The announcement of Spain's budget plan and speculation that
China may introduce fresh measures to introduce more liquidity into
its banking system helped benchmarks rebound to clock up
gains. While the Dow was back to winning ways after six
consecutive days of losses, the S&P 500 rebounded to the green
after a five day long losing streak. However, except for a dip in
initial claims, domestic economic readings were largely
disappointing.
The Dow Jones Industrial Average (DJI) rose 0.5% and closed at
13,485.97. The Standard & Poor 500 (S&P 500) gained 1% and
finished yesterday's trading session at 1,447.15. The tech-laden
Nasdaq Composite Index surged 1.4% to end at 3,136.60. The
fear-gauge CBOE Volatility Index (VIX) declined 11.7% and settled
at 14.84. Consolidated volumes on the New York Stock Exchange, the
Nasdaq and the Amex were 5.74 billion shares, short of the
year-on-year daily average volume of 6.53 billion. The advancers on
the New York Stock Exchange outpaced the declining stocks; as for
73% stocks that gained, 24% stocks closed lower.
The announcement of Spain's 2013 budget plan boosted sentiment
and drove benchmarks higher. Budget reforms prioritized spending
cuts over tax hikes. European Union Economic and Monetary Affairs
Commissioner, Olli Rehn, said: "The reforms are clearly targeted at
some of the most pressing policy challenges". The Spanish
government projects savings worth €13 billion next year. The
finance minister also said a draft budget for fiscal 2013 reduces
overall spending by €40 billion ($51 billion). However, as demands
for Catalonia's independence rises, Spain's ability to control
regional government spending would be threatened.
Meanwhile, speculation that the central bank of China may react
to boost the economy as early as possible helped the markets'
positive rally. Yesterday, a central bank adviser said China has
undervalued the global economic slowdown and therefore reducing
interest rates further or lowering of bank reserve requirements
will depend on 'deterioration in the external environment'. China's
central bank infused a net 365 billion Yuan into money markets this
week, which traders cited as the largest-ever weekly injection.
The U.S. Department of Labor reported a decline of 26,000 in
seasonally adjusted initial claims for the week ending September
22, to 359,000, compared with the previous week's revised figure of
385,000. The figure was at its lowest point since late July.
Moreover, the sharp decline in initial claims hinted at an
improvement in labor market conditions. Consensus estimates had
projected the figure to come in at 378, 000.
Yesterday, the Commerce Department came out with the third
estimate of Gross Domestic Product (GDP). The Bureau of Economic
Analysis in its third estimate said Real GDP increased at an annual
rate of 1.3% in the second quarter of 2012, which fell short of the
consensus estimates of an increase of 1.7%.
The report also noted: "Real personal consumption expenditures
increased 1.5 percent in the second quarter, compared with an
increase of 2.4 percent in the first. Durable goods decreased
0.2 percent, in contrast to an increase of 11.5 percent.
Nondurable goods increased 0.6 percent, compared with an increase
of 1.6 percent. Services increased 2.1 percent, compared with
an increase of 1.3 percent".
Separately, the U.S. Department of Commerce reported a sharp
fall in durable goods orders in August. The figure declined by
13.2%, far wider than the consensus estimate of a 4.7% fall. This
decrease was the largest fall since January 2009. Excluding defense
and transportation, new orders decreased 12.4% and 1.6%
respectively.
The National Association of Realtors released Pending Home Sales
Index data yesterday, which registered a decline of 2.6% to 99.2 in
August. The index had increased by 2.4% to 101.9 in July. Consensus
estimates had projected a 1% rise. However, the Pending Home Sales
index came in 10.7% higher than the August 2011 figure of 89.6.
Despite discouraging housing data, homebuilding stocks had a
positive run yesterday. The SPDR S&P Homebuilders (XHB) gained
1.8% and stocks including KB Home (NYSE:
KBH
), Hovnanian Enterprises, Inc. (NYSE:
HOV
), The Ryland Group, Inc. (NYSE:
RYL
), M.D.C. Holdings, Inc. (NYSE:
MDC
) and Standard Pacific Corp. (NYSE:
SPF
) rose 5.1%, 4.1%, 2.7, 2.2% and 2.2%, respectively.
HOVNANIAN ENTRP (HOV): Free Stock Analysis
Report
KB HOME (KBH): Free Stock Analysis Report
MDC HLDGS (MDC): Free Stock Analysis Report
RYLAND GRP INC (RYL): Free Stock Analysis
Report
STANDARD PAC (SPF): Free Stock Analysis Report
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