U.S. Equities Rally Despite Drop in Mortgage Applications Last Week

U.S. Session Key Developments

• Global Risk Appetite Returns on European Government Debt Sales
• U.S. Mortgage Applications Decline For First Time in Six Weeks
• Crude Oil Rallies, Gold Dips Slightly on Reduced “Safe-Haven” Demand

U.S. stocks rallied for a fifth time in the past six days despite the first decline in mortgage applications since July. The report, from the Mortgage Bankers Association, showed that mortgage applications fell 1.5 percent in the week ended September 3, while refinancing declined by 3.1 percent and applications for purchases rose 6.3 percent. Despite the bearish news, strength in the European markets helped buoy investor sentiment in the U.S. and push higher. The Dow Jones Industrial Average rallied 46 points on the day to 10387, while the S&P 500 added 7 points to 1098. The main cause for optimism out of the euro region was improved demand for government bonds from Portugal and Poland. Portugal’s sale of bonds due in 2021 attracted bids for 2.6 times the amount offered, much higher than the 1.6 bid/cover ratio of an earlier March sale. Poland’s sale of five-year debt was also surprisingly successful, as the government’s auction attracted the largest demand since 2008. The success of the debt auctions calmed investor nerves over fiscal issues in the euro zone and signaled some sense of stability in the markets. Stock markets in London, Paris, Germany, Spain, and Italy closed higher on the day and helped to push global investor sentiment higher.

On the commodities front, NYMEX crude oil traded 52 cents higher to $74.61 a barrel, the highest closing level since Thursday. COMEX Gold, on the other hand, fell by $2.30 to $1257.00 on reduced demand for its “safe-haven” qualities. Today’s return of risk appetite also translated into currency markets, as the U.S. dollar declined against its major cross-currency pairs. The U.S. Dollar Index fell 0.25 percent to 82.609, its sixth consecutive close below the 83 level.

DJIA 30 / 10387.01 / +46.32 / +0.45%

The Dow Jones Industrial Average rallied for the first time this week as 23 of the 30 index stocks closed higher on the day. JPMorgan Chase was the index leader, rallying 2.1 percent on the day, while aluminum giant Alcoa and Bank of America rose at least 1.7 percent each. The biggest laggard among the bluechips was Hewlett Packard, which dipped nearly 2.8 percent after being downgraded by UBS due to “weak PC demand.”

Dow Jones Industrial Average

Prepared by James Russell, DailyFX Research

S&P 500 / 1098.87 / +7.03 / +0.64%

The broad-based S&P 500 gained over 0.6 percent as financials, industrials, and energy shares gained nearly 1 percent each. Goldman Sachs contributed heavily to the gain in financial shares, as the bank’s stock rose 1.6 percent on news that KKR and Perella Weinberg are interested in the firm’s Principal Strategies team. Other financial shares posting strong days included Wells Fargo, Morgan Stanley, and Berkshire Hathaway, whose shares gained at least 1 percent each. Industrials, on the other hand, were led by 1 percent gains in General Electric, Boeing, and Caterpillar.

NASDAQ / 2228.87 / +19.98 / +0.90%

The tech-heavy Nasdaq posted the largest gain among major U.S. indices, as shares of Apple rallied nearly 2 percent on the session. Apple, the most heavily weighted shares on the Nasdaq, had its share-price and profit estimates increased at UBS due to increasing demand for the company’s products. The share-price was increased from $340 to $350, while the EPS estimate for 2011 rose from $16.62 to $18.09.

Notable US Event Risk / Economic Releases

Written by James Russell, DailyFX Research

Please send any questions or comments to JRussell@fxcm.com