US Equities Markets

At the close: Dow: 10,363.02 (up 146.75 or 1.4%); S&P 500: 1,095.34 (up 16.59 or 1.5%); NASDAQ: 2,242.03 (up 43.67 or 2.0%).

The three major US equities benchmarks booked good gains in Tuesday trading, after trending higher over the course of the day. The NASDAQ led the way up with a 2.0% interday rally. With investors more focused on the unfolding June quarter reporting season, which has got off to an alright start, a higher than expected trade deficit failed to cause a stir. However, the subdued economic activity numbers coming out of Europe of late and a stronger greenback open the door to a further worsening in this stat over coming months.

Not surprisingly, all 10 of the S&P 500’s broad industrial sectors made positive contributions on the day. The best performers on a percent movement basis were Financials (+2.5%), Consumer Services (+2.1%) and Basic Materials (+2.0%). The latter segment’s solid showing was underpinned by buying in Alcoa Inc, which unveiled a better than expected June quarter result after markets closed on the Monday. After normal trading concluded, Intel Corp unveiled a better-than-expected quarterly result, which includes record second quarter sales levels. Its sales guidance for the current three-month period was also well-received. Key stocks taking the Dow higher over Tuesday business were Caterpillar, IBM and Chevron Corp (with the latter helped by a good jump in crude oil prices). The only Dow stock to fall on the day was Pfizer Inc.

US Treasuries
US Treasuries were sold off by 2-6 basis points in Tuesday trading. The 10-year Treasury note yield increased for a fifth successive trading day, as US bourses rallied and the market digested a US$21B 10-year note auction (that went at 3.119%, up on expectations of 3.109%). Indirect bidders (the grouping that includes overseas central banks took around 41% of the auction.

Commodities
Crude oil prices bounced to two-week highs in Tuesday New York trading as buyers stepped up to the plate in the wake of the better than expected Alcoa Inc June quarter result. Adding to the air of optimism, the International Energy Agency (IEA) upgraded its projection for 2011 global oil demand (it was boosted by 1.6%). The agency’s 2010 forecast was left unchanged at a gain of 2.1%. The IEA expects to see increased fuel efficiency in OECD countries over 2011. It also stated that OPEC compliance with its supply constraints slipped in June, as higher production from Nigeria and Saudi Arabia made up for reductions from the United Arab Emirates, Iran and Venezuela. Prices were little changed in after hours trading by news that the American Petroleum Institute-compiled inventories data included a slight increase in crude oil stockpiles.

All the major metals – both base and precious – booked gains in Tuesday US and European markets. Base metals got a kicker from the Alcoa quarterly result and accompanying outlook statement – although copper is still some 9% below where it ended 2009. Gold prices rallied on hopes that a recovery in the global economy would be delivered, which would in turn underpin demand for commodities. The value of the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, edged higher on Monday, with the 0.3 tonne gain reported the first since 29 June.

European bourses
European bourses also recorded good gains over their Tuesday sessions, with most going higher for a sixth consecutive trading day. The OMX Stockholm 30 benchmark won the “star of the day” prize, with a 3.0% rally, lead by buying in Nordea Bank AB and Ericsson. A positive start to the US second quarter reporting period helped, as too did an upgraded 2010 earnings guidance by Bayerische Motoren Werke AG. BP Plc advanced after installing a new cap on its leaking oil well in the Gulf of Mexico and reports that Abu Dhabi was considering making an investment in the company. Investor sentiment was helped by pledges by European Commission officials that there would be “maximum transparency” on bank stress tests when they publish results bank by bank on 23 July. These will be issued on a consolidated basis (that is, at group level) including foreign branches and subsidiaries. National authorities may then publish further data related to cross-border bank subsidiaries about two weeks later. In other banking related news, hopes are rising that euro-zone banks could win a reprieve in Basel, Switzerland, this week as regulators from 27 countries thrash out new capital rules. The Stoxx Europe 600 rallies by 1.9% in Tuesday trading, with both its Industrials and Financials segments enjoying 2%+ interday gains.

Currencies
The US$ retreated to a two-month low against the euro in Tuesday New York trading, as a solid start to the June quarter US reporting season plus rallying US and European stock markets lessened demand for safe haven currency plays. News that Greece had got away a 1.625B euro 26-week Treasury bill raising at 4.65% also bolstered euro buying. This after the euro was initially sent on the back foot though by a Moody’s Investors Service announcement that it had reduced Portugal’s credit rating by two notches to A1. The pound managed its first rally against the greenback in four trading days after June UK CPI data hinted at a slowing in inflation (the annual increase in June was 3.2%, versus 3.4% in May). After bouncing either side of US$0.87 in early Tuesday UK trading, the A$/US$ rate then commenced an inexorable climb, as first European then US bourses booked good rallies. Increases seen in commodity prices also gave the Aussie a boost. It has started our Wednesday around US$0.883, a high last seen in mid-May.

Economic Releases
May Trade Deficit. The US trade deficit increased by a higher than expected 4.8% to US$42.3B in May, as imports rose by 2.9% (economists were forecasting a slight decline in the deficit to around US$39.0B). This was also the biggest trade shortfall reported in 18 months. The automobiles, pharmaceuticals, toys and clothing categories bolstered the imports side of the ledger. The politically sensitive trade deficit with China increased to US$22.3B in May, from US$19.3B in April, taking it toward highs last seen in October. Imports from fellow BRIC economy India hit all-time highs in May. Exports still went 2.0% higher, headed by gains across the industrial materials, business equipment and semiconductors segments. The inflation-adjusted trade balance, the number used in GDP growth calculations, increased to US$46B in May, up on the US$42.3B monthly average recorded in the March 2010 quarter (a negative contribution to June quarter GDP by net exports is now on the cards).