Global Markets Show Caution Ahead of Earnings Season

Strategic Insights -

Market sentiment remained cautious on Friday as investors awaited earnings season, which is set to begin next week. Analyst Meredith Whitney's reduced earnings estimates for Goldman Sachs Group Inc. and Morgan Stanley added to the unease. The Dow Jones industrial average, S&P 500 Index, and Nasdaq Composite Index showed moderate gains, but the International Monetary Fund (IMF) warned of increased risks to the US economic recovery due to high unemployment, a moribund housing market, and a looming public debt.

Key Takeaways:

  • The Dow Jones industrial average gained 0.47%, while the S&P 500 Index edged 0.15% higher, and the Nasdaq Composite Index slipped 0.09% in late trading.
  • The IMF raised its US growth forecasts to 3.3% for 2010 and 2.9% for 2011 but cautioned that high unemployment and household debt posed risks to the recovery.
  • The Chicago Board Options Exchange Volatility Index, or VIX, rose 0.19% to 26.89, indicating investor anxiety ahead of earnings season.
  • The Euro climbed to its highest level in two months against the US dollar, driven by optimism about the global recovery and increasing demand for higher-yielding currencies.
  • The IMF revised its global growth outlook to 4.6% in 2010, with growth projected at 4.3% in 2011.

Statistics:

  • The number of Americans applying for jobless benefits fell by 21,000 to 454,000 in the week ended July 3.
  • The US government will auction $69 billion of notes and bonds next week.
  • The yield on the 10-year Treasury note increased 4 basis points to 3.02%.
  • The Euro rose to $1.2700, its highest level since mid-May, and covered 112.32 Japanese yen.
  • The Bloomberg News survey of the Federal Reserve's primary dealers estimated an average yield of 1.340% for the 10-year Treasury Inflation Protected Securities (TIPS).
  • The bid-to-cover ratio for the TIPS auction was 2.88, compared to an average of 2.45 for the previous 10 sales.

Sources:

  • "While you were sleeping: Caution rules market July 9" by BusinessDesk
  • International Monetary Fund
  • Reuters/Jefferies CRB Index
  • Energy Information Administration (EIA) report
  • Bloomberg News survey of the Federal Reserve's primary dealers
  • BGCantor Market Data
  • Commonwealth Foreign Exchange