Barefoot Investor: Earnings, US data help stocks higher

Solid U.S. economic news, forecast–busting earnings from JPMorgan Chase & Co. and the passage of a key budget vote in Italy gave stock markets a fillip on Thursday.

U.S. retail sales unexpectedly rose in June while weekly jobless claims dropped by a surprisingly large 22,000 to 405,000, helping Wall Street to open firmly and European markets to trim losses.

Stronger than anticipated earnings from JPMorgan Chase also lifted the mood, a day after Moody's warned that the U.S. may lose its cherished triple A credit rating. Moody's warned late Wednesday that it may downgrade its view on the U.S. because of the failure of the White House and Congress to raise the $14.3 trillion borrowing limit and avoid a default.

"The review of the U.S. government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes," Moody's said. "As such, there is a small but rising risk of a short–lived default."

Though most analysts think the politicians will agree to raise the threshold by the early August deadline, the warning reminded investors that high debt is not just a European problem and knocked confidence in the markets.

"Further talks (between the White House and Congress) are scheduled today and investors will continue to watch the situation, which is likely to keep both the dollar and stock market somewhat sensitive," said Joshua Raymond, chief market strategist at City Index.

In Europe, the FTSE 100 index of leading British shares was down 0.3 percent at 5,890 while Germany's DAX fell 0.3 percent to 7,245. The CAC–40 in France was 0.6 percent lower at 3,772. All three markets had been trading lower before the raft of news out of the U.S.

In the U.S., the Dow Jones industrial average was up 0.6 percent at 12,571 while the broader Standard & Poor's 500 futures rose an equivalent rate to 1,326.

Stocks enjoyed some momentum from Wednesday, when Federal Reserve chairman Ben Bernanke indicated that the bank may provide more monetary stimulus if the U.S. economy continues to stall, just two weeks after the second round ended.

"While this may continue to support asset prices in the near term, the potential for greater risks may lie ahead if the economy is unable to achieve self–sustaining growth in the absence of continued stimulus," said Jim Baird, Partner, chief investment strategist for Plante Moran Financial Advisors
Investors are also keeping a close watch on developments in the eurozone, especially on Italy. Earlier this week, worries that Italy and Spain would be dragged into the debt crisis that has already seen Greece, Ireland and Portugal bailed out, hit market sentiment.

However, an acceleration in the Italian government's budget proposals has helped calm tensions somewhat, despite news that the government had to pay a far higher interest rate in a five–year bond auction.
Italy's finance minister has vowed that the austerity measures, which aim to balance the budget by 2014, will get final approval by the lower house of parliament on Friday, as opposed to the earlier plan of sometime in August. The Senate passed the vote Thursday.
The easing in tensions over Europe's debt crisis has been evident in the currency markets. The euro has recovered since Tuesday, when it slid to below $1.39. By mid afternoon, the euro was 0.1 percent higher at $1.4240.

Earlier in Asia, Japan's Nikkei 225 stock average finished down 0.3 percent at 9,936.12, while Hong Kong's Hang Seng index inched up 0.1 percent to 21,940.20. The Shanghai Composite Index climbed 0.5 percent to 2,810.40.

Oil prices hovered near $98 a barrel as traders mulled a possible new round of U.S. monetary stimulus.
Benchmark crude for August delivery was up 53 cents at $98.58 a barrel in electronic trading on the New York Mercantile Exchange. (TMCnet World News)


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