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Date Posted: 11:56:50 05/18/13 Sat
Author: Friday May 17, 2013==US
Subject: U.S. Stocks in Broad Rally, Fueled by Strong Economic Data

ASIAN MORNING BRIEFING: U.S. Stocks in Broad Rally, Fueled by Strong Economic Data
18/05/2013 7:31AM

DJIA 15354.40 121.18 0.80 %
Nasdaq 3498.97 33.72 0.97 %
S&P 500 1667.47 17.00 1.03 %
FTSE 100 6723.06 35.26 0.53 %
Xetra DAX 8398.00 28.13 0.34 %

2Y Tsy 99 24/32 -1/32 0.246% +1.7
10Y Tsy 98 6/32 -25/32 1.951% +8.7

USD/JPY Japan 102.24-29 +0.93%
Range 103.30-102.10
EUR/USD Euro 1.2881-83 -0.37%
Range 1.2890-1.2798
AUD/USD Australia 0.9807-11 -0.71%
Range 0.9830-0.9712

Comex Gold $1,364.70 -$22.20
Comex Gold Range $1,353.60-$1,391.30
Nymex Crude (NY) $96.02 +$0.86
U.S. SUMMARY:
STOCKS:

The Dow Jones Industrial Average climbed 121.18 points, or 0.8%, to 15354.40. A surge higher in the final hour of trading, which has been a familiar pattern during the market's extended rally, propelled the Dow to its third record close in four sessions.

The Standard & Poor's 500-stock index rose 15.65 points, or 1%, to 1666.12, and the Nasdaq Composite Index advanced 33.72 points, or 1%, to 3498.97.

The S&P 500 rose 2% this week, the fourth-straight weekly gain, as the market shrugged off Thursday's biggest one-day decline in the benchmark indexes since May 1.

The dollar rose above 103 yen for the first time in four years. Treasurys declined, pushing the yield on the 10-year note to 1.95%.

A preliminary reading of the Thomson-Reuters/University of Michigan consumer-sentiment index for May rose more than expected, giving a boost to Friday's market rise. And the Conference Board's Leading Economic Index for April increased, exceeding forecasts.

The strong data helped the more economically sensitive sectors, such as energy, industrials and financials, pace the market's gains. Banking firm J.P. Morgan Chase and aerospace company Boeing were the top advancers within the Dow.

Any sign of improvement in the U.S. economy adds to expectations that the Federal Reserve can begin to phase out its bond-buying program. Friday's reading on consumer sentiment, coming on top of signs that a debate is heating up within the central bank, helped buoy the dollar and weigh on Treasurys.

One of the features of the market's rally has been the recent outsize gains seen in stocks that had previously been favorites of short sellers, or those who make bets that stocks will fall.

FOREX:

The dollar extended its broad rally Friday after a report showed consumer sentiment rose more than expected in early May.

The Thomson-Reuters/University of Michigan early-May consumer-sentiment index jumped to 83.7, its highest level since 2007. The strong data bolstered expectations that the Federal Reserve will be able to start winding down its bond-buying program this year, backing away from an exceptionally easy monetary policy stance that has weighed on the dollar.

The dollar rose above 103 yen for the first time since October 2008 after the data's release. The euro and Swiss franc both fell to six-week lows against the U.S. currency. The Australian dollar extended its week-long decline, dropping below $0.98 for the first time in 11 months.

"This certainly has the makings of a sustainable dollar rally," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.

The Wall Street Journal Index, which measures the value of the dollar against a basket of currencies, rose to 75.793, its strongest level since June 2010.

A separate report Friday from The Conference Board showed that its index of leading economic indicators increased 0.6% last month, twice as much as economists had expected.

Markets are focused on when the Fed will begin tapering its bond purchases, and any sign of improvement in the U.S. economy adds to expectations that the central bank can begin to phase out its stimulus program. Several Fed speakers have aired their views on the issue in recent speeches, suggesting a debate is heating up within the central bank.

San Francisco Fed President John Williams on Thursday reiterated his view that the asset purchase program could be reduced within the coming three months, as long as the economy continues to improve. Investors will likely get more clarity on the Fed's thinking when the central bank releases the minutes from its April 30-May 1 meeting next Wednesday.

Investor confidence in the dollar's recent rally was temporarily jolted Thursday when economic reports showed consumer prices fell more than expected last month, housing starts dropped and weekly jobless claims rose. But traders say that despite those setbacks, the outlook for the U.S. economy remains brighter than other developed economies.

The dollar ended the New York session at 103.24 yen, up from Y102.24 late Thursday. The euro was at $1.2838 from $1.2880.

Against the Swiss franc, the dollar rose to a nine-month high, last trading at CHF0.9723 from CHF0.9647. The U.K. pound fell to $1.5172 from $1.5262.

BONDS:

Treasury bonds sold off Friday, pushing up the benchmark 10-year note's yield toward 2%, as anxiety mounted that the Federal Reserve would reduce its bond-buying spree in coming months.

The price weakness capped a third straight weekly loss for the bond market ahead of Fed Chairman Ben Bernanke's testimony before lawmakers next Wednesday.

Mr. Bernanke could spark further selloff or stem the bleeding in the bond market depending on how he casts his stance on the monetary stimulus outlook, traders said.

The benchmark 10-year Treasury note fell by 25/32 in price, pushing up its yield to 1.951%. The yield rose about five basis points for the week. Bond prices move inversely to their yields.

The central bank's steady purchases--$45 billion per month in Treasury bonds since the start of the year--have been a major factor holding bond yields near historic lows. The Fed has $1.86 trillion in Treasury bonds, the world's biggest holding of U.S. government debt.

Investors are worried that bond yields could jump if a major buyer retreats at a time when riskier assets have provided much higher returns. U.S. stocks have hit record highs this month.

Debate about when the Fed will start removing its punch bowl has grown for months. But the angst intensified over the past week following a story in The Wall Street Journal that the central bank has mapped out an exit strategy for its unconventional monetary stimulus

A further boost on the anxiety came Thursday afternoon from Federal Reserve Bank of San Francisco President John Williams who believes that the central bank may taper buying Treasury bonds as soon as this summer.

Mr. Williams, who doesn't vote on interest-rate policy this year, had advocated for more monetary stimulus to support the economic growth, a stance known as being an interest-rate "dove." Thursday's comment indicated a significant shift in his stance toward the "hawk" camp--where some Fed officials have pushed for the withdrawal of monetary stimulus to prevent inflation risks in the longer term.

Friday's data, which added to the selloff in Treasury bonds, supported bond bears' views that it is time for the central bank to cut back on monetary stimulus.

A gauge of U.S. consumer sentiment hit the highest level since July 2007. A measure of U.S. growth momentum in the coming months posted the biggest increase since February 2012.

After falling to this year's low of 1.61% on May 1, the 10-year note's yield has climbed, touching a two-month peak of 1.985% on May 15.

Mr. Bernanke next week will be a major factor shaping the fortune of bond investors.

Some traders remain skeptical that the Fed will move to cut back on bond purchases before the end of the year as the economic outlook remains uncertain.

Bond prices rallied in the previous two sessions fueled by disappointing economic releases. Manufacturing activity in both New York and Mid-Atlantic regions fell, factory orders dropped while initial jobless claims rose.


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ASIA-PACIFIC - SCHEDULE OF MAIN EVENTS (times in GMT):

Monday, May 20, 2013
0230 Thailand Q1 GDP
GDP % Chg on Qtr
GDP % Chg on Year
GDP Full Yr % Chg
GDP Half Yr % Chg
0500 Japan March Indexes of Business Conditions - Revision
0530 Japan April Nationwide department store sales
0530 Japan April Tokyo area department store sales
0600 Japan April Revised Machine Tool Orders
On Year
0800 Taiwan April Export Orders
Exports % Chg on Year
Exports Total
0820 Taiwan Q1 Balance of Payments
Current Account, USD
0830 Hong Kong April Unemployment
3 Month % (S.Adj.)
0830 Hong Kong April Underemployment
/A Japan May Monthly Economic Report
/A India Chinese Premier Li Keqiang continues visit to India
/A India April CPI AL/RL (Agricultural/Rural Labourers)


G7 POLITICAL - SCHEDULE OF MAIN EVENTS (times in GMT):

Monday, May 20, 2013
1230 US April Chicago Fed National Activity Index
National Activity Index
3 Month Moving Average
1700 US Chicago Fed President Charles Evans speech at CFA Society
Chicago event
N/A Germany Germany: Whit Monday
N/A US Obama meets Myanmar President at the White House
N/A US San Francisco Fed President John Williams gives Berkeley
(MORE TO FOLLOW) Dow Jones Newswires

May 17, 2013 17:31 ET (21:31 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

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