• US equity markets break above key resistance levels on strong earnings from 3M and AT&T and better than expected US existing home sales

  • Dow Jones (+2.12%) closes above 9000, S&P500 (+2.33%) and NASDAQ (+2.45%)

  • Disappointing earnings from Microsoft, Amazon and American Express after closing weigh on equity sentiment, but Asian markets are still higher supported by strong Q2 GDP growth figures in South Korea

  • South Korean economy grows at the fastest pace in 5.5 years in Q2 (+2.3% Q/Q)

  • Chinese newspaper warns excessive lending may lead to asset bubbles, mainly in the housing market

  • Bank of Canada declared Canada’s recession virtually over and said the worst-case scenario of a global financial disaster has been ‘taken off the table’

  • Commodities benefit from the improving economic outlook, oil closes in at 70 USD/barrel

  • Next week’s Treasury auctions will raise a new record amount of $115B

  • BoE’s Sentance hint at a pause in the Bank’s asset purchase programme hit the Gilt market

  • Today’s euro zone PMI surveys, German IFO and UK Q2 GDP data in the spotlight


Markets

On Thursday, global investor optimism continued to set the tone for trading on almost all markets as the corporate earnings on average continued to come out better than expected. On top of that, the eco data supported global market sentiment, too. Indeed, the UK retail sales posted a bigger than expected rise in June. Later in the session, the Bank of Canada released a surprisingly positive assessment on the economy in its Quarterly Monetary policy report as it indicated that a global economic recovery is nascent. Additionally, the US existing home sales rose by more than expected, posting a positive monthly growth figure for the third month in a row. Especially, the release of this US existing home sales figure pulled the trigger for another up-leg on the stock markets. The S&P cleared the 956 resistance area (previous year high); the Dow regained the psychological barrier of 9000. If this break would be confirmed over the next sessions, it would be strong indication that investors are turning more positive on the economic outlook for the second half of this year. This morning, Asian stock markets are also mostly in positive territory (except for the Chinese markets), but the gains are less spectacular compared the US and Europe yesterday. Some less positive results published after the bell in the US might have played a role.

This global investor optimism caused renewed selling pressure in the bond markets. A first selling wave occurred after the publication of the US existing home sales. Later in the session, this pressure persisted as Fed’s Fisher suggested that the Fed may or may not complete the schedules for asset purchases and as the Treasury announced that next week’s auctions will total $ 115 billion, a weekly record. US yields rose between 7.4 and 13.5 basis point, with the belly of the curve hit the hardest. The rise in yields in Europe was less pronounced.

On the currency markets, sterling recorded gains, especially against the euro, supported by the global positive environment and the better UK retail sales. EUR/USD first jumped higher in step with the stock market rebound and tested offers in the 1.4290 area. However, despite the ongoing positive investor sentiment, the single currency could not hold on to its gains and EUR/USD even closed the session in negative territory. Is there some change in the making in the long-standing link between EUR/USD and investor risk appetite? The jury is still out, but the least one can say is that EUR/USD is having difficulties to take full advantage of the recent stock markets rebound. USD/JPY showed the ‘logical’ gains and moved even temporary above the 95.00 mark.

Today, there are fewer high profile corporate earnings scheduled for release compared to the previous days. However, the calendar of eco data is interesting. In Europe the advanced July PMI’s and the IFO business climate indicator will be published. In the UK, investors will look out for the first estimate of the Q2 GDP growth figure. In the US the calendar only contains the final Michigan consumer confidence survey, but US Treasury Secretary Geithner and Fed’s Bernanke will testify on regulatory reform.