US equity markets opened a notch higher today but later pared gains as another wave of profit-taking hit the banking sector.
US banks were back in the red today, with JPMorgan Chase down 4% to $34.38 and Wells Fargo 5.9% lower at $24.96 within the first hour of trading. Citigroup lost 1% to $3.83, Bank of America fell 2.4% to $12.64 and Bank of New York Mellon declined 3% to $28.62.
The bout of weakness came despite an upbeat speech from Federal Reserve Chairman Ben Bernanke, who late Monday indicated that the stress tests were helping US banks gain access to private capital – a positive indication as it shows that investors are interested in backing the banking sector.
The market picked up on a rumour about Bank of America today. Apparently, the bank managed to sell around $7.3 billion worth of shares in China Construction Bank to a group of investors, bringing it a step closer to achieving the $33.9 billion capital shortfall required under the government’s stress test. These rumours have not yet been confirmed, however.
Bank of New York Mellon, which was among the nine banks that did not require any additional funds under the stress test, also made the headlines. As it turns out, it is planning to raise $1 billion via a rights issue and intends to use the proceeds to pay off government aid.
Elsewhere in the financial sector, MBIA, one of the country’s largest bond insurers, made a surprise profit in the first-quarter, helped by the declining value of debt. Its shares slumped 3.88% to $6.69, nevertheless. Meanwhile, rival Ambac Financial Group slid 4.7% to $1.67 after surging more than 20% yesterday.
Capital raisings was not limited to financials, however. Ford Motors, which refused government aid, said late Monday that it will sell 300 million common shares and use a proportion of the proceeds to pay down health-care obligations to the United Auto Workers (UAW) union. Ford’s share price was knocked 13.2% to $5.28 today.
In technology, it may be worth keeping an eye on Microsoft, which it is rumoured, is planning to acquire German software company SAP. Microsoft’s share price climbed 1.7% to $19.65 a share this afternoon.
Oils share were also in positive terrain, with ConocoPhillips and Schlumberger rising 0.4% to $45.33 and 0.8% to $55.21 respectively after Crude Oil edged closer to the $60 a barrel level mark today.
On the macro front, US economic data continued to beat consensus expectations. The Commerce Department today said that the US trade deficit rose to $27.58 billion in March, beating the $29.7 billion expected by Dow Jones Newswires but worse than the $26.13 billion registered the month before. The wider trade gap was attributable to a sharp fall in exports, which fell 2.4%. In contrast, imports fell by 1%.
Elsewhere, there was a surprise economic release in Britain today – the Office for National Statistics (ONS) released its monthly labour market report at 2pm (London time), a day ahead of its usual schedule, as there was an ‘accidental early release of some data.’
The ONS report shows that the number of people out of work in the UK jumped by 244,000 to 2.22 million in the first three months of the year. In addition, the unemployment rate rose to 7.1% from 6.7% and the number of Britons claiming unemployment benefits jumped by 57,100 to 1.51 million in April.
‘The standout numbers are the big increase in the unemployment rate at 7.1%,’ said Brian Hilliard of Societe Generale. ‘We had been looking for 6.9% so that is a really sharp acceleration. I fear that the unemployment rate… is certain to deteriorate much further. We’re looking at figures of 10% around the turn of the year,’ Mr Hilliard warned. [1]
Elsewhere in the eurozone, there was news of an EU banking sector stress test today. It has emerged that the stress tests will be carried out by national supervisors, who will have to follow common guidelines set out by the Committee of European Banking Supervisors (CEBS). ‘The decision was taken by EU finance ministers Who decided to ask the Committee of European Banking Supervisors to organise a stress test,’ one EU source familiar with the ministers’ deliberations said.
‘But it is not a stress test of individual institutions like the Americans are doing. It is more a highly aggregated stress test, which should show the degree of resilience of the overall EU banking sector… It would show if there are additional capital requirements or if banks are adequately capitalised for the present situation,’ the source told Reuters today.
By 3.30pm (London time) the Dow Jones Industrial Average was down by 9.15 points (-0.11%) to 8409.62, while the broader S&P 500 had declined 4.02 points (-0.44%) to 905.22.
[1] Source: BBC News (12 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.