Market expecting a 25-50 basis points cut in interest rate
US Market registered good gains for the week ended 14 September, 2007. Market started off the week on Monday, 10 September, on a bit stagnant note, but then picked up on the following days of the week. Federal Reserve Chairman, Ben Bernanke and group’s two-day meeting on 17-18 September, 2007 remained the top focus among investors for the whole week. A chance of interest rate cut provided an underlying positive sentiment among investors.
During the week, Countrywide Financials said that the company was able to secure an additional $12 billion in borrowing capacity through new and existing credit facilities. This gave the financial stocks an overall strength which had been going through roller-coaster rides since the past few months amid this subprime mess in the US market.
The Dow Jones Industrial Average gained 329 points for the week. Tech - heavy Nasdaq gained 36 points and S&P 500 gained 31 points.
Among other major events during the week, crude oil future prices rose and reached an all time new high. Crude prices crossed $80/barrel and touched $80.18/bbl during intra day trading on 12 September. Prices increased though OPEC raised their production ceiling by 500,000 barrels a day starting 1 November, 2007.
Prices increased after Energy Department’s weekly inventory report showed that crude supplies dropped more than 7 million barrels (expected 2 million) and motor gasoline inventories fell a sixth week in a row during the week ended 7 September, 2007.
Among other economic data that were released during the week, was August retail sales and August Industrial production data. Both the releases reflected sluggish economic growth.
August retail sales were up 0.3%. That was a bit less than the expected 0.5% increase, but the July gain was revised upward from 0.3% to 0.5%. August industrial production was reported up 0.2%, a bit less then an expected 0.3% increase.
McDonald's shared gave a good boost to the market on both Wednesday, 12 September and Thursday, 13 September. The fast-food giant said its same-store sales rose 8.1% in August amid strong sales abroad and brisk breakfast business. Big Macs gave the market another boost when it announced that it was increasing its dividend by 50%.
General Motors was upgraded to Buy at Citigroup. GM shares soared by 10% on Thursday, 13 September. GM together with Big Mac helped Dow registered good gains on Thursday and Dow soared by 133 points on that very day. Increase in dividend by Microsoft too added to this gain.
In the technology sector, Intel lifted its third-quarter revenue guidance. But at the same time, Texas Instruments tightened its third quarter forecasts.
Executive Summary
For the week, the indices closed modestly up. DJIx was up by 2.4% and S&P 500 was up by 2.1%. Nasdaq was up by 1.4%. Crude prices crossed $80/bbl for the first time ever though OPEC decided to increase production by 50,000 barrels/day w.e.f 1 November, 2007.
The 10-year note yield rose from 4.37% last week to close this week at 4.46%. For the year, Dow is up by 7.9%, Nasdaq is up by 7.7% and S&P 500 is up by 4.6%.
In the coming week beginning on Monday, 17 September, several investment banks will be reporting earnings. However, the key event of the week, will be Tuesday's Federal Open Market Committee meeting. Market is expecting a 25-50 bps cut in interest rate, presently which stands at 5.25%.