaw Group (SHAW), Apollo Group (APOL), Constellation Brands (STZ), HIS (IHS), AZZ Corp. (AZZ), Penford (PENX), and the Greenbriar Companies (GBX).
Disclosure: None
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