Standard and Poor’s chases pre-GFC heights: Morning market insights

Wall Street

The New York Stock Exchange had further gains overnight as the Standard & Poor’s 500 reached heights not seen since 2008. The index is on a rally of 12% since the start of the year and is now less than 10% below global financial crisis levels in 2007.

Apple announced it would begin spending its reported $US97.6 billion in cash reserves on dividends and buybacks – music to the ears of investors.

“There’s plenty of room for dividends to increase,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, told Bloomberg. “Paying dividends is a sign of health in the companies and the economy. That plays well in terms of investors’ confidence.”

The S&P500 Index was up 0.40% or 5.58 points to 1409.75. The Dow Jones Industrial Average finished up 0.05% to 13239.10. The NASDAQ Index was up a solid 0.75% to 3078.32.

A solid recent equity rally has seen banks make good rises on both sides of the Atlantic with Commerzbank in Germany topping Dax gains, with a 2.15% rise. In London the Royal Bank of Scotland was the biggest winner, up 3.66%. In Manhatten the two biggest gains were by JP Morgan Chase and American Express – up 0.96% and 1.27% respectfully.

The West Texas Intermediate (WTI) oil price rose again 0.78% to $US107.89 a barrel overnight on the back of growing optimism.

Gold gained 0.47% to be trading at $US1663.60 an ounce.

The Australian dollar was up overnight, buying $US1.0611 at 8.30am AEST.

Europe

European stocks finished flat overnight after climbing for most of last week. But debt problems have not gone away, slowing the gains as full digestion of the implications of huge bondholder losses in Greece take hold.

London’s FTSE 100 closed down 4.47 points to 5961.11. The German DAX was down 0.05% or 3.60 points to 7154.22. The European Stoxx50 index was flat after its gains of last week – up 0.12 points to 2608.42.

European debt concerns continue

Despite the optimism in the US, European investors are slowly looking over the implications of the orderly Greek debt default and restructuring. Attention now turns to the next weakest link: Portugal. Insurance on Portuguese government debt now costs 36% of its face value over five years. To insure $US10 million worth of Portuguese bonds it now costs $US 100,000 a year. There is concern from investors that Portugal will follow Greece in a forced write off of investor value. Greek bonds are now worth only 31.5% of what investors originally gave them.

The euro fell overnight as Italian Labor Minister Elsa Fornero held talks with unions to try to free up the moribund Italian labour market. She warned a decision would have to be made regardless of the success of an agreement.  “We can’t keep going ahead and having endless discussions,” she told Italian television.