Intraday Market Update
Equities around the globe have surged higher on Monday following a plethora of favorable Chinese data and the finalization of new banking sector capital rules out of Basel III. In the US, the S&P 500 gapped +10 points higher at the open and reached a high of 1,123, which was +14 points higher than Friday's close. The index has gained +0.70% and is now off of its best levels, but is holding above the 200-day moving average. The Russell 2000 and NASDAQ are surging higher by +2.00% and +1.50%, respectively. The DJIA is lagging and has only gained +0.35%. Treasury prices are higher while yields have fallen which seems to be keeping the rally under control. Front month crude has broken out to levels not seen since mid-August but is more than -1% off of its highs and is struggling at its 200-day moving average. Gold is flat. Overseas, markets throughout Europe and the Asia-Pacific region posted solid gains highlighted by the Hang Seng index gaining +1.89%.
The global rally got started when economic data out of China, which was released ahead of schedule, saw PPI, industrial production, and retail sales post significant gains. The consumer price index registered a 22 month high at 3.5% which is well above China's official 2010 target of 3%. The National Stats Bureau attributed the higher inflation levels to rising food prices, suggesting consumer inflation may have peaked. In addition, the People's Bank of China not only withheld from addressing higher CPI with tightening, but actually indicated it may implement some loosening of policy in later this year.
Shares of bank stocks throughout the world are gaining following the Basel III capital rules. The Committee's agreement will increase the minimum common equity requirement from 2% to 4.5%, and banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress, bringing the total common equity requirements to 7%. The new standards were fully in line with expectations but the period of time granted for compliance was longer than expected. Investors are cheering the gradual phasing in of the capital requirements as they do not start until early 2014 with the capital conservation buffer to take effect between January 2016 and January 2019. European Central Bank President Jean-Claude Trichet commented that he does not expect the new rules to hamper the global recovery, while banking analyst Dick Bove said 61of 62 major US banks already meet the new standards.
In equities, more M&A activity is making the rounds again on Monday. Hewlett-Packard (HPQ) announced they will acquire cyber security firm Arc Sight (ARST) for $43.50 per share in cash, adding to HPQ's cloud computing strategy. The deal puts a +24% premium on ARST's stock price compared to Friday's close. Dollar Thrifty (DTG) has agreed to be acquired by Hertz (HTZ) for $50 per share in cash and stock. This offer beats Avis Budget's (CAR) move to improve its offer for the firm back in early September. All three names are up better than +5% on the news.
Core Sector List:
Overall reading: 18 sectors advancing, 2 sectors declining
Strongest Sectors: Semiconductors, Banks, Software
Weakest Sectors: Healthcare, Drugs
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