Domestic shares up on firm global cues

MUMBAI (Makemystocks): Domestic shares are trading higher on Thursday on the optimistic about global economic growth prospects after some strong economic data.

Wall Street started the month of September with a bang with all the three key indices rising nearly 3%.

Among the key data to boost sentiment was the strong manufacturing data in China, bigger-than-expected rise in Australia's second quarter GDP and the manufacturing data in the US. Stocks started the day on a high note after taking cues from the manufacturing data in China and GDP data from Australia.

The jobs report from ADP was disappointing but this was largely ignored. Then came the manufacturing data from US, which unexpectedly rose when economists were pencilling in a drop.

There were some dim spots with construction spending falling more-than-expected, and motor vehicle sales falling sharply but amid the optimism over global growth, this was all ignored.

The dollar fell as risk appetite got a boost, and as a result base metals and crude oil posted strong gains, and with them rose stocks associated with the commodities. The rally saw all the 30 Dow stocks end in the green, while all the 10 major S&P sectors ended higher.

ISM PMI UP The Institute of Supply Management's survey on manufacturing activity showed economic activity expanded for the 13th straight month in August. The Purchasing Manager's Index for August came at 56.3 compared with 55.5 in July.

This was much better than economists' expectations of a fall to 52.8. The rise was due to an increase of 2.9 points in production which rose to 59.9 from 57.0, while employment rose to 60.4 from 58.6.

New orders also continued to grow but at a slower pace. Of the 18 manufacturing industries, 11 reported growth in August with primary metals recording the highest growth. Among the comments from participants, a chemical products business said, "International sales are especially strong. Domestic business is solid." A primary metals business said, "Orders and business still strong.

"PRIVATE JOBS DOWN Private sector employment fell by 10,000 in August compared with July, the latest ADP National Employment Report showed. The fall was surprising given economists had expected a small gain. The gain in the previous month was also revised downwards to an increase of 37,000 from a gain of 42,000 reported earlier.

The decline is the first one since January this year, with the average monthly gain in the past six month coming to 37,000. Employment in the service-producing sector rose by 30,000 but the overall decline was due to a fall of 40,000 jobs in the goods-producing sector.

CONSTRUCTION SPENDING DOWN Construction spending fell 1% in the month of July to $805.2 billion from June's revised estimate of $813.1 billion. The fall was biggest than consensus for a 0.5% drop with both private and public construction contributing to the decline.

Private construction fell 0.8% as a 2.6% drop in residential construction offset a 0.8% rise in non-residential construction spending. Public construction spending fell 1.2% largely due to a 2.9% drop in highway construction.

AUTO SALES DOWN Motor vehicle sales came at a seasonally adjusted annual rate of 11.47 million units, which was lower than expectations for 11.6 million units. Sales of automakers fell 21% to 997,468 units to mark the weakest August sales in 27 years. The rate of fall from a year ago was, however, exaggerated by the impact of cash-for-clunkers programme.

Analysts noted that the only retail segment which was unaffected by the government programme was luxury vehicles and this was up from the year before.

YIELDS SURGE Treasury prices fell and yields rose sharply mainly at the long end as an unexpectedly strong manufacturing data in the US and China, and strong GDP data in Australia allayed concerns about global growth. The two-year yield rose 3 basis points to 0.50%, the five-year yield added 7 basis points to 1.40%, the 10-year yield rose 10 basis points to 2.57%, and the 30-year yield rose by a sharp 13 basis points to 3.65%.

STOCK PRICES Burger King shares rose by a sharp 14.6% on reports the company is in talks for a sale. Reuters later reported that the company may be selling itself to investment firm 3G Capital. Commodity stocks posted strong gains following rise in metals prices and on optimism over demand.

Freeport-McMoRan rose 5.8%, US Steel rose 4.5% and Dow Chemical gained 5%. DOLLAR The dollar fell to near two-week low against the euro, and was down 0.7% against the sterling but rose 0.3% against the yen. The dollar index fell 0.9% to 82.47. The greenback fell against the euro and pound after strong economic data raised investor risk appetite, prompting them to sell out of the safe haven appeal of the dollar.

The sterling rise came despite disappointing manufacturing data in the UK but this was reflected in its drop versus the euro. Crude oil rebounded from a sharp fall in the previous session, to post nearly 3% gains as worries about sharp slowdown in global growth waned after strong manufacturing data from China, strong GDP numbers from Australia and better-than-expected manufacturing data in the US. Crude oil rose 2.8% to $73.91/barrel.

Oil rose despite largely disappointing weekly data from Energy Information Administration which showed petroleum stockpiles rose to 1.143 billion to the highest level since at least 1990. In the latest week, crude oil inventory rose by 3.4 million barrels though this was slightly better that the 4.8 billion rise showed in the American Petroleum Institute report.

METALS After rising to two-month highs in the previous session, gold prices fell as rally in stocks and optimism over global economy reduced its safe haven appeal. Gold fell 0.4% to $1,245.80/ounce and silver eased 0.2% to $19.37/oz.

Base metals ended sharply higher supported by strong economic data in the US, China and Australia. The rise saw copper gain to over four-month highs. The weakness in the greenback also helped the rally in metals. Copper rose 2.8%, zinc rose 3.2%, aluminium rose 3% and tin rose 2.7%.

AFTER HOURS The Fed should only embark on additional monetary stimulus if deflation forces its hand, Philadelphia Federal Reserve Bank President Charles Plosser said in an interview published by Reuters.

Lowering long-term interest rate further is not going to solve the unemployment problems and it is dangerous to think that it will, Plosser said.

LATER TODAY-- Weekly Jobless Claims.-- Nonfarm Productivity and Labor Costs for 2Q.-- Factory Orders for July.