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US: the rally has legs

Dmitriy Simonyan, Analyst, Global Markets (Finam)

On Friday, May 17, key macro data reflected growth potential of the US economy and the preliminary estimate of the current consumer confidence of Americans.

Overall, economic data turned out to be fairly positive. In particular, the Index of Leading Indicators, which also tracks new production orders for goods and supplies and forecasts changes in the economy over the next 3-6 months, grew 0.6% in April against the forecast 0.2% and after having been revised from 0.1% to 0.2% in March. This gauge shows the US economy stands a chance to expand and become more stable while recovering in the second half of the year despite a number of pessimistic forecasts that predict an economic slowdown because of fiscal toughening since the beginning of the year, which should produce an effect with a certain delay.

The preliminary reading of the University of Michigan Consumer Sentiment Index, in turn, improved in May to 83.7, the highest level since July 2007, against the forecast 77.9 and after 76.4 in April. Optimism of American consumers grew substantially after a steep drop in gas prices in recent weeks and stability on stock markets.

Robust economic data helped all three benchmarks head steadily north throughout the session and chalked up gains for both the day and the week (the fourth straight week of gains). In addition, the Dow and the S&P 500 Index again hit fresh records at the closing, while the Nasdaq Composite Index closed at a record high since October 2000.

More on the benchmarks, the Dow Jones Industrial Average advanced 0.80% to 15,354.40, up 1.6% on the week. The Standard & Poor's 500 Index gained 0.95% to settle at 1,666.12, a weekly gain of 2%. The Nasdaq Composite Index ticked up 0.97% to 3,498.97, up 1.8% on the week.

In the blue-chip universe, most plays (23 of 30) finished in the black, with the gains led by financial heavyweight JPMorgan Chase (+2.61%), flagship airplane maker Boeing (+2.42%) and software leader Microsoft (+2.32%). The day’s top decliners were pharmaceutical giants Pfizer (-0.99%) and Merck (-0.82%), and also the globe’s leading discount retailer Wal-Mart Stores (-0.80%).

In other news, leading microchip maker AMD gained 6.3% on Friday and partly offset heavy losses sustained on Thursday after Goldman Sachs downgraded the stock from Neutral to Sell.

Leading US auto producers General Motors and Ford jumped 3.2% and 3%, respectively, on higher auto sales in the EU in April compared to the previous year, for the first time since September 2011.

Online trading software supplier Salesforce.com added 1.4% to its market cap after being upgraded at Wedbush, which notes the company’s strong outlook.

No. 1 US gold producer and the only S&P 500 gold company Newmont Mining retreated 2.6% on lower production, higher costs and a drop in gold prices.

Shares of leading wireless network and security system equipment maker Aruba Networks tanked 25.6% on third-fiscal-quarter losses of USD 20.2 mn.

In commodities, gold futures for June delivery closed down USD 22.20, or 1.6%, at USD 1,364.70/oz in the COMEX section of NYMEX.

The metal’s appeal as an anti-inflation tool and a safe heaven decreased as the ICE US Dollar Index improved nearly to a 3-year high and US equities posted robust gains. On the whole, during the week marked by steady losses, the metal lost 5%.

June light, sweet crude rose 86 cents or 0.9% to USD 96.02/bbl on NYMEX.

The price of oil rose on encouraging economic data stateside, showing energy demand could grow. However, an increase in crude futures was capped as the dollar rose against all rival currencies. Against the final price last Friday oil futures ended nearly flat, down just 2 cents.