Mar 22, 2008

International Markets - Broker earnings and Fed decision fuel rally at US Market

Broker earnings and Fed decision fuel rally at US Market - 19 Mar 2008

Better than expected earning reports from a couple of broker firms and Federal Reserves decision to cut fed fund rate by another 75 bps to 2.25% fuelled a strong rally in the US Market today, Tuesday, 18 March, 2008. All ten of the major economic sectors finished in positive territory. Financials posted the most impressive gain.

Helping to lift the market since the very morning was better than expected earnings reports from Lehman Brothers and Goldman Sachs. Both the firms posted dismal results compared to last year, but stellar results compared to expectations. After this, the market turned its full attention to the 2:15 ET FOMC announcement.

At 2.15 pm E.T, the Federal Open Market Committee (FOMC) announced it is cutting the fed funds rate and discount rates by 75 basis points. That left the fed funds rate at 2.25% and the discount rate at 2.50%. Markets immediate response was negative, although the indices still held strong gains.

Dow gave up 100 points immediately after Feds announcement. That was mainly because market was looking for a 10 bps cut. Anyway, market once again picked up momentum in the final hour of trading. The Dow Jones industrial Average ended the day with a gain of 420 points at 12,392. The Nasdaq Composite Index, finished higher by 91 points at 2,268. S&P 500 finished higher by 54 points at 1,330.

The Fed cited slowing growth in consumer spending, and a softened labor market. The statement also pointed out the continued strains in the financial markets. The Fed said inflation has been elevated and some indicators of inflation have increased.

All of thirty Dow stocks ended in the green today led by JP Morgan, IBM, AIG, Caterpillar and Exxon Mobil. Off the Dow, Goldman Sachs and Lehman Brothers jumped by 11% and 32% respectively.

Among economic data, February Producer Price Index (PPI) excluding food & energy rose 0.5% month-over-month, which was more than the expected rise of 0.2%. PPI came in at 0.3%, which was better than the expected rise of 0.4% thanks to a slip in food prices.

Also, the Commerce Department reported that February housing starts came in at an annualized rate of 1.065 million, which beat the expected reading of 995,000. However, building permits were 978,000, which missed the expected reading of 1.020 million.

All Indian ADRs ended in green today. HDFC Bank and VSNL were the two topmost gainers, each gaining more than 12%. VSNL was the other top gainer gaining more than 25%.

Crude prices rose by more than $4 today. Prices rose after the Federal Reserve decided to cut overnight lending rates by 75 bps to bring it down to 2.25% to strengthen the economy. Dollar continued to remain under pressure today because of this. Yesterday, crude suffered the biggest daily loss for crude in 17 years due to credit market concerns. Crude-oil futures for light sweet crude for April delivery today closed at $109.42/barrel (higher by $3.74/barrel or 3.5%) on the New York Mercantile Exchange. They earlier dropped to $108 before Feds move. Crude prices are 92% higher on a yearly basis.

Volume on the New York Stock Exchange surpassed 1.9 billion shares, and for every stock on the decline seven were on the rise. On the Nasdaq, more than 1.1 billion shares were exchanged and advancing stocks outran those declining 4 to 1.

Tomorrow, Morgan Stanley will post its latest earnings result. Other than that, weekly crude inventory report from the Department of Energy is expected at 10:30 AM ET.