Fidelity Update - US Financials and Technology Stocks Lead the Market Higher; China
Stumbles on Growth Pains While European Markets Gain in Unison
US stocks recorded minor moves overnight while trading volumes dropped on minimal news impacting the
broader market. The S&P 500 rose by 0.5% and the Nasdaq added 0.8%, while the Dow Jones Industrial
Average only moved 3 points higher to 10,567.
Bank and technology shares drove gains on the broader indices spurred by improving sentiment on the
economy. Financial stocks were the standout performers, with Citigroup advancing 3.7% as the bank sold trust
preferred securities to raise capital, and American International Group rallied 11% amid speculation that asset
sales will improve the insurer’s viability. On the Dow, gains were recorded by industrial stocks while
telecommunications, health care and materials stocks offset these gains. Boeing added to its gains of the
previous day, rising by 3.7% to be the largest contributor to returns on the Dow.
In news on the economy, spending for February increased 17% from the same month a year ago according to
Treasury data. Revenue and other income rose 23% to $107.5 billion, marking the first increase in receipts since
April 2008. The government’s budget balance however continues to cause concern, with a bill for the next
budget deficit before congress. Obama’s budget request projected the government would run $8.5 trillion in
deficits over the next 10 years.
US Government Budget Balance as a % of GDP: 1995-2009
10.2% of GDP!
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11 March 2010
European stocks moved higher overnight amid speculation that mergers and acquisitions will increase and
optimism that Greece’s financial crisis will be contained. The Stoxx 600 rose 0.6% with all Western European
markets recording gains. The UK’s FTSE 100 gained 0.7%, while Germany’s DAX and France’s CAC 40 each
rose by 0.9% and Greece’s ASE Index gained 2.6%. Greece’s stock market was led by strong gains by its major
lenders - Alpha Bank (+6.2%) and EFG Eurobank Ergasias SA (+4.9%).
Debate over ways to address regulation in the post-crisis environment continued overnight. Axel Weber the
Bundesbank (Germany’s Central Bank) president, described as “not helpful” discussions about the
“institutionalisation of emergency help” when countries such as Greece should be focused on cutting public
sector borrowing. “Any other discussion is a sideshow that will distract from the necessary [fiscal] consolidation,”
he said. These comments come on the back of proposals from other EU members to create Europe’s own
version of the International Monetary Fund to provide financial security for the region. In the UK, the chairman of
Britain’s financial regulator, Adair Turner said today that regulators and governments around the world shouldn’t
rush to ban speculation on sovereign debt in the wake of the Greek financial crisis.
Most markets in the Asia-pacific region recorded gains although China proved to be the exception, falling by
0.8%. Chinese stocks fell amid concerns over inflation and further hikes in lending rates following reports that
China’s exports rose more than forecast in February and property prices jumped the most in almost two years.
Shipments overseas gained 46% in February from a year before after a 21% advance in January, according to
the Customs Bureau. Separately, commercial and residential property prices in 70 cities climbed 10.7%, as
reported by the statistics bureau.
Fixed Income
The yield on the benchmark 10-year note rose by two basis points to close at 3.72%.
Currencies
The US dollar generally traded lower against most major currencies. In morning trade, the dollar was 0.6%
stronger against the yen, trading at 90.51, while moving 0.4% lower against the euro, last trading at 0.7322
euros.
Commodities
The oil price traded on a firmer footing overnight whilst metals prices generally moved lower. Crude oil for April
delivery closed up 0.5% for the day at US$81.92 a barrel, while spot Gold fell by 1.2% to close at $US1108.36
