Good tests kill flawed theories; we remain alive to guess again. Karl Popper.
Guessing is really less required to predict today’s trading outlook. Unlike the weather in Mumbai, the prospects look bright and beautiful today in the wake of one of the biggest global rallies in recent memory. Risk appetite seems to have returned overnight, perhaps temporarily as equities and commodities raced across the globe.
Optimism about the upcoming earnings season propelled the Dow above 10,000 for the first time since June 28. A stronger euro helped push commodity shares, cooling some worries for now about the European debt crisis.
For once, banks led the advance as traders turned optimistic about the eurozone stress tests and after the world’s second biggest custody bank said earnings would beat expectations. Also, world stocks were seen oversold technically, and hence a bounce was always on the cards.
We see a gap-up opening with the NSE Nifty expected to pierce 5300. It remains to be seen if the index manages to cross 5350 and stays above that level for a sustained period to signal a long-awaited and perhaps long overdue breakout.
SEBI’s move to halve exposure margins in the F&O segment may also boost sentiment.
In terms of global data watch, the Bank of England and the ECB will hold their policy meeting.
FIIs were net sellers of Rs492.4mn in the cash segment on Wednesday (provisionally), according to the NSE web site. Local funds were net buyers of Rs1.34bn. In the F&O segment, they were net buyers at Rs8.9bn. On Tuesday, the FIIs were net buyers of Rs3.75bn in the cash segment.
US stock indexes closed higher for a second day on Wednesday, something traders have not seen in more than two weeks. The three major indexes closed up nearly 3%, rising on a brighter outlook for banks on both sides of the Atlantic. At the close, the Dow Jones Industrial Average gained 2.8%. The Standard & Poor's 500-stock index and the Nasdaq added 3.1%.
The Dow climbed 274.66 points, or 2.82%, to close at 10018.28, with all 30 components in the black. The S&P 500 index added 32 points or 3.13% to 1060.27. The Nasdaq Composite index was up 65 points, or 3.1%, at 2,159.47, its biggest one-day point and percentage gain since May 10.
Gains were broad based, with all 30 Dow components rallying. Market breadth was positive.
US light crude oil for August delivery rose $2.93 to $74.91 a barrel on the New York Mercantile Exchange.
COMEX gold for August delivery gained $7.90 to $1,203 an ounce.
The dollar fell against the euro, reversing earlier gains. The Dollar Index, which reflects the US currency against a basket of six others, slipped 0.2% and was last traded at 83.85.
Treasury prices fell, raising the yield on the 10-year note to 2.98% from 2.93% late on Tuesday.
Stocks have been weighed by worries about the global economy, but investors are growing hopeful that a strong earnings season can help the market turn higher again. The recent sell-off had sent the major US stock indexes all down by more than 15% since the late April highs. They lost 5% last week alone and closed at 8-month lows.
Since there is nothing happening on the economic front and since the volume is pretty light, the bounce could continue for a few days. Whether the bounce becomes a bigger rally will depend on whether the S&P 500 can hang on to some key technical levels.
The US market's ability to move higher will also hinge on the results of the European bank "stress tests" as well as what kind of profit guidance US companies give.
A lot of the optimism was fueled by State Street's pre-announcement. State Street gained nearly 10% after it lifted its quarterly earnings forecast. The KBW Bank index, which includes State Street, gained 5.6%.
The money-manager projected second-quarter profit well above analysts' forecasts, citing improving revenue trends. State Street is not a Dow component.
State Street said it will report operating earnings of 92 cents per share on revenue of $2.2 billion in the just-completed quarter. Analysts were expecting it to report a profit of 74 cents per share on revenue of $2.2 billion.
The regional bank also said that it was taking a one-time after-tax charge of 50 cents per share to provide cash for trust funds that are run by its money-management unit, State Street Global Advisors.
The release of details on European bank stress tests also removed some uncertainty, which helped the financial sector's gains. Europe's banking regulator said that it will test 91 European banks and publish the results on July 23.
The technology sector was also strong. Global storage leader EMC Corp. said that it has agreed to acquire Greenplum, a privately held data-warehousing company that specializes in analyzing large amounts of information. EMC, not a Dow component, climbed 5.2%.
Among other stock movers, truckers and railroads surged, lifting the Dow Jones transportation average by 3.9%.
The number of Americans behind on their credit-card payments fell to an 8-year low in the first quarter, the American Bankers Association reported.
Wednesday's stock gains came despite concern overseas over disappointing German manufacturing data. Germany is considered one of Europe's strongest economies, and the drop in manufacturing orders prompted concerns over how economic struggles among its euro-zone counterparts might be impacting that country.
Dollar Thrifty Automotive Group shares climbed 5.1%. The company raised its 2010 earnings forecast due to upbeat second-quarter guidance and projections for lower fleet costs for the rest of the year, though the nation's third-largest rental firm reduced its vehicle rental revenue expectations.
American depositary shares of BP rose 4%. Chief Executive Tony Hayward met with Abu Dhabi's powerful Crown Prince Mohammed bin Zayed Al Nahyan during a visit to the oil-rich sheikdom. Hayward said that he would be happy to see the city state's sovereign wealth fund buy a stake of up to 10% in BP, according to reports.
Family Dollar Stores forecast fiscal fourth-quarter earnings in a range that was short of analysts' estimates, due to the mixed economic outlook and the impact of competitor Wal-Mart Stores.
European stock benchmarks rose owing to a strong rally in banking shares amid hope that the impending bank stress test results may not be as bad as feared.
The Stoxx Europe 600 index rose 1.4% to 246.06.
Reports suggested that the criteria used to measure European banks' health might be more generous than originally feared. Stress tests assume a 17% hit on the value of Greek government bonds they hold, according to two reports. The Spanish haircut was 3%, according to reports.
Financial-sector gainers included lenders with significant exposure to so-called peripheral European countries like Societe Generale and Santander.
The French CAC-40 index added 1.8% to 3,483.44, the German DAX index rose 0.9% to 5,992.86 and the UK's FTSE 100 index closed up 1% at 5,014.82.
The Spanish Ibex 35 index rallied 3.7% to 9,971.00.
BP added to recent gains, adding 4.8%. CEO Tony Hayward is in Abu Dhabi, according to reports. BP's shares have gained more than 12% this week amid reports that the company is looking for an investor, possibly from the Middle East, as it grapples with the financial fallout from the oil spill in the Gulf of Mexico.
Speculation of interest from the Middle East also helped supermarket group J. Sainsbury gain. The firm's shares rallied 4.9% as talk resurfaced that it could get a bid from minority shareholder Qatar Investment Authority. Sainsbury said it doesn't comment on rumor and speculation.