US Markets Fundamental Outlook

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Equities Rally Expected To Continue on U.S. Proposal To Buy Troubled Assets

Friday, 19 September 2008 11:55:21 GMT
Written by John Rivera, Analyst
U.S. politicians along with U.S. Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke all presented a united bipartisan effort to establish an entity as fast as possible in order to bring about a resolution to the banking crisis as soon as possible.

What To Watch For In The US Session

• Plan To Buy Troubled Assets Could Extend Rally
• SEC Freezes Short Selling
• Oracle Earnings Surprise May Boost Techs


Equities Rally Expected To Continue on U.S. Proposal To Buy Troubled Assets

U.S. politicians along with U.S. Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke all presented a united bipartisan effort to establish an entity as fast as possible in order to bring about a resolution to the banking crisis as soon as possible. The plan is that the Fed will be giving the authority to buy mortgage back securities and hold them to maturity, which is expected to be in the range of $850 billion. Additionally the SEC put a temporary hold on short selling of a list of 799 stocks which will initially be for ten days with the possibility of extending it to 30 days. The move is aimed at preventing the continued driving down of banking stocks. An empty economic calendar will leave market sentiment to the interpretation of the impact of the government action. If reaction late yesterday and the huge gains in Asian and Europe are any indication, then we could see another record level gain in stocks today.

Dow Jones 11019.69
The Blue chip index will look to build on yesterday’s gains as banks are expected to continue receiving a boost from the prospect that they will be able to clear their balance sheets of troubled assets. The prospect of the end of the financial crisis will also lead to broader bullish sentiment. Energy stocks are expected to gain as oil prices are holding firm and an improved growth outlook may lead to an end to the recent commodity sell off.

NASDAQ 2199.10
The NASDAQ is expected to start the day higher as the elimination of short selling will lead to a lot of traders covering short positions. The tech sector has been beaten down lately and should benefit from this buying. Additionally, Oracle’s better than expected earnings report should add to the bullish momentum in the sector.


S&P 500 1206.51
The S&P 500 should be higher on the day as the broader index may see the biggest impact from the short selling freeze as the list includes banks and insurance companies. We could also see housing related names gain as the potential loosening of the credit markets could make available the finds for borrowers to improve demand and end the downward trend in home prices.​

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European Session Key Developments

• U.S. Plans Send Indexes Soaring
• German Producer Prices Eased
• Italian Industrial Production Jumps



The U.S. Efforts to Stem The Financial Crisis Spark Sharp Equity Rally

The broader implications of the U.S. plan to help clean up the balance sheets of the sub-prime afflicted is expected to unlock the global credit markets and hopefully will bring an ultimate end of the financial crisis. The U.K. started things yesterday when they issued a temporary ban on short selling for 29 financial service companies until January 2009. This would lead to the FTSE jumping over 8% at one point in trading and is heading for its largest gain in history. European traders also had positive economic data to cheer about as well as German producer prices eased 0.6% in August, dragging the annualized rate to 8.1% from 8.9%. This should help companies increase their margins and profitability, which had been squeezed by soaring oil and raw material prices.

DAX 6113.45 250.03 4.264%
German stocks soared on the news of the U.S. actions and the drop in producer prices. German companies will see their profit margins improve as the costs continue to fall. ALLIANZ SE (ALV GY): Europe's largest insurer, DEUTSCHE BANK AG (DBK GY): Germany's biggest bank and DAIMLER AG (DAI GY): The world's second-largest luxury carmaker led the index higher.

FTSE 100 5230.20 350.20 7.176%
U.K. bank stocks jumped on the U.K. short selling ban and the U.S. actions rising above 8% at one time, winners included ROYAL BANK OF SCOTLAND GROUP PLC (RBS LN): The U.K.'s second-biggest bank, which was over 60 points higher. Also, HSBC HOLDINGS PLC (HSBA LN): Europe's biggest bank by market value, BARCLAYS PLC (BARC LN): The U.K.'s third-biggest bank and LLOYDS TSB GROUP PLC (LLOY LN) were all up all over 80 points.

CAC 40 4217.97 260.11 6.572%
The CAC 40 was up as bank and oil stocks continued their gains including BNP PARIBAS (BNP FP): France's largest bank which was up over 8 points in early trading. Other winners included AXA SA (CS FP): Europe's second-biggest insurer and SOCIETE GENERALE SA (GLE FP): France's second-largest bank

IBEX 11278.10 646.50 6.081%
Spain’s IBEX 35 extended yesterday’s gains as bank stocks continued to benefit from efforts to fix the financial crisis. Leaders included BANCO SANTANDER SA (SAN SM): The largest bank in Spain, BANCO BILBAO VIZCAYA ARGENTARIA SA (BBVA SM): Spain's second-largest bank and BANCO POPULAR ESPANOL SA (POP SM): Spain's third-largest bank

S&P/MIB 27231.00 1567.00 6.106%
Italy's S&P/MIB Index was led higher by banks and insurers including UNICREDIT SPA (UCG IM): Italy's largest bank and INTESA SANPAOLO SPA (ISP IM): Italy's second-biggest bank.

AEX 372.61 20.95 5.957%
The Amsterdam Exchanges Index was trading higher led by ARCELORMITTAL (MT NA): The world's biggest steelmaker and ING GROEP NV (INGA NA): The biggest Dutch financial-services company.

SMI 6960.44 337.19 5.091%
The SMI was led higher by UBS AG (UBSN VX): Europe's largest bank by assets which was up over 4 points and CREDIT SUISSE GROUP AG (CSGN VX): Switzerland's second-biggest bank.

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