Futures jump on dovish Bernanke
US markets are set to rally at the open after the Fed chairman said the central bank doesn't expect to raise rates any time soon.
U.S. equity futures rose sharply after a speech from Federal Reserve Chairman Ben Bernanke late Wednesday was much more dovish than expected. The Bernanke's comments indicate the Fed is not looking to end its easy money policies any time soon.
Bernanke said in the Q&A after his speech that the still weak employment and low inflation are arguments for more easing. Further, he said that interest rate hikes are no where near the horizon even if the tapering of purchases were to begin soon. However, he closed with slightly hawkish statements, saying that inflation is low due to transitory factors and should moderate back towards the medium-term target.
The Bank of Japan raised its forecast for the Japanese economy overnight, citing a moderate recovery and inflation that is likely to turn positive. The BOJ raised its 2013 Real GDP growth forecast to 2.5%-3.0% from 2.4%-3.0% in April and raised the median CPI forecast to a gain of 0.7% from 0.6%.
Australia's employment report once again showed strength in June as the Australian economy added 10,300 jobs vs. an expected flat reading, and the unemployment rate ticked up unexpectedly to 5.7% from 5.6% due to an increase in the labor force. Part-time jobs drove gains in June, a similar theme to the U.S. in June.
The Shanghai Composite Index closed 3.2% higher, its best gain of 2013, building on the more than 2% gain from Wednesday. The Financial Times is attributing the strength in Chinese markets to a speech by Premier Li Keqiang, which suggested the government will focus on restructuring the economy and on reforms.
S&P 500 futures rose 16.5 points to 1,665.10.
The EUR/USD was higher at 1.3041, well off the post-Bernanke highs near 1.32.
Spanish 10-year government bond yields fell 8 basis points to 4.73% as Prime Minister Rajoy is set to roll out new taxes, according to Bloomberg.
Italian 10-year government bond yields fell 8 basis points to 4.37%.
Gold gained 3.05% to $1,285.50 per ounce.
Asian shares were mostly higher following the dovish comments from Bernanke and the comments from Chinese Premier Li. The Japanese Nikkei 225 Index rose 0.39% and the Topix Index fell 0.04%. In Hong Kong, the Hang Seng Index rose 2.55% and the Shanghai Composite Index rose 3.23% in China. Also, the Korean Kospi gained 2.93% and Australian shares rose 1.31%.
European shares were also higher overnight on the back of the bullish sentiment from around the world. The Spanish Ibex Index rose 0.11% and the Italian FTSE MIB Index gained 0.58%. Meanwhile, the German DAX rose 1.03% and the French CAC 40 Index gained 0.72% while U.K. shares rose 0.77%.
Commodities were mostly higher, especially metals, after Bernanke talked down the dollar. WTI crude futures rose 0.17% to $106.70 per barrel and Brent crude futures gained 0.04% to $108.55 per barrel. Copper futures rose 3.12% to $318.75 per pound. Gold was higher and silver futures gained 4.41% to $20.01 per ounce.
Currency markets showed broad dollar weakness overnight however moves in most major dollar pairs were off of extreme levels. The EUR/USD was higher at 1.3041 after touching nearly 1.32 and the dollar fell against the yen to 99.39 after falling as far as 98.60. Overall, the Dollar Index fell 1.13% on weakness against the Swiss franc, the Canadian dollar, the pound, the euro, and the yen.
Earnings reported Wednesday
Key companies that reported earnings Tuesday include:
Yum Brands (YUM) reported second quarter earnings per share of $0.56 vs. $0.54 expected on revenue of $2.9 billion vs. $2.93 billion expected. The company also announced that it was reaffirming full year guidance despite second quarter China comps were down 20% but said that Chinese comps in the fourth quarter "could be positive."
Family Dollar (FDO) reported third quarter earnings per share of $1.05 vs. $1.03 expected on revenue of $2.57 billion, in line. Family Dollar narrowed its full-year earnings forecast to $3.77 to $3.82 per share, versus its earlier view of $3.73 to $3.93 per share.
Fastenal (FAST) reported second quarter earnings per share of $0.41, in line, on revenue of $847.6 million vs. $857.13 million expected.
MSM Industrial (MSM) reported third quarter earnings per share of $1.05 vs. $0.97 on revenue of $636.9 million vs. $635.18 million. However, guidance for the fourth quarter was weak with the company seeing earnings per share of $0.87-0.91 vs. $1.01 estimate and revenue of $661-673 million vs. $687.73 million estimate.
PriceSmart (PSMT) reported third quarter earnings per share of $0.61 vs. $0.64 on revenue of $571.1 million vs. $568.33 million.
Stocks moving in the premarket included:
Costco (COST) shares gained 0.39% premarket as the company reported that same-store sales rose 6.0% in June vs. an expected gain of 5.4%.Net sales rose 8% to $9.92 billion in June.
PriceSmart (PSMT) shares fell 2.88% premarket as the company reported weaker than expected third quarter earnings per share.
Yum Brands (YUM) shares rose 0.88% premarket after reporting better than expected earnings per share despite weaker than expected revenue. Also, some of the China related comments were worrisome.
Notable companies expected to report earnings Thursday include:
Commerce Bancshares (CBSH) is expected to report second quarter earnings per share of $0.71 vs. $0.76 a year ago on revenue of $262.43 million vs. $265.92 million a year ago.
On the economics calendar Thursday, initial jobless claims and import and export prices are due out followed by the Bloomberg consumer comfort index. Also, Fed Governor Daniel Tarullo is expected to speak and the Treasury is set to auction 30-year bonds and give its budget statement. Overnight, the Spanish CPI report and eurozone industrial production data are due out.
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