Markets Get Back to Work

Summer is over on Wall Street and Politicians are back in Washington. Time for markets to get back to work.

Extending on two days of gains before the long weekend, equity futures are looking higher on Tuesday with the benchmark S&P a full 1% up. Globally, equity markets were in the black across the board, including a 2.14% advance in Hong Kong’s Hang Seng and a 1.71% gain in China’s Shanghai index. The gains seem likely to hold for the day as only one macroeconomic release, consumer credit, is on the schedule today.

Plus, multiple factors are responsible for the broad gains. Kraft's proposed $16.7 billion cash-and-stock bid for Cadbury helped boost UK markets, while UK industrial production numbers more than doubled expectations with a 0.5% gain. Germany’s trade surplus was also bigger than anticipated, and Swiss unemployment rose less than expected to 4.0%.

In Asia, the People’s Bank of China Vice Governor Su Ning said that monetary policy would continue to be “appropriately loose.” In addition, Japan’s trade surplus expanded more than forecasters had assumed.

“While the S&P 500 has surged about 50% since March, valuations are not stretched, but rather reflect a re-normalizing of the depression-risk pricing seen at the height of the crisis,” said Robert Kavcic from BMO Capital Markets. He added that  “factors working against stocks are mostly short-term in nature” while “supports appear more fundamental and long lasting.” 

With appetite for equities growing, taste for the safe haven US dollar is softening. The US$ index hit its lowest level since October this morning, while 1% gains were seen in the euro, yen and pound. Meanwhile, China plans to “improve the international status” of the renminbi by offering $879 million of bonds at the end of the month. “China will issue sovereign bonds denominated in its own currency to offshore investors for the first time this month – a crucial step towards making the renminbi a global currency,” according to the Financial Times. 

BMO’s Benjamin Reitzes also notes that rising commodity prices are also boosting equities. “Oil is up 2.3% to $69.50, spot gold is up $10 to $1,005 (its first move above $1,000 since February), base metals are very strong rising 2%-5%, while grain prices mostly higher.”

Treasuries, contrary to trend, continue to rally with the 10-year yield down a few points to 3.42%, ahead of two auctions later this morning.

Key Releases This Week:

Tuesday:

2:00 â€