Wall Street futures contracts indicated that US equity markets were poised to open higher this afternoon despite the release of worse-than-expected first-quarter US GDP data.

By 1.40pm (London time) June Dow futures were trading 0.44% above fair value at 8421 and June S&P 500 contracts were trading 0.51% higher at 906.63 in spite of an official report showing a 5.7% annualised contraction in US Gross Domestic Product (GDP).

That result was worse than Bloomberg’s expectations for a 5.5% first-quarter annualised drop but at least better than preliminary first-quarter estimates pointing to a 6.1% decline and the prior quarter’s 6.3% annualised slump.

It appears as if the view on the market hasn’t changed much from this morning, as least for the time being; improvements across wider global macroeconomic fundamentals appear to be the driving force behind equity market gains so far, with better-than-expected Indian GDP and Japanese industrial output data, as well as a surprise increase in UK house prices continuing to point to a recovery in the global economy.

Later, at 2.45pm, the Chicago Purchasing Managers Index (PMI) is scheduled for release. According to Bloomberg’s median estimates, the gauge is expected to rise to a reading of 42 in May from 40.1 the month before. In the meantime, the University of Michigan consumer sentiment index will be published at 3pm today. Bloomberg expects the gauge to rise to a reading of 68 this month from 67.9 in April. It will be interesting to see how this batch of data influences equity markets.

In the meantime, Dell, the world’s second-largest computer maker, gained 0.78% to $11.57 during premarket session today after topping analyst earnings expectations.

The company posted first-quarter earnings of 24 cents a share (excluding certain one-off restructuring costs), which narrowly beat Reuters’ average estimate of 23 cents a share. Net income, meanwhile, declined 63% from a year ago to $290 million, or 15 cents a share. First-quarter revenues were also weaker, down 23% to $12.3 billion.

‘We don’t believe there’s enough momentum to call a bottom yet,’ Dell’s Chief Financial Officer Brian Gladden said on a conference call. He added that there was ‘no real improvement’ in business conditions in May.

There was some hope, however, as Mr Gladden said: ‘We’re preparing for what we believe will be a powerful replacement cycle. There’s a number of other factors that could ignite a powerful refresh cycle and that’s what we’re playing for.’ [1]

Microsoft also made the headlines today, announcing a new internet search engine called Bing. It appears as if the software giant is now trying to counter the dominance of Google in web search and advertising space.

Microsoft, which has been testing the search engine internally under the name of Kumo for several month now, plans to introduce the new service, in the next couple of days.

[1] Source: Reuters News (29 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

The Dow Jones opened higher today after durable goods and initial jobless claims figures beat expectations. However, gains were later relinquished on the back of reports showing that new home sales trailed expectations and mortgage delinquencies surged to record levels in the US.

Investors looked at macro data for reassurance, only to find that underlying fundamentals are still far too weak.

The market reacted positively to the first batch of data, which showed orders for US durable goods unexpectedly surged in April. Manufacturer orders for long-lasting goods jumped 1.9% in April to a seasonally adjusted $161.45 billion, substantially better than Bloomberg’s expectations for a 0.5% rise following the prior month’s revised decline of 2.1% (the drop in March originally came in at 0.8%).

A rebound in automobile demand and defence spending was the main impetus behind the rise in latest figures.

Durable goods, excluding transportation equipment, rose 0.8% in April, also beating Bloomberg’s median forecast for a 0.3% fall. But the data for March was revised to show a 2.7% decline (unrevised -0.6%). In addition, orders for non-defense capital goods excluding aircraft, a gauge for future business investment, plunged 1.5% after a 1.4% decrease the month before.

Weekly jobless claims data was also released this afternoon. The report essentially indicated a slowdown in the rate of fresh weekly redundancies, a good sign, but at the same time US employers remained reluctant to hire.

The number of Americans claiming first-time unemployment benefits (initial jobless claims) fell 13,000 to 623,000 in the week ending May 23, better than Bloomberg’s expectations for a 3000 drop to 628,000 from an originally reported 631,000 the week before (the prior week was upwardly revised to 636,000).

The four-week moving average for initial jobless claims, which strips out weekly volatility, fell 3000 to 626,750 from 629,750.

However, the number of Americans claiming unemployment benefits for more than one week (continuing jobless claims) surged by 110,000 to a new record high of 6.788 million – the 17th consecutive week in which the figure sets a record.

The US equity market had initially reacted positively to the above data, but at 3pm (London time) sentiment turned after new home sales and mortgage delinquency data disappointed investors.

An official government report stated that purchases of new homes in America rose 0.3% to an annualised rate of 352,000 in April, substantially trailing Bloomberg’s median estimates for a 1.1% rise to 360,000.

Adding to the concerns was a bleak report from the Mortgage Bankers Association (MBA), which revealed that delinquencies and foreclosures rose to record levels in the first quarter of this year.

According to the institution, the US delinquency rate jumped to a seasonally adjusted 9.12% and the share of loans entering foreclose rose to 1.37%. ‘If people don’t have a pay cheque they can’t support a mortgage,’ said Jay Brinkmann, MBA’s chief economist. ‘The longer the recession lasts the more people run through their savings reserves, leading to higher delinquencies and higher foreclosures.’ [1]

By 2.35pm (London time) the Dow Jones Industrial Average had fallen 26.36 points (-0.32%) to 8273.66, while the S&P 500 had delinked 2.03 points (-0.23%) to 891.03. The Nasdaq was also in the red, down 5.63 points (-0.40%) to 1396.25.

House builders were, unsurprisingly, among the worst performers on Wall Street this afternoon, with DR Horton down 5.4% to $8.72 and Centex Corp 5.7% lower to $8.44. Lennar Corp had declined 6.4% to $8.77.

US banks were more resilient to the bleak housing market news, with Bank of America rising 1.9% to $11.12 and Wells Fargo advancing 0.25% to $24.14. JPMorgan Chase climbed 4.15% to $36.10 and Goldman gained 2.2% to $143.1, while Citigroup remained unchanged at $3.70.

[1] Source: Bloomberg News (28 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

An uninspiring opening on Wall Street has done little to energise international markets.

At 4pm (London time) the Dow Jones is down 35.36 points (0.42%) to 8438.13 and the S&P 500 is virtually flat, down 0.59 points (0.06%) to 909.74. The FTSE, after a day of little movement, remains up only 4.92 points (0.11%) at 4416.64.

This afternoon, GM stands as the only major mover on the Dow Jones, down $0.17 (11.81%) to $1.27. The company’s future became even more uncertain today, as bondholders rejected part of the company’s restructuring plan. A possible sale of the European arm of the company this week will most likely have a large effect on the stock, as well as on the international market as a whole.

However, positive news regarding US home sales may have an impact on Wall Street as it picks up energy later in the day. Purchases increased 2.9% to an annual rate of 4.68 million, up from 4.55 million in March. Low-mortgage rates, tax credits, and falling prices appear to have attributed to the increase.

In the UK, the hedge fund manager Man Group is among the big risers on the FTSE 100, up 12.5p (5.27%) to 249.75p, and was closely followed by another financial company, savings group Old Mutual, which is up 2.8p (3.99%) to 72.9p. The latter rose after the news that it has cancelled its plans to acquire Chinese fund management business ABN Amro TEDA Fund Management.

Intercontinental Hotels also performed strongly today, despite Tuesday’s report that their first quarter net profit fell 56% to $27 million. Considering the company’s exposure to the current climate, the announced loss was not as extreme as expected, which boosted investor confidence.

Home Retail Group also performed strongly; it was given a boost by positive performance by its small rivals Topps Tiles, which investors have taken to be a sign of improvement in the sector. Home Retail Group is up 9.25p (4.08%) to 235.75p.

Other retailers did not fare so well. Next and Marks and Spencer both lost ground today, with the former down 5.8p (3.11%) to 1430p, and the latter down 2.25p (0.78%) to 285.5p.

Mining companies also weigh heavily on the losing end. Lonmin is down 46p (3.39%) to 1310p, and Fresnillo is down 20.50p (2.9%) to 687p. However, mining company Anglo American looks to end the day up after significant gains; it is up 51p (3.15%) to 1671p.

The pound had a very good day, rising above $1.60 for the first time since November. The dollar, however, strengthened against the euro, which dropped to $1.3965.

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

US equity markets opened lower this afternoon as a report over fresh missile tests by North Korea added to market tensions. But the negative sentiment that dominated Wall Street at the open didn’t last long.

Stock market confidence took a blow at the start of trading after North Korea fired two more short-range missiles off its east coast today and accused America of plotting against its government. ‘Our army and people are fully ready for battle… against any reckless US attempt for a pre-emptive attack,’ the reclusive country’s state-run news agency said. [1]

Political tensions are perilously escalating amidst a very fragile stage in the stock market cycle – we are at a juncture where investors are questioning whether the global economic outlook is too optimistic and, consequently, whether the equity market rally that began in March has been overdone.

However, by mid-afternoon, a rally had broken out on the S&P and Dow Jones Industrial Average after the release of better-than-expected US consumer confidence and manufacturing data quashed most of those fears.

The Conference Board’s consumer confidence index surged to a reading of 54.9 this month - the highest level since September and substantially better than Bloomberg’s median forecasts for a rise to 42.6 from a revised 40.8 the month before. In addition, the gauge of expectations for the following six months jumped to a reading of 72.3, the highest level since December 2007.

Meanwhile, a separate report from the Federal Reserve Bank of Richmond indicated that manufacturing activity in the region has started to expand. The index for May came in at a reading of four, topping Bloomberg’s expectations for a rise to -6 from -9 in April. Readings below zero indicate that the sector is contracting.

By 3.30pm (London time) the Dow Jones Industrial Average had advanced 135.64 points (+1.64%) to 8412.96, while the S&P 500 had jumped 14.36 points (+1.62%) to 901.36. The Nasdaq, meanwhile, had surged 34.34 points (+2.52%) to 1397.51.

‘We’re seeing signs of improvement in consumer confidence,’ said David Heupel of Thrivent Financial. ‘Investors are looking for early cycle plays, like technology, betting on an economic recovery.’ [2]

Apple was among the best performing technology shares today, surging 5.4% to $129.13 after Morgan Stanley upgraded the iPhone maker from ‘equal weight’ to ‘over weight’ saying the company is emerging as the clear leader in the battle over mobile internet and will see iPhone-driven earnings growth over the next two years. [3]

Banks were also back in demand, with Citigroup up 3.5% to $3.80 and Wells Fargo 2.55% higher at $24.93. JPMorgan Chase, meanwhile, advanced 3.8% to $35.72 after Bloomberg News said the bank stands to reap a $29 billion windfall thanks to an accounting rule that allows it to transform the bad loans it purchased from Washington Mutual into income.

Wells Fargo, Bank of America and PNC Financial Services Group are among the banks that are poised to benefit from takeovers, the financial news provider reported today.

[1] Source: Washington Post (26 May 2009)
[2] Source: Bloomberg News (26 May 2009)
[3] Source: Reuters News (26 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

US equities opened a notch higher today after credit-rating agency Moody’s Investors Service tried to restore confidence in America’s credit rating outlook. Upbeat developments in the retail and banking sectors also benefitted Wall Street, but sentiment continued to remain cautious nevertheless.

Credit-rating agency Standard & Poor’s yesterday downgraded Britain’s economic outlook from ’stable’ to ‘negative’, citing a surge in public debt as a major concern. This development left the market mulling over America’s prospects as well, but Moody’s Investors Service moved quickly to try and restore confidence, saying it is comfortable with the country’s triple-A sovereign rating, but could not guarantee it forever. What remains to be seen, however, is whether Standard & Poor’s and Fitch Ratings share the same opinion.

Elsewhere, in a move to intentionally dampen potentially damaging speculation concerning America’s economic outlook, Treasury Secretary Timothy Geithner informed markets that the government is committed to reducing America’s budget deficit. ‘It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,’ Mr Geithner told Bloomberg Television in an interview last night.

Mr Geithner also said he intends to substantially change the pay-structure of the US banking sector in order to avoid another financial meltdown in the future.

Meanwhile, department store retailer Sears surprised markets today by posting an unexpected first-quarter profit of $34 million as a $107 million reduction in advertising costs and $84 million cut in payroll expenditure countered weaker sales. This compares with a loss of $36 million recorded the year before.

Sears has reported first-quarter total revenues of $10.1 billion, down 9% from the $11.1 billion recorded a year earlier, and unveiled a 7.4% decline in sales at stores open at least a year. The company also said that it managed to extend the maturity of $2.4 billion worth of debt until June 22, 2012. Its shares price was trading 16% higher at $58.17 a share this afternoon.

After excluding some items, Sears recorded a profit of 38 cents a share. Analysts had predicted a per-share loss of 87 cents, according to the average estimate in a Bloomberg survey.

Global clothing retailer Gap also delivered better-than-expected quarterly earnings today. The company said first-quarter profits fell 14% to $215 million, or 31 cents a share, beating Reuters’ average estimates of 30 cents a share. Revenues were also lower, down 7% to $3.13 billion, as operating costs dropped $73 million on the back of aggressive cost cutting. Gap stores, meanwhile, saw a 12% decline in same-store sales over the quarter. That compares with a 7% drop the year before. Gap’s shares rose 1% to $16.15.

Investors will notice that profits are beating expectations, yet revenues are falling on the back of weaker macroeconomic fundamentals. We could see the revenues of retail companies fall further if America’s labour market does not pick up. Given the fact that they can only cut costs by so much, it will only be a matter of time until profitability starts trailing expectations.

The performance of US banks was mixed this afternoon, with Citigroup up 0.3% to $3.73 on the back of reports claiming that the bank is planning to slash costs significantly by integrating its technology infrastructure. The bank’s management is said to believe these efforts could help it save around $1 billion this year.

Bank of America was trading 1.8% lower to $11.17 a share today, while Wells Fargo had slid 0.84% to $24.83 and Goldman Sachs had gained 1% to $138.6.

Elsewhere in the financial sector, MasterCard, the world’s second-largest electronic payments network, is facing a rough patch. Sources have told Bloomberg News the company could lose more than half of a $59 billion portfolio of debit-card users after JPMorgan Chase decided to shift more business to Visa Inc. Shares in MasterCard fell 0.75% to $170.41 while Visa advanced 0.77% to $66.79.

By around 3.30pm (London time) the Dow Jones Industrial Average was up by 23.42 points (+0.28%) to 1367.53 while the broader S&P 500 was 2.55 points (+0.29%) higher at 890.88. It is also worth mentioning that US and UK markets will be closed on Monday.

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

An unexpected flood of negative news from both sides of the Atlantic deflated hopes of an early economic recovery, enticing investors to take profits.

Firstly, the Federal Reserve released a gloomy report last night, indicating that the US economy is likely to sink deeper into a recession this year. The Fed said it expects the US unemployment rate to hit 10% this year and that the economy may shrink between 1.3% and 2% in 2009 – substantially worse than earlier forecasts for a 0.5% to 1.3% contraction. It also said that the recovery in 2010 and 2011 will be slower than initially thought.

The former Fed chairman Alan Greenspan added to the gloomy picture by saying that he sees a bigger capital shortfall in the banking system than reflected in regulators’ stress tests. [1]

Secondly, US weekly jobless claims data released this afternoon continued to point to a weakening labour market. Although the number of Americans claiming first-time unemployment benefits (initial jobless claims) in the week ending 16 May dropped 12,000 to a seasonally adjusted 631,000, the previous week’s figure was upwardly revised to 643,000 from an originally reported 637,000.

In the meantime, the total number of American’s claiming unemployment benefits for more than one week (continuing jobless claims) surged by 75,000 to a new record high of 6.662 million.

It doesn’t end there, however. Credit rating agency Standard & Poor’s revised Britain’s economic outlook from ’stable’ to ‘negative’ today, stating that the country’s triple-A rating was also at risk of a downgrade if it doesn’t sort out its public finances.

The agency said that UK government debt could rise to 100% of GDP by 2013, a level which is inconsistent with a triple-A credit rating. At this juncture, UK public debt stands at around 53% of GDP.

Could the dent in market confidence spell the beginning of a global stock market correction?

By around 3.30pm (London time), the Dow Jones Industrial Average had plunged 149.58 points (-1.78%) to 8272.46, while the broader S&P 500 was knocked 16.56 points (-1.83%) below its previous close to 886.91. Britain’s FTSE 100, meanwhile, was down 134.21 points (-3%) to 4334.2.

Energy shares were among the worst performers so far today, with Exxon Mobil Corp down 1.7% to $68.45 and Chevron 1.9% lower to $64 a share. Schlumberger plummeted 5.8% to $51.84, while ConocoPhillips lost 2.5% to $44.56.

Companies operating in the transportation sector also suffered a heavy blow, with the likes of Union Pacific Corp and DryShips down by more than 4% to $27.97 and $6.28, respectively. Meanwhile, basic materials company Caterpillar plunged 4% to $35.79.

Financial companies, surprisingly, were not hit as hard as expected. Citigroup’s share price traded in a narrow range and swung between gains and losses. By around 3.30pm (London time) Citigroup’s share price was down by 0.27% to $3.68.

Bank of America, meanwhile, also performed relatively well, falling only 0.44% to $11.44. The FT today reported that Bank of America is trying to repay the entire $45 billion worth of TARP aid by the end of the year, offsetting fears that it will be the last bank to repay the government.

In contrast, Fifth Third Bancorp was among the worst performing banks today, tumbling 9.34% to $6.99 after opting to sell $750 million worth of new shares in order to raise the funds required under the stress test.

A few bright spots emerged from the technology sector, however. Computer Sciences rose 6.3% to $39.48 after more than doubling its profits, while NetApp climbed 3.5% to $17.91 after posting earnings that beat analyst expectations. The company also announced that it is planning to acquire Data Domain, a rival data storage company, for $1.5 billion to help its international reach. [2]

[1] Source: Bloomberg News (21 May 2009)
[2] Source: Financial Times (21 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

Banks were the clear winners on Wall Street today, helping the Dow recover from yesterday’s losses after Bank of America surged 7.47%, following news it has raised $13.5 billion in capital through the sale of shares. Miners, led by Alcoa, rose higher too after oil prices touched a six-month high ahead of the crude oil inventories report in the US this morning.

At 3pm (London time) the Dow was up 92.63 points (1.09%) to 8567.48 while the S&P 500 had risen 14.06 points (1.55%) to 922.19. BoA climbed to $12.09 after it said it has successfully raised $13.5 billion by selling 1.25 billion shares at an average price of $10.77 each. [1] BoA decided to raise capital after the recent banking sector stress test revealed the company would need additional cash in order to survive the recession.

Rival Citigroup rose 4.24% to $3.93 while American Express was 2.58% higher at $25.43. Other gainers on Wall Street included General Motors and General Electric, both of which were up 6.3% and 3.5% to $1.35% and $14.18 respectively.

In the mining sector, Alcoa rose 3.93% to $10.06 after oil prices touched a six-month high in anticipation that the Energy Department’s weekly crude inventories report will show a drop of 400,000 barrels in stock piles in the week ending 15 May from the previous week’s 19-year-high figure of 370.6 million, according to a survey of 12 analysts polled by Bloomberg.

As a result, Brent crude oil futures rose 0.75% to $59.36 a barrel while US crude climbed 1.10% to $60.76 a barrel.

Back on the Dow Jones, losers included Hewlett-Packard, down 3.91% to $35.15; Home Depot, down 0.53% to $24.50; Pfizer, which fell 0.25% to $15.06 and Coca Cola, down 0.02% to $46.63.

At home, the FTSE 100 was led higher by the mining sector, with Lonmin, Fresnillo, Rio Tinto, Vedanta Resources and Petrofac all up between 3.6% and 9.56% at 3.05pm (London time). Among losers, Sainsbury’s slipped 5.06% to 328.5p, while rival retailer Marks & Spencer slid 3.53% to 300.75p. Other poor performers included Home Retail Group, Lloyds Banking Group and Man Group, all down between 3.64% and 4.57% at 3.05pm (London time).

In economic news, the Bank of England released minutes from its last rate-setting meeting this morning. The minutes revealed that policy makers voted unanimously this month to print another £50 billion ($78 billion) after an initial debate on whether to increase the amount even higher.

‘For some members, a case could be made for a larger stimulus. But as the precise amount that would ultimately be required was so uncertain, there was no pressing need for the larger extension at this meeting,’ Bloomberg News quoted the minutes as saying today.

Looking ahead, it may be worth keeping an eye out for the release of minutes from the FOMC’s last interest-rate meeting, which will be published in the US later today.

[1] Source: Bloomberg News (20 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

A disappointing US housing market report came as a reality check for investors today, knocking Wall Street back into the red at the start of trading.

US housing starts, a measure of the number of residential homes on which construction has started, plunged 13% to a record-low annual rate of 458,000 in April, trailing Bloomberg’s median estimate for a 2% rise to 520,000 from an originally reported 510,000 the month before. The data for March was revised to 525,000. Meanwhile, building permits, a barometer for future construction activity, declined 3.3% to a record low pace of 494,000, below expectations for a rise to 530,000.

In my opinion, the recent raft of better-than-expected macroeconomic data has perilously offered the market a false sense of security. However, today’s bleak data, along with earlier US data which showed a rise in unemployment and worse-than-expected retail sales, should be viewed as a reminder that we aren’t out of the woods quite yet.

DR Horton, the largest US homebuilder by market value, fell 0.2% to $9.77 following the housing market report. Smaller rival Centex Corp declined 2.74% to $9.58, Pulte Homes slid 2.62% to $10.03 and KB Home lost 2.6% to $16.39.

There was some encouraging news from Dow component Home Depot, however: the firm has reported a first-quarter profit that topped consensus estimates. The world’s largest home-improvement retailer produced earnings (excluding one-off items) of 35 cents a share, beating Bloomberg’s average estimates of 29 cents a share.

Home Depot’s bottom line exceeded expectations because it managed to cut costs significantly; general and administration costs were slashed by 18% to $4.04 billion in the quarter. Revenues were 9.7% lower on the other hand – cost cutting can help a company beat expectations in the short run but in the long run, it is revenue growth that matters. If US macroeconomic fundamentals remain bleak then this will definitely have an impact on the top line performance of this retail company.

Shares in Home Depot sagged 5.34% to $24.63 this afternoon after soaring more than 6% yesterday. Rival Lowe’s Companies, meanwhile, fell 0.75% to $19.79.

In contrast, US banks continued to rise, fuelled by reports that Goldman Sachs, JPMorgan and Morgan Stanley were ready to pay back $45 billion in government bail-out money. Shares in Goldman traded 0.62% higher to $144.04, JP Morgan advanced 0.5% to $37.45 and Morgan Stanley climbed 2.4% to $28.96 today. In addition, rival bank Citigroup surged 5.8% to $3.85 while Bank of America edged 2.5% higher to $12.02.

Investors also welcomed news from credit card company American Express, which announced it would slash 6% of its workforce, or 4000 jobs, in order to save $800 million over the rest of the year. However, its share price fell 0.1% to $26.10.

Crude Oil Futures

Elsewhere, June crude oil (WTI) futures were up 0.20% to $59.15 a barrel this afternoon. Crude oil futures had hit a six-month high of $60.48 a barrel this morning. In contrast, July Brent was 0.4% lower at $58.24 a barrel.

Crude oil futures rallied on the back of speculation that there could be a disruption in oil supplies from Nigeria, the tenth largest oil producer in the world. According to Reuters News, a Nigerian militant group said it would blockade key waterways in the delta to try preventing crude oil exports.

‘It is a combination of factors of what we have had and concerns over supply, which is adding risk premium to the market,’ said Oliver Jakob of Petromatrix. ‘In the past few weeks, oil traded in a strong correlation with the equity market without looking much at fundamentals. Yesterday, support also came from supply disruption after Sunoco’s refinery fire, which affected gasoline output, and concerns over Nigeria.’ [1]

It is also worth noting that Atlantic hurricane season, which spans between June and November, is approaching and could also have an impact on oil prices. According to Reuters, forecasters are saying that a strong rain storm off the east coast of Florida has the potential to develop into a severe gale – it is not the first time adverse weather conditions have disrupted oil facilities in the US Gulf region, causing a rise in oil prices.

By around 3.40pm (London time) Wall Street had managed to recover from earlier lows, with the Dow Jones Industrial Average up by 22.3 points (+0.26%) to 8526.38 and the S&P 500 4.78 points (+0.53%) higher to 914.49. What remains to be seen is whether these gains can be sustained.

[1] Source: Reuters News (19 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

US equity markets were trading higher today after encouraging results from Lowe’s Companies enticed investors back to the market. Upbeat research notes on Bank of America and Citigroup also helped lift morale.

Lowe’s Companies, the largest US home improvement retailer, today reported a better-than expected first-quarter profit of 32 cents per share. Although this was 22% lower than the figure reported during the previous comparative period a year ago, it was around 28% higher than consensus expectations of 25 cents a share. [1] The company attributed its stronger bottom line results to aggressive cost cutting.

First-quarter sales, which fell 1.5% to $11.8 billion in the first quarter, were also encouraging, especially given the economic backdrop. Shares in Lowe’s Companies surged 6.5% to $19.64 by around 3.15pm (London time) today.

Also boding well for equity market sentiment was an upgrade for Bank of America’s shares. Goldman Sachs added Bank of America to its ‘conviction buy’ list, citing progress on raising capital and another ’solid’ quarter for the mortgage and capital markets businesses. In the meantime, Goldman Sachs benefitted from a revised price target from Citigroup, which upped Goldman’s share-price estimate by 10% to $160. [2]

Shares in Bank of America jumped 10.6% to $11.80, while Goldman Sachs added 4% to $139.8 a share this afternoon – this means there could be an upside of 14.4% from the current price if Citigroup’s share price target of $160 a share materialises.

Citigroup, meanwhile, advanced 5.2% to $3.66, Wells Fargo gained 4.5% to $25.99 and JPMorgan Chase rose almost 2% to $35.60.

Elsewhere in the financial sector, insurer AIG climbed 5.8% to $1.82 after announcing that it is to speed up plans to take American International Assurance Co Ltd (AIA), its Asian subsidiary, to market via an IPO (initial public offering, which is when a company floats its shares on a stock market for the first time). This development could help AIG raise more than $4 billion.

The proceeds from the IPO are expected to help the insurer repay some of the $180 billion in government aid.

Goldman Sachs, consequently, upgraded Bank of America from ‘neutral’ to ‘buy’ today, saying that the lender may earn 25 cents a share during the second quarter, substantially beating Bloomberg’s average estimate of 2.5 cents. On the other hand, Fitch Ratings downgraded Bank of America’s preferred stock issues. [3]

State Street, the world’s third-largest custody bank, also made the headlines today. The company announced plans to sell stock and debt in order to repay government aid and reported a $3.7 billion writedown. The company also said it expects to report full-year operating profits that would trail consensus expectations; operating earnings are forecast to come in between $4.25 and $4.50 a share this year. State Street shares were up by 7% to $41.23.

By 3.40pm (London time) the Dow Jones Industrial Average had gained 129.75 points (+1.57%) to 8398.39, while the broader S&P 500 was 12.37 points (+1.4%) above its previous close at 895.25.

[1] Source: Consensus estimate sourced from CNN Money (18 May 2009)
[2] Source: Bloomberg News (18 May 2009)
[3] Source: Bloomberg News (18 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

It has been a mixed afternoon for Wall Street so far, with both the Dow Jones and S&P swinging between gains and losses. Financial shares were predominantly trading higher today after a number of US insurers won approval to tap billions of dollars from Troubled Asset Relief Programme (TARP), a governmental support fund that was set up in aid of US banks.

Hartford Financial, the fourth-largest insurer in the United States, announced last night that it got preliminary approval to obtain $3.4 billion in TARP capital while Lincoln National Corp said it may receive $2.5 billion.

In the meantime, a Treasury spokesman said that Prudential Financial Services Group, Allstate Corp, Principal Financial Group and Ameriprise Financial are also eligible for TARP funds. [1]

As it turns out, the US life insurers were granted TARP aid through a technicality: ether because they already had a ‘bank holding company’ status or because they have moved to obtain that status by agreeing to acquire a savings-and-loan institution.

‘These life insurers met the requirements for the Capital Purchase Program because of their bank holding company status and each applied for CPP capital investments by the deadline of November 14, 2008,’ said a Treasury spokesman last night, adding that the companies were among ‘the hundreds of financial institutions that had applied for government funds. [2]

Hartford Financial Services and Lincoln National, which received the government aid, surged 10.2% to $16.24 and 7.3% to $17.42 a share respectively on Wall Street today. Principal Financial was also higher, up 0.3% to $19.69 and Allstate Corp climbed 0.71% to $25.43 while Prudential Financial fell 0.15% to $39.31.

Also in financial news today was Singapore’s Temasek, which announced that it had sold its entire 3% stake in Bank of America (BOA) at a loss during the first quarter, without disclosing the precise date. The Financial Times estimates the company could have lost around $3 billion from the disposal of BOA’s shares. In the meantime, Temasek said it will refocus on emerging markets. Shares in Bank of America were unchanged at $11.31.

Rivals bank Citigroup advanced 1.4% to $3.60, Morgan Stanley added 1.6% to $26.99 and Goldman Sachs gained 0.5% to $134.3 a share. In contrast, Wells Fargo fell 1.8% to $25.22.

Elsewhere, there was grim news from clothing retailer Abercrombie & Fitch, which reported a larger-than-expected first-quarter net loss of $26.8 million, or 31 cents a share. That compares to a net profit of $62.1 million, or 69 cents a share, the year before. Revenue was also weak, down 24% to $612.1 million, as consumers traded down. The news did not bode well for its share price, sending it down by 2.72% to $26.51 a share.

On the macroeconomic front, the US Consumer Price Index (CPI), an inflationary measure, remained unchanged in April, in line with Bloomberg’s expectations. The gauge was flat because decreases in foods and energy offset a rise in the price of medical care, auto and tobacco prices. The Core CPI, which strips out volatile food and energy prices, was 0.3% higher in April, above expectations for a 0.1% increase.

On the year, US CPI fell 0.7%, deemed the largest annual decline since June 1955, while core consumer prices were up by 1.9% from a year ago.

In the meantime, a separate report revealed that manufacturing activity in New York improved significantly; the New York Federal Reserve Empire State Manufacturing Survey reading came in at -4.55 in May, beating Bloomberg’s average forecast for a rise to -12 from -14.65 the month before. The latest reading is still in negative territory, however, indicating that the manufacturing sector is still contracting, but at least at a slower pace.

US industrial production also came in better than anticipated, shrinking 0.5% in April against Bloomberg’s median forecasts for a 0.6% decline. The decrease in industrial production was led by business equipment such as computers and construction supplies. The previous month, meanwhile, was revised to show a 1.7% drop from an originally reported fall of 1.5%.

By 3.30pm (London time) the Dow Jones Industrial Average had gained 16.97 points (+0.20%) to 8348.29 while the more representative S&P 500 was trading 0.35 points (-0.04%) below its previous close at 892.72. The Nasdaq, meanwhile, gains 9.77 points (+0.72%) to 1369.44.

[1] Source: Bloomberg News (15 May 2009)
[2] Source: Wall Street Journal (15 May 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.