The Bulll run should continue:
Like the Indian bourses, the bourses world-wide registered gains even as oil prices showed a slight rebound after seven days of losses. Oil rose after the US government's report showed a greater-than- expected drop in crude-oil inventories and the U.S. called for sanctions against Iran for failing to suspend its nuclear program. Crude oil closed at $63.97 a barrel in New York. But investors remained optimistic that the recent drop in oil would boost consumer spending and corporate profits.
The US markets:
In the US an index of homebuilders in the S&P 500 jumped 6.7 % this week on speculation lower energy prices will allow Federal Reserve policy makers to forego interest-rate increases.
``What was the fear of a recession or significant inflation has been lessened,'' said Gerald Donini, head of U.S. equities trading at Lehman Brothers in New York. ``Maybe the Fed has engineered a soft landing.''
The Dow Jones Industrial Average added 45.23, or 0.4 %, to 11,543.32. That's the highest level since May 10 and 180 points short of an all-time high. The S&P 500 increased 4.96, or 0.4 %t, to 1318.07, leaving it seven points shy of matching its five-year high in May. The Nasdaq Composite Index gained 11.85, or 0.5 %, to 2227.67.
Like in Indian Small and Mid cap stocks rallied in the US bourses. Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors, said he was encouraged by a rise in technology stocks as well as small-company stocks in recent days. "Those are signs from the stock market that investors are willing to take more risk," he said.
Broader stock indicators also hit four-month highs. The Standard & Poor's 500 index rose 4.96, or 0.38 percent, to 1,318.07, and the Nasdaq composite index gained 11.85, or 0.53 percent, to 2,227.67.
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.76 percent from 4.77 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices rose.
So far this month, the S&P 500 is up 1.1 percent as oil prices have fallen and investors become more convinced the Federal Reserve is in no hurry to raise interest rates.
While economic reports have pointed toward accelerating inflation, officials including Cleveland Fed President Sandra Pianalto and San Francisco Fed President Janet Yellen have signaled borrowing costs are unlikely to move higher.
Policy makers meet next on Sept. 20 to decide on the benchmark rate. Economists expect no change, according to a Bloomberg News survey. The Fed kept the rate at 5.25 percent last month after 17 increases in two years.
Economic data later this week will provide further clues on the pace of growth. Retail sales probably fell in August, while consumer prices, excluding food and energy, were little changed from the previous month, according to a survey conducted by a news agency.
Investors appeared confident Wednesday that the Fed won't rattle the markets next week, said Neil Massa, equity trader at John Hancock Funds.
The Russell 2000 index of smaller companies was up 6.22, or 0.86 %, at 730.70.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where final consolidated volume came to 2.72 billion shares, compared with 2.94 billion traded Tuesday.
Overseas, Japan's Nikkei stock average closed up 0.20 %t. Britain's FTSE 100 closed down 0.06 %, Germany's DAX index was up 0.55 %, and France's CAC-40 was up 0.23 %.
Peru, Top Stock Market, May Decline on Commodities
Peruvian stocks became the world's best performers this year as metals prices soared. A slump in silver, gold, copper and zinc, whose producers account for half the trading on the Lima exchange, may end the five-year rally.
The country, the largest silver and tin producer, also ranks fourth globally in copper production, fifth in gold and third in zinc. Prices of those commodities have dropped in recent months.
``A large part of market performance is based on metals prices, and they've clearly hit their ceiling,'' said Jorge Luis Rodriguez, chief economist at SAB Centura, a Lima-based brokerage. ``The short-term vision of some investors means there's overshooting in some stocks.''
The Lima general stock index has risen 126 % in dollar terms this year, the biggest gain among 80 benchmarks tracked by a new agency. Morgan Stanley Capital International's Latin America Index has risen 12 %. Peru's index hasn't posted an annual loss since 2001, climbing an average of 42 % a year.
This week's commodity slide has interrupted the trend. The Lima index on Sept. 11 fell 1.5 percent, its biggest loss in almost two months, as commodity prices slumped.
Peru, with a population of 28 million people, has a stock market valued at $42 billion, according to data compiled by Bloomberg. The market is Latin America's fifth biggest, behind Brazil, Mexico, Chile and Argentina and ahead of Colombia and Venezuela.
It would take more listed companies and more active daily share trading to bring in more foreign investors, said Geoffrey Dennis, Latin American strategist for Citigroup Inc. in New York.
``Peru needs some more issuance to diminish its heavy dependence on the mining industry,'' Dennis said in a phone interview. ``You need to give investors more choice.''
But Only five Peruvian companies -- Southern, Buenaventura, Volcan, Minsur and Credicorp Ltd., which owns banks and insurers -- qualify for inclusion in indexes compiled by Morgan Stanley Capital International, compared with 54 Brazilian stocks.
To be sure, the world's economy is still growing, and countries such as China and India are consuming commodities. That indicates to money manager Jaime Caceres that Peruvian stocks won't plunge.
``With the continual demand for minerals, there's still room for growth,'' said Caceres, president of AFP Integra, Peru's largest private pension fund. ``It's difficult to foresee anything that could derail the stock market in the medium term.''
Peru also has used the growth provided by metals to put its finances in order. The country posted average annual growth of 5 percent from 2001 to 2005, led by copper, gold, natural gas and fishmeal, said Michael Hood, chief Latin America economist with Barclays Capital Inc. in New York.
Inflation was running at an annual rate of 1.9 % through August, the lowest in Latin America. The Finance Ministry forecast a 0.6 % fiscal surplus this year on an expected 30 % surge in exports, and a $7 billion trade surplus.
Still, the stock market now is overpriced, according to Alejandro Baez-Sacasa, who invests in Latin America for New York- based Neon Capital Ltd.
``At some point, commodity prices are going to come down, and that's going to affect the market,'' said Baez-Sacasa, who sold the firm's Peruvian stocks in 2002. ``When it does, there's going to be an opportunity for us. This isn't the time to invest.''
Yen Climbs on Speculation China Will Allow Faster Yuan Gains
The yen rose for a second day against the dollar on speculation China will allow faster yuan gains or widen the trading band before a Group of Seven meeting and U.S. Treasury Secretary Henry Paulson's visit next week.
Japan's currency extended an advance from yesterday after Paulson in a speech in Washington urged China to let its currency trade more freely. A stronger yuan would increase China's buying power for goods from Japan, while making its own exports more expensive in global markets.
``The yen is well supported by growing speculation China will loosen controls on the yuan before the G-7 meeting and Paulson's visit to Beijing,'' said Michiyoshi Kato, a senior currency dealer in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest lender by assets. ``China cannot let Paulson go home empty-handed. A widening in the yuan trading band could be a good souvenir for him.''
Against the dollar, the yen rose to 117.40 at 8:41 a.m. in Tokyo, from 117.68 late yesterday in New York. The currency climbed to 149.08 per euro, from 149.32. It may rise to 117 per dollar today, Kato said.
Finance officials and bankers from the G-7, comprising the U.S., Japan, Germany, the U.K., France, Italy and Canada, meet on Sept. 16 in Singapore. At a meeting in April, they urged China and other Asian countries to let their currencies appreciate.
Paulson also is scheduled to go to China next week, his first official visit to Beijing.
China lets the yuan trade in a band, limiting daily moves to 0.3 % either side of a reference rate. The currency has risen 2 percent since China ended a peg to the dollar in July, 2005.
`Unfair Competition'
Paulson called on Chinese authorities to allow markets a greater role in their economy. He said such changes are in China's interest because they would make managing the economy easier.
In a speech devoted almost entirely to China, Paulson sought to dilute the emphasis on the yuan's value, which he called a ``symbol of unfair competition.''
The China Securities Journal yesterday said China may widen the yuan's trading band, citing experts it didn't name. Larger fluctuations would discourage inflows by increasing the risk for speculators, according to the Journal, affiliated with state-run news agency Xinhua.
The People's Bank of China, the country's central bank, also said yesterday it has no plan to release any statement on a widening of the yuan's trading band.
The yen surged 2.3 % on July 21, 2005, the day China revalued the yuan by 2.1 %.
Indian Implications:
If China revaluates Yuan then Indian, Textile, Metal, Food Processing etc. counters will gain pace in the Indian bouses, as Chinese Exports becoming dearer will help the Indian exports of these commodities. Indian exports in Textiles or Mushrooms are getting badly hurt due to competition thrown by the Chinese Exporters. So look for a rally in the export oriented counters if China really goes in for this unexpected move.
[With inputs from the Internet]
Best wishes,
Suman Mukherjee
India.
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