By Shani Raja and Adria Cimino - Sep 26, 2011 6:39 PM GMT+0700
Sept. 26 (Bloomberg) -- Paul Hickey, co-founder of Bespoke Investment Group, talks about the outlook for U.S. markets, commodities, and Europe's debt crisis. Hickey speaks with Deirdre Bolton and Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Sept. 26 (Bloomberg) -- Eswar Prasad, a professor at Cornell University and a former head of the International Monetary Fund’s financial studies division, talks about the outlook for the global economy. Euro-area countries will do whatever is necessary to end the crisis and ensure the financial stability of the entire euro area and its members, the IMF said in a statement after its meetings in Washington on Sept. 24. Prasad speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
U.S. stock futures rallied, indicating the Dow Jones Industrial Average may rebound from the biggest weekly decline since October 2008, as investors weighed policy makers’ response to Europe’s debt crisis.
General Electric Co., the world’s biggest maker of jet engines, and Alcoa Inc., the largest U.S. aluminum maker, increased at least 1.4 percent in early New York trading. Bank of America Corp. and JPMorgan Chase & Co. climbed more than 2.5 percent to pace an advance in banks.
Standard & Poor’s 500 Index futures expiring in December climbed 1.6 percent to 1,148 at 7:38 a.m. in New York after earlier falling as much as 1.3 percent. Dow average futures advanced 137 points, or 1.3 percent, to 10,834.
Finance ministers and central bankers urged European officials to intensify efforts to contain their 18-month debt crisis as Greece teetered on the edge of default. Bank of Canada Governor Mark Carney estimated 1 trillion euros ($1.3 trillion) may have to be deployed. U.K. Chancellor of the Exchequer George Osborne said a solution is needed by the time Group of 20 leaders meet in Cannes, France, on Nov. 3-4.
“The market is already pricing in a Greek default,” Jack Ablin, who helps oversee $55 billion as chief investment officer for Chicago-based Harris Private Bank, said in a telephone interview. “If we don’t see any chips falling, investors will be pleased. This market is starting to get cheap.”
‘Strongly Support’
The International Monetary Fund said it is ready to “strongly support” European nations in their efforts to resolve the region’s sovereign debt crisis. Euro-area countries will do whatever is necessary to end the crisis, the fund said in a statement after its meetings in Washington on Sept. 24. European Central Bank policy makers are likely to next week debate restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said.
The Dow last week sank 6.4 percent, its biggest loss in almost three years, as the Federal Reserve said risks to the U.S. economy had increased and Europe’s debt crisis went unresolved.
The Morgan Stanley Cyclical Index of companies most-tied to economic growth lost 11 percent last week as all 30 of its stocks retreated. The Dow Jones Transportation Average, also considered a proxy for the economy, slumped 9.6 percent. Both gauges fell the most since March 2009.
GE rose 1.4 percent to $15.43 in pre-market trading. Alcoa added 2.5 percent to $10.32. JPMorgan climbed 2.7 percent to $30.38 and Bank of America increased 3.3 percent to $6.52.
Purchases of new houses in the U.S. probably declined in August to the lowest level in six months as buyers sought cheaper distressed properties, economists said before a report today. Sales fell 1.3 percent, a fourth consecutive drop, to a 294,000 annual pace, according to the median estimate in a Bloomberg News survey of 59 economists.
$1 Trillion Erased
Last week’s rout erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The S&P 500 slumped 17 percent between April 29 and Sept. 23. The index’s gain since March 2009, when the last bear market ended, has been cut to 68 percent. The benchmark gauge for American common equity is trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, according to data compiled by Bloomberg.
Stocks are having the worst quarter on record relative to U.S. Treasuries and gold, which may force investors to buy equities to rebalance their allocations, JPMorgan Chase & Co.’s Marko Kolanovic said. U.S. and emerging-market equities have returned 43 percentage points less, the most during a quarter since at least 2002, according to data compiled by Kolanovic, whose analysis is based on a model portfolio composed of stocks, bonds and gold.
“This underperformance may trigger significant quarterly rebalance flows into equities and out of Treasuries at the end of next week,” Kolanovic, the New York-based global head of equity derivatives strategy at JPMorgan, wrote in a note to clients last week.
To contact the reporters on this story: Shani Raja in Sydney at sraja4@bloomberg.net; Adria Cimino in Paris at acimino1@bloomberg.net
To contact the editors responsible for this story: Andrew Rummer at arummer@bloomberg.net; Nick Gentle at ngentle2@bloomberg.net
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