insto - Australian financial markets

US stocks swung into the red following a late broad-based sell-off.

The S&P500 fell 1.1 per cent despite upbeat comments from the Federal Reserve. Its statement, considered to be the most optimistic for some time, said that economic activity had picked up and interest rates will stay low for an extended period of time. The Fed also provided a timeline for exiting its mortgage bond purchase program.

While markets reacted positively to the Fed’s statement a fall in commodities prices, as oil dipped below US$70/barrel, sparked a late sell-off in stocks.

Fatigue set in for the market bulls on Friday as US stocks closed out a strong week with a negative session. Despite news that global packaging firm Fedex had lifted its profit outlook and consumer sentiment in the US had reached a three month high, the S&P500 traded lower, falling 0.1 per cent. The index was however 2.6 per cent higher for the week.

US stock indices were lower on Friday but still closed higher in a choppy week’s trading.

The S&P500 fell 0.20 per cent, to close the week 0.3 per cent higher. European and Japanese stock indices also closed higher for the week, while Chinese stocks traded lower.

US stock markets posted modest gains on Thursday. The S&P500 traded up 0.3 per cent while the Dow Industrial index closed flat.

US credit indices retraced the previous session’s losses. The Markit CDX investment grade index moved 3bps tighter to 142.

Bonds were weaker across the curve, despite a better than expected response to a 30yr bond auction. The price of oil stabilized following a week of sharp declines. Crude Oil futures settled at around US$60.40/barrel.

As the Northern Hemisphere drifts towards the summer slowdown, all markets looked towards the release of monthly US labour statistics on Thursday for a validation of the global economic recovery. 

The numbers, which showed that US job losses had continued to rise, disappointed and credit indices pushed wider as a result, erasing the previous four day’s grind tighter.

With no major data or corporate earnings releases on Friday, attention remained firmly on the ballooning levels of global public debt.
 
US Treasury yields rose further on concerns that rising levels of US borrowings will impact the US AAA credit rating, and lead to rising inflation. Ten year yields were up 32bps for the week to 3.45 per cent, the highest level since November 2008. 

US equities posted modest declines on a quiet day's trading while the VIX volatility index fell slightly, but remained above 30 points.

Credit markets edged wider on light volumes. The CDX investment grade index closed up 1.5 bps at 147. US bank credit spreads outperformed, tightening by 5 to 10 bps. 

In Europe, stock markets recovered some of Thursday’s losses. Credit indices also retraced declines. The iTraxx investment grade index was 5bps tighter at 123, while the Crossover moved 16bps tighter to 749.

In the UK, the FSA refused to disclose the results of the stress tests conducted on Britain’s banks because it fears the results may threaten stability.

Stocks slid for the second consecutive day as Fed meeting minutes dulled the enthusiasm of the recent market recovery.

The S&P500 fell 0.5 per cent after a sell off in the final trading  hour .US financial stocks in the index fell 2 per cent while most sectors were positive.

Earlier the Fed said that it may need to purchase more Treasuries in order to reduce the downside risks to the economy. The ‘bond friendly’ report pushed US Treasury yields lower with 2yr yields down 5bps, and 10yr and 30yrs down 6bps.

The US stock market rally resumed overnight despite an increase in jobless claims. The S&P500 gained 1.04 per cent;  over 10 per cent of the stocks in the index have more than doubled since 9 March.

Credit indices underperformed equities. The US CDX investment grade index was unchanged 156.

US Treasury yields were also unchanged, while bank dollar funding costs declined to new lows.

Stress test leaks, a confident stock market and a rise in pending home sales added further fuel to the credit market’s rally.

Credit spreads continued to tighten overnight, outperforming resurgent equity markets. The US CDX investment grade index tightened by 13 points from 144 to 157 on Wednesday, while the S&P500 index gained 1.74 per cent. It is now 2 per cent higher for the year.

US bank stocks continued to surge ahead of the bank stress test results. The broader market was also further boosted by strong pending home sales data, which showed a 3.2 per cent monthly gain.

A three day rally in US credit markets ended on a quiet Friday. Stock indices were slightly higher while the US CDX investment grade index was 2 basis points wider at 163.