insto - Australian financial markets

Global stock indices opened the week on the back foot as risk aversion in the resource and financial sectors retuned. The S&P500 traded down 0.3 per cent while European stocks fell 0.7 per cent. Japanese markets were closed for a public holiday, while the Hong Kong bourse traded down and Shanghai posted a slight gain.

Global stock and credit indices broke important technical barriers on Wednesday as investors added risk.

Gains in financial and energy stocks drove US indices higher. The S&P500 traded up 1.5 per cent to 1,068.76 and is now 4.7 per cent higher for the month, having gained in eight of the last nine sessions. Aiding the market’s move higher was another positive set of economic data which showed that industrial production had increased in August.

Credit investors will tell you the trend is your friend... until the end when it bends that is. Credit has continued its relentless march tighter as it becomes the asset class of choice for investors that are rediscovering their appetite for risk after a strong set of corporate results. Can it continue?

The rally in global equity markets paused for breath after America’s banks reported mixed results.

The S&P500 index closed down 0.1 per cent while the NASDAQ index kept going, gaining for the 11th successive sessions as tech stocks took heart from Apple’s strong earnings.

US credit indices closed wider on the back of more bank earnings numbers. The Markit CDX widened 1.5bps to 125 on light volumes. Bonds traded down with 10yr yields up 6bps to 3.54 per cent.

US stocks edged higher overnight. The S&P500 index was up 0.35 per cent as energy companies gained on rising commodities prices. 

US Treasuries were lifted after a record US$35b 5yr auction was well bid. Two year US Treasury yields fell 10bps, 10yr yields fell 2bps to 3.86 per cent while 30yr yields were up 4bps to 4.65 per cent. 

Credit indices improved. The US Markit CDX index was 3bps tighter at 124 as ten US banks were approved to repay TARP funding. Financials tightened but other sectors took a breather from the strong rally in credit markets.

Stocks markets made further gains as housing numbers hinted at an economic recovery.

The S&P500 stock index moved up 0.2 per cent while US Treasury 10yr yields fell 8.5bps to 3.63 per cent.

Global stock markets posted strong gains on Monday as more investors bet that GM’s bankruptcy is the bottoming of the economy. The S&P500 index gained 2.6 per cent while the Eurofirst 300 index closed 2.7 per cent higher. 

Credit and equity markets continued to surge ahead as investors digested the bank stress test results and absorbed the latest US jobs data.

On Friday, the US CDX investment grade index was about 3 points tighter at 143, while financials led US stock indices yet higher. The S&P500 gained a further 1.6 per cent to finish 5.1 per cent higher for the week.

A further sign of investor confidence was a 9.2 per cent decline in the VIX volatility index to 32, well down from its October 2008 high of 80.

The bank stress test results are finally out. The total amount of capital required among 10 banks is US$75 billion.

Bank of America needs US$33.9 billion, Wells Fargo US$13.7b, GMAC US$11.5b and Citi US$5.5b, Regions Financial US$2.5b, SunTrust US$2.2b, KeyCorp US$1.8b and Morgan Stanley US$1.8b.

JP Morgan, Goldman Sachs, American Express, BB&T, State Street, MetLife, Bank of New York Mellon, US Bancorp and Capital One Financial. don't need to raise additional capital.

A number of banks have scheduled conference calls after hours in the US to discuss the results.

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.