US equity markets edged marginally higher in early trading today following a report that pointed to further signs of stabilisation in American house prices.

Equity market gains were later relinquished on the back of an unexpected drop in US consumer confidence data and a surge mortgage delinquencies, however.

The S&P/Case-Shiller home-price index was the first macroeconomic report released today. The index, which tracks house prices across 20 major US metropolitan areas, showed a drop of 18.1% from a year earlier in April. This was better than Bloomberg’s median forecasts for a fall of 18.6% year-on-year and the prior month’s 18.7% decline. ‘While one month’s data cannot determine if a turnaround has begun, it seems that some stabilization may be appearing in some of the regions,’ said David Blitzer, the chairman of the S&P index committee, in a statement released today. [1]

In the meantime, a separate report has revealed that US business activity in the Chicago region shrank less than anticipated in June. The Chicago Purchasing Managers Index (PMI) rose to 39.9 in June from 34.9 the month before. Readings below 50 indicate a contraction.

So far so good, but the big blow to equity market sentiment came after the Conference Board’s US consumer confidence index slumped six points to a reading of 49.3. In the meantime, a separate government report revealed that prime mortgage delinquencies, which are the least risky, more than doubled through March, climbing 2.9%.

By 3:30pm (London time), the Dow Jones Industrial Average had declined 93.86 points (-1.1%) to 8435.52, while the broader S&P 500 had fallen 11.04 points (-1.19%) to 916.19.

Crude Oil Spread Betting Futures, which rose as much as 3.5% to $73.50 a barrel earlier today, retreated back to the $69 a barrel mark this afternoon, also pulling down the share price of US energy majors with it. Shares in Chevron Corp were, not surprisingly, down 1.3% to $66.04, Exxon Mobil slid 1.2% to $69.75 and ConocoPhillips fell 1.75% to $41.48.

Weighing on the oil refining shares, meanwhile, was Goldman Sachs, which downgraded the sector to ‘cautious’, writing that ‘even with meaningful underperformance having already occurred this year, we see little reason for investors to own the sector.’ Goldman also downgraded refiners Sunoco and Tesoro Corp from ‘neutral’ to ‘sell’. [2]

Shares in Sunoco Corp declined 2.2% to $22.77, while Tesoro slumped 3.4% to $12.44.

In the meantime, shares in Goldman Sachs traded 1.4% lower at $147.3, paring earlier gains which came on the back of a ‘buy’ recommendation from broker UBS.

Goldman Sachs ‘is very well positioned to manage through the cycle given its strong capital ratios, manageable legacy risk exposures, limited direct consumer & corporate credit exposure, and top notch risk management,’ UBS wrote in its latest research report on the company. [3]

Rival Morgan Stanley traded 2.3% below its previous close at $28.4, JPMorgan Chase fell 1.5% to $34.09, Bank of America eased 0.9% to $13.08 and Citigroup lost 1.7% to $2.97 following the bleak mortgage delinquencies report.

Elsewhere in the financial services sector, Insurer AIG was knocked 15% lower to $1.13 a share, after warning that its company’s results would suffer from a ‘material adverse effect’ should the price of credit-default swaps sold to European banks decline in value. A credit-default swap is a financial instrument which can be thought of as an insurance against credit default, with rising prices reflecting higher default risks and vice versa.

In corporate news, H&R Block rose 8.55% to $17.01 after predicting that its earnings per share for 2010 will come in between $1.60 and $1.80, beating Bloomberg’s average analyst estimate.

Education company Apollo Group, meanwhile, jumped 7% to $70.59 after its earnings per share topped Bloomberg’s average analyst projection by 12%. The company also said that it will increase its share buyback programme to $500 million.

Back home, BG Group, the third largest natural gas company, announced that it has bought $1.06 billion worth of assets from Exco Resources in order to develop its first US shale gas project. Shale gas is a natural gas that is stored in organic rich rocks.

‘This alliance brings material new resources and supply to our existing US business at a competitive price and in a prime location at the heart of the world’s largest gas market,’ said Chief Executive Frank Chapman in a statement. ‘The transaction increases BG Group’s exposure to long-term unconventional gas resources and skills.’ [4] Shares in the company were down by 2.3% to 1013p this afternoon.

By 3:30pm (London time), the FTSE 100 was down by 57.96 points (-1.35%) to 4236.07, while the FTSE 250 had lost 51.18 points (-0.68%) to 7426.03.

[1] Bloomberg News ( 30 June 2009)
[2] Reuters News ( 30 June 2009)
[3] Bloomberg News ( 30 June 2009)
[4] Bloomberg News ( 30 June 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 opened the week in positive territory today as broker upgrades and merger-and-acquisition activity fuelled risk appetite.

JC Penney, the third-largest US department-store chain, was 1.8% higher at $28.89 a share this afternoon after Morgan Stanley upped its recommendation from ‘equal weight’ to ‘overweight’. The bank highlighted the fact that the retailer trades at a 24% discount to its peer group, and stated that it is the ‘most likely candidate in the department store group to outperform current consensus gross margin expectations in the second-half of 2009 and beyond.’ [1]

Software giant Microsoft Corp also benefitted from a broker upgrade today. The company rose 2% to $23.82 after Deutsche Bank upped its price target from $22 to $30 a share, saying that the release of Windows 7 would help the company’s share price. In the meantime, Collins Stewart raised its price target on Microsoft to $30 a share, saying that there are ‘incremental opportunities’ from Windows 7. [2]

The Financial Times, meanwhile, reported that Microsoft has appointed Morgan Stanley to find it a buyer for Razorfish, a digital agency that could be valued up to $700 million.

Elsewhere, TEPPCO Partners, a publicly traded energy logistics partnership, surged 4.4% to $29.95 after Enterprise Products Partners LP agreed to acquire the company for around $3.3 billion. The CEO of Enterprise Products believes the deal will start increasing his company’s earnings in 2010 and will result in cost savings of circa $20 million.

Consulting firms Towers Perrin Forster & Crosby and Watson Wyatt Worldwide yesterday agreed to merge via an all-stock deal valued at approximately $3.5 billion. The merger is meant to help the companies cut costs and exploit synergies. Shares in Watson Wyatt fell almost 8% to $37.9 a share, nevertheless.

Biotechnology company Biogen Idec was also in the spotlight today, after another patient using its multiple sclerosis drug developed a deadly brain disease. In addition, Deutsche Bank downgraded the biotechnology company’s shares from ‘buy’ to ‘hold’, saying its share price was now ‘fairly valued’. Not surprisingly, shares in Biogen Idec slid 6.9% to $46.61 this afternoon.

In the meantime, the International Energy Agency (IEA) today cut its five-year forecasts for global crude oil demand, saying the ‘deep economic recession that has spread worldwide in the past year has taken a severe toll on oil demand.’ [3]

The agency said that demand may grow 0.6% per annum until 2014 but could drop by 0.2% a year if global GDP turns out to be below the International Monetary Fund’s forecasts. The price of August crude continued to rise, however, up 2.9% to $71.18 a barrel, following militant attacks on Nigerian oil pipelines.

By 3.30pm (London time) the S&P 500 was trading 3.3 points higher (+0.36%) at 922.2, while the Dow Jones Industrial Average had gained 42.77 points (+0.51%) to 8481.16.

It is worth noting that the main focus this week will be the June labour market report, which is scheduled for release on Thursday, instead of Friday, when US markets will be shut for the Independence Day holiday.

[1] Source: Bloomberg News (29 June 2009)
[2] Source: Bloomberg News (29 June 2009)
[3] Source: Bloomberg News (29 June 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 opened in the red once again this afternoon, as a disappointing rise in the number of new jobless claim filings indicates that the US labour market still remains weak, despite recent signs of stabilisation.

The jobless claims report revealed that the total number of Americans claiming unemployment benefits for more than a week (continuing jobless claims) jumped by 29,000 to 6.738 million in the week ending 13 June. This was worse than Bloomberg’s expectations for a rise to 6.714 million and follows a 126,000 drop the week before.

In the meantime, the number of Americans claiming first-time unemployment benefits (initial jobless claims) unexpectedly rose by 15,000 to 627,000 in the week ending 20 June. The result was substantially worse than Bloomberg’s expectations for a decline of 8,000 and lifted the four-week moving average, a less volatile measure, by 500 to 617,250.

Today’s report is ‘just a reminder that the labour market is still in serious trouble and the unemployment rate will continue to increase into 2010,’ said Ryan Sweet of Moody’s Economy.com. While the trend in recent weeks shows a slower pace of claims, ‘hopes for a quick rebound in the labour market are overly optimistic.’ [1]

Separate figures, meanwhile, showed that the final reading for US GDP shrank at an annualised rate of 5.5% during the first quarter, which was better than preliminary estimates of a 5.7% annualised contraction. The Commerce Department attributed the slight improvement in GDP to a smaller trade deficit, so at least not all the data was dismal.

Although US markets started lower, stock indices began paring losses, as gains in homebuilders, retailers and energy producers countered weakness in banks.

KB Homes jumped 4.5% to $14.25, D.R. Horton advanced 1.5% to $9.27 and Centex Corp climbed almost 4% to $8.43, after Stuart Miller, the chief executive of homebuilder Lennar, said he sensed ‘pent-up demand’ in the housing market.

The company, meanwhile, today reported 21% drop in revenues, which came in at $891.9 million and a net loss of $125.2 million. This follows a net loss of $120.0 million the year before. Despite this, the company’s share price jumped 13% to $8.84 this afternoon, aided by the chief executive’s comments. Also contributing to the rise was news that it had ended the quarter with $1.4 billion in homebuilding cash and no outstanding borrowing under the company’s credit line.

Home furnishings retailer Bed Bath & Beyond was also in positive terrain, up 10% to $31.25 after reporting an unexpected increase in quarterly profits, helped by aggressive cost cutting, which countered a drop in demand for home furnishings. Its net income came in at $87.17 million, or 34 cents a share, beating Reuters’ expectations for 25 cents a share from $76.78 million, or 30 cents a share a year earlier.

Oil producers were also trading higher, after the price of August WTI crude futures rose 1.3% to $69.56 a barrel. August Brent also advanced, climbing almost 1.5% to $69.31 a barrel. Crude futures gained after a Nigerian militant group shut down one of Royal Dutch Shell’s pipelines. In the meantime, shares in oil producer Exxon Mobil were up by 0.2% to $68.58 a share.

Shares in Hertz Global also soared today, up 8.4% to $7.6 a share after forecasting quarterly profits that topped consensus estimates. The company also said that it foresaw no substantial long-term financial impact from General Motors and Chrysler bankruptcies.

In contrast, US banks were weaker today, with Bank of America down 2.3% to $12.07 after Citigroup said that BoA’s second quarter was ‘likely to be a challenge,’ and cut its price target from $20 to $18. ‘We see another large reserve build in the second quarter and expect loan loss provisions to be up versus the elevated first quarter,’ Citigroup wrote. [2]

Goldman Sachs was also lower, down 0.34% to $142.16 after Barclays cut its second quarter earnings per share forecasts to $3.55 from $5.20. Barclays also said that Morgan Stanley was likely to produce a second-quarter loss per share of $0.70 [3]. Shares in Morgan Stanley fell 0.3% to $27.57.

By 3.30pm (London time), the Dow Jones Industrial Average managed to gain 51.01 points (+0.61%) to 8350.87, while the broader S&P 500 index advanced 7.43 points (+0.82%) to 908.37.

[1] Source: Bloomberg News (25 June 2009)
[2] Source: Reuters News (25 June 2009)
[3] Source: Reuters News (25 June 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 FTSE was given a boost this afternoon following a slow morning after positive figures coming out of Wall Street.

The Dow Jones is up 95.53 points (1.15%) to 8418.44 and the Nasdaq is up 37.11 points (2.10%) to 1802.03. By 4pm, the FTSE 100 was boosted significantly by these results, garnering 50.62 points (1.20%) at 4280.64.

Also see FTSE 100 Spread Betting.

The US was buoyed by good news from the durable goods order figures. New orders rose 1.8% in May, according to the Commerce Department, even though experts predicated a 0.9% drop. This is the third consecutive month of growth for this sector.

The Organization of Economic Cooperation and Development also released positive news for the US, stating directly that the economic outlook has improved for the first time in two years. The world economy, as a whole, will rise 0.7% next year.

Bad news, however, for the UK economy, as the same announcement showed the UK stood apart from the rest of the 30 advanced economy members; the report showed the country to be in a ‘sharp recession,’ and suggested that output would shrink by 4.3% this year, with no growth next year. However, this information contradicts several independent economic announcements, which place this year’s shrinkage at about 3.7%.

US’s Monsanto released better-than-expected figures today; net income was $694 million, or $1.25 per share, up from the expected $1.18 per share. The company also announced restructuring efforts. The share rose 3.2% to $81.85 in pre-market trading. Oracle, the software maker, also released positive results, giving them a 7.5% rally before the market opened.

The dollar, however, fell to a two-week low, plummeting against a variety of currencies after poor existing-home-sales data was released. This appears to have led to a surge in copper prices; the metal was trading up 6.7 cents, more than 3% to $2.1940 per pound. MF Global Analyst Edward Meir cautions that the long-term success of copper depends greatly on Chinese investment, and, while the outlook is positive, China’s economy is by no means untouchable.

US Investors await the Federal Reserve announcement this evening, which has led to a small boost in the banking sector. The expectation is that the central bank will maintain a near-zero interest rate. Analysts at Barclay’s Capital stated, ‘The Fed may adopt even stronger language to signal that it is likely to keep rates on hold in coming months, in order to combat rising market expectations of near-term tightening’ [1].

In the UK tomorrow, look out for results from Currys and PC World owner DSG International; the news is not expected to be positive, especially since its rival, Kesa Electricals, revealed a 50% cut in profit today. JP Morgan and software specialist Micro Focus are also releasing results tomorrow.

[1] Reuters, June 24 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 opened higher today, as yesterday’s biggest one-day loss in two months encouraged investors to re-enter the market in search of value.

A reassuring note from Moody’s Investor Service may have also helped bolster sentiment at the start of trading, but the release of weak housing data later in the afternoon suppressed earlier gains.

Credit rating agency Moody’s Investor Service reported that the United States’ triple-A credit rating ‘remains solid’, saying the economy is resilient enough to recover from the downturn. The credit rating agency said, however, that the country’s rating would be at risk for a downgrade only if the government were ‘unable to bring down its public debt back to a downward trajectory’ or ‘if the United States’ ability to raise a large amount of debt at a low cost were to be put at risk.’ [1]

The statement from Moody’s boded well, but the release of mixed US macroeconomic data weighed on the market; the Richmond Fed manufacturing index indicated that the industry continued to expand this month, coming in at a reading of 6, beating Bloomberg’s median analyst estimate for a rise to 5 from 4 the month before.

US home resales data (existing home sales) were nowhere near as good as anticipated however, leaving a big dent in confidence. The report unveiled a 2.4% rise in resales for May, which was lower than Bloomberg’s median estimate for a 3% increase and follows a downwardly revised 2.4% gain the month before. April resales originally showed a 2.9% rise.

A separate report, meanwhile, revealed that the US house price index fell 0.1% in April. Although that was marginally better than Bloomberg’s expectations for a 0.4% drop, the revisions for February may have left investors feeling slightly disappointed. The 1.1% decline originally reported for February was revised to show a steeper 1.4% drop.

By 3.30pm (London time), the Dow Jones Industrial Average had pared earlier gains, falling 25.7 points (-0.31%) to 8313.31, while the S&P 500 was down by 1.03 points (-0.12%) to 892.01. The Nasdaq was also heading south, down 8.7 points (-0.61%) to 1417.9.

Commodity stocks, which had garnered some support during pre-market trading, sagged following the publication of this afternoon’s macroeconomic reports. Alcoa, the largest US aluminium producer, declined 2.3% to $9.79 a share and Century Aluminium was down by almost 6% to $5.15. Freeport-McMoRan Copper & Gold and Newmont Mining bucked the negative trend, rising almost 2% to $46.07 and 0.75% to $40.16 respectively.

The majority of US banks were higher today, with Bank of America advancing 1.5% to $12.12 and Wells Fargo up 1.4% to $22.83. Citigroup underperformed the sector, nevertheless, losing 1.7% to $2.96.

Elsewhere, memory-chip designer Rambus plunged 13.6% to $15.40 after reducing its second-quarter revenue forecast, citing weak demand for consumer electronics as the main reason. The company estimates that second-quarter revenues will come in between $26.7 million and $30 million. It also expects litigation costs to rise more than expected, predicting that they are likely to come in between $15 million and $17 million as opposed to an earlier estimate of $12 million to $16 million.

Microchip maker Intel, meanwhile, rose 0.4% to $15.74 after Bloomberg reported that the company had won a contract to supply microchips to Nokia.

News Corp also made the headlines this afternoon, after saying that it is planning to make around two thirds of its MySpace workers redundant in an effort to bolster profitability. Its share price reacted positively to the announcement, rising 0.8% to $9.12.

Plane maker Boeing was among the biggest casualties today, tumbling 8.5% to $42.9 after reporting that it will postpone the release of its long-delayed 787 Dreamliner again, owing to structural problems in the planes bodywork.

In the meantime, the Energy Department is expected to announce that it is lending money to Ford Motors, Nissan Motors and Tesla Motors from a $25 billion fund to develop fuel-efficient vehicles.

Ford has asked to receive $5 billion in loans by 2011, but it was unclear how much money the automaker would receive as of yet. Nissan, meanwhile, has applied, but the amount is not yet known, while Telsa has sought $450 million. Shares in Ford Motors advanced 2.6% to $5.52.

It is important to note that the Federal Open Market Committee begins its two-day meeting on interest-rate policy today. Investors will be keeping an eye on any changes to the central bank’s $300 billion Treasury bond purchasing plan and the economic outlook.

[1] Source: Reuters News (23 June 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 stock markets opened lower this afternoon, as downward global growth revisions by The World Bank encouraged investors to take profits across various sectors.

‘The worries are still out there,’ said John Wilson at Morgan Keegan & Co. ‘Nobody is ready to get the trumpets out and herald the end of the recession.’ [1]

The World Bank predicted that the recession would be deeper than it had initially anticipated this year and downwardly revised its global GDP forecasts to show a 2.9% contraction for the year, compared to an earlier estimate for a 1.7% decline. This left the market extremely disappointed, as it conflicted with expectations for a modest improvement in the International Monetary Fund’s global GDP projections.

Fear over weakening global demand hit commodities, with copper seen tumbling as much as 4% to $4,831 a metric ton, trimming its 2009 advance to 57%, and aluminium retreating 4.1% to $1,611 per ton. Crude oil futures were also knocked for a second day, with the July WTI contract dropping 3.2% to $67.34 a barrel and the August Brent contract down 2.9% to $67.15 a barrel.

Not surprisingly, miners and energy majors tracked the downward trend in underlying commodities today, with shares in US aluminium producer Alcoa plunging 6% to $10.34, Freeport-McMoRan Copper & Gold tumbling 8% $46.81 and Newmont Mining down 3.9% to $40.26. In the energy sector, Schlumberger sank 4.5% to $52.83, ConocoPhillips fell 3.7% to $41.38 and Chevron declined 2.7% to $66.19 a share.

Banks also exerted pressure on US indices today, with the likes of Bank of America down by more than 4.9% to $12.57 after board members Tommy Franks and Joseph Prueher resigned from their posts, bringing the total number of departing directors since April to seven. Shares in Wells Fargo dropped 4% to $23.22, while JPMorgan Chase slid 2% to $34.24.

Elsewhere, Apple had initially started off in positive territory but negative sentiment dominating markets later took its toll. Its share price had initially garnered some support after optimism about the launch of its new iPhone model. Founder Steve Jobs, who has been on medical leave since January, may have also helped Apple’s share price at the start of trading today. It has emerged that he will resume his position on a part time basis at the end of this month.

Microsoft, meanwhile, fell 1.8% to $23.63, despite Barons News suggesting that the company is looking ’super cheap’. The financial news company believes that Mircosoft’s new search engine Bing will help drive growth.

By 3.30pm (London time), the Dow Jones Industrial Average was down by 124.17 points (-1.45%) to 8415.56, while the S&P 500 had declined 17.45 points (-1.9%) to 903.78.

It is worth noting that the Fed is scheduled to purchase Treasuries maturing December 2013 to April 2016 today, as part of plan to lower borrowing costs and revive the economy. The market is also beginning to speculate that policymakers will signal that the central bank may buy more debt during this week’s FOMC meeting.

[1] Source: Bloomberg News (22 June 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 release of better-than-expected US macroeconomic data helped provide a much needed shot of adrenaline to US equities this afternoon.

In a sudden turn of events, the US Labor Department today unveiled that the total number of Americans claiming unemployment benefits for more than a week (continuing jobless claims) tumbled by 148,000 from the week before, bringing the tally to 6.69 million. This is the biggest drop since November 2001 and substantially better than Bloomberg’s expectations for an increase to 6.840 million, from an upwardly revised 6.835 million the week before.

Although the US labour market remains considerably weak, today’s data provides a sigh of relief as it indicates that demand for labour has picked up – a much-needed phenomenon for mopping up the excess supply of labour.

The weekly report homed in on the supply side as well, showing the number of Americans claiming first-time unemployment benefits (initial jobless claims) rising by only 3000 to 608,000 in the week ending June 13. This was marginally higher than Bloomberg’s median estimate for a rise to 604,000 from an unrevised 601,000 the week before. The four-week moving average of initial jobless claims, a less volatile measure, fell by 7000 to 615,750 on the week, however, the lowest level since February this year.

‘The labour market remains weak but it’s starting to stabilise,’ said Maxwell Clarke of IDEAglobal. ‘An improvement in employment conditions and improvement in confidence go hand in hand with an improvement in consumer spending.’ [1]

The upbeat labour market data helped Wall Street open only marginally higher today, but gains were relinquished almost immediately as investors remained cautious ahead of the leading indicators index and the Philadelphia Fed manufacturing survey, which turned out to be substantially better than anticipated. With today’s US macroeconomic data still pointing to some sort of recovery, opportunistic investors have re-entered the stock market in search of bargains, helping Wall Street snap a three-day losing streak.

By 3.30pm (London time) the Dow Jones Industrial Average was up by 79.51 points (+0.94%) to 8576.69, while the broader S&P 500 had advanced 7.65 points (+0.84%) to 918.38. The Nasdaq was also higher, up 0.42 points (+0.03%) to 1456.31.

Investors cheered today after the Conference Board’s index of US leading economic indicators jumped by 1.2% in May following a revised 1.1% rise in April. This is the biggest back-to-back gain since the second half of 2001. In the meantime, the reading for the Philadelphia Fed manufacturing survey came in at -2.2 in June from -22.6 in May, the slowest contraction in activity in nine months as orders and sales improved.

‘The bulk of the downturn is behind us but we still haven’t crossed that threshold toward expanding the industrial sector,’ Sal Guatieri of BMO Capital Markets said before the report. ‘It looks like most of the inventory liquidation is over and that means we’ll see manufacturers boost production in the second half of the year.’ [2]

US banks traded higher this afternoon, with Citigroup advancing 0.65% to $3.10, Bank of America up 4.2% to $12.82 and Wells Fargo up 2.2% to $23.59. It is worth noting that Treasury Secretary Timothy Geithner is due to testify before the Senate Banking Committee and House Financial Services Committee to discuss financial sector regulatory reforms, so it remains to be seen whether banks will manage to maintain the gains made so far.

Back home, meanwhile, there was some upbeat news for Royal Bank of Scotland (RBS). Sir Fred Goodwin, former chief executive of the bank, has agreed to hand back around half of his £703,000 annual pension to the bank, reducing it to £342,500. Shares in RBS traded 2.2% higher at 37.8p this afternoon. Lloyds Banking Group was also in positive terrain, up 1.7% to 68.25p, but Barclays and HSBC underperformed the sector, edging down 0.74% to 268p and 0.38% to 524.5p respectively.

[1] Source: Bloomberg News (18 June 2009)
[2] Source: Bloomberg News (18 June 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 release of downbeat US macroeconomic data as well as poor results from package delivery company FedEx, which forecast an ‘extremely difficult’ operating period ahead, weighed on Wall Street’s open today.

An official government report released this afternoon has revealed that the cost of living in the United States rose at a slower pace than anticipated in May, showing no evidence of a threat from inflation – a phenomenon that the market thought would haunt the economy following the Federal Reserve’s decision to adopt quantitative easing. If anything, today’s data has revived the spectre of deflation.

‘The number confirms the weakness we saw at the wholesale level yesterday,’ said Martin Mitchell of Stifel Nicolaus & Co. ‘The pressures have to be deflationary and not inflationary.’ [1]

The US Labor Department today unveiled that the Consumer Price Index (CPI) increased by a less-than-expected 0.1% in May from a month earlier, when the CPI had remained flat. In addition, the annual rate of inflation dropped by a steeper-than-expected 1.3% in May, the biggest drop in 60 years, following a 0.7% decline in April. Bloomberg’s median estimates were pointing to a monthly rise of 0.3% and an annual decline of 0.9% in the CPI for May.

The core CPI, which excludes volatile food and energy costs, rose 0.1% over the month of May, following a 0.3% increase in April. The annual rate, meanwhile, climbed 1.8% last month after rising 1.9% in April. Both monthly and annual core CPI data matched Bloomberg’s median forecasts.

Optimists would say that today’s data is encouraging because inflationary risks have been tamed, but realists may look at the underlying trend with more scepticism, understanding that it is pointing downwards because companies are finding it more difficult to increase prices on the back of rising unemployment, shrinking income and, consequently, weaker consumer spending.

In the meantime, another report released by the Mortgage Bankers Association showed that mortgage applications fell by a staggering 15.8% last week as higher mortgage rates discouraged refinancing activity – a development that threatens to derail a recovery in the US housing market if it persists. A separate report, meanwhile, revealed that America’s current account deficit shrank at a slower pace than anticipated, coming in at $101.5 billion in the first quarter from an upwardly revised $154.9 billion in the fourth quarter. Although this is smallest deficit since the fourth quarter of 2001, Bloomberg’s median forecasts were pointing to a first quarter gap of $85 billion, so clearly there’s a bit of disappointment here as well.

Unfortunately, the flow of corporate news wasn’t particularly good either, with FedEx knocking off 3.4% to $49.85 a share after forecasting quarterly profits that trailed consensus estimates. The second-biggest US packing-shipping firm said that earnings for the period ending August will come in between 30 and 45 cents a share, substantially below Bloomberg’s median analyst estimates of 70 cents a share.

FedEx’s chief Executive Fred Smith said the company faces the ‘most difficult economic conditions’ in its history, while Chief Financial Officer Alan Graf said the ‘operating environment for first two quarters in the 2010 fiscal year is expected to be extremely difficult.’ [2]

Fortunately, the company’s fourth-quarter bottom line wasn’t as discouraging; profits came in at 64 cents a share, excluding writedowns, beating Bloomberg’s 51-cent median forecast. Fourth-quarter revenues, however, declined 20% to $7.85 billion. Shares in rival UPS declined 1.7% to $47.59 following FedEx’s announcement today.

E*Trade Financial Corp was another casualty today, tumbling 15.15% to $1.40 a share after saying it would raise at least $1.2 billion by selling common stock and launching a debt exchange to shore up its capital.

Losses were seen across the wider financial sector today as well after Standard & Poor’s lowered its credit ratings and revised its outlook for a number of US banks including Wells Fargo, PNC Financial Services Group and KeyCorp.

‘Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace’s new reality,’ S&P credit analyst Rodrigo Quintanilla said in a statement today. ‘Such a transition period justifies lower ratings as industry players implement changes.’ [3]

S&P intends to hold a conference call tomorrow to discuss the ratings changes. This news comes ahead of the US government’s plan to unveil reforms for the financial services sector.

Shares in Wells Fargo plunged 5.45% to $23.05 and PNC Financial declined 4.6% to $37.56, while KeyCorp tumbled 13% to $5.15 a share this afternoon. Bank of America slid 4.5% to $12.16 while Citigroup was 6.12% lower at $3.05 a share.

Elsewhere, Watson Pharmaceuticals was among the handful of gainers today, up 3.2% to $29.76 after saying that it will acquire privately held Arrow Group, a generic drugmaker, for $1.75 billion in a cash-and-stock deal. This transaction is meant to add to the pharmaceutical firm’s bottom in the near future.

By around 3.40pm (London time) the Dow Jones Industrial Average was down by 37.94 points (-0.45%) to 8466.73, while the S&P 500 had declined 7.74 points (-0.85%) to 904.23.

[1] Source: Bloomberg News (17 June 2009)
[2] Source: Bloomberg News (17 June 2009)
[3] Source: Bloomberg News (17 June 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.

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Further signs of stabilisation in the US housing market fuelled a positive start to Wall Street trading today.

However, separate reports also released today showed elevated deflationary risks and a sharp drop in industrial production data – a rather conflicting sign, in my opinion, which is not in any way characteristic of a sustainable economic recovery.

The first report released this afternoon showed that the number of homes being constructed in the United States in May climbed substantially higher than consensus expectations. Housing starts surged 17.2% to a seasonally adjusted annual rate of 532,000 in May, beating Bloomberg’s median estimate for a rise to 485,000 from 454,000 (revised).

A breakdown reveals that construction of single-family homes rose 7.5% to an annual rate of 401,000, the third straight monthly gain, while work on multifamily homes, such as townhouses and apartment buildings, soared 62% to an annual rate of 131,000.

Building permits, a gauge of future construction activity, jumped 4% to a seasonally adjusted rate of 518,000 in May. This was also better than Bloomberg’s projections for a rise to 508,000 from a revised 498,000 in April, when permits had fallen by 2.5%. The Commerce Department attributed the improvement in May’s housing data to the low interest rate environment, tax incentives and the recent drop in house prices.

‘It’s fair to say that we have found a bottom in housing, though the concern is that the bottom is at a very low level,’ said Zach Pandl of Nomura Securities International. ‘We have a long way to go to reach more normal levels of activity.’ [1]

In the meantime, a separate report released today has revealed that US wholesale prices experienced their largest annual decline in 60 years as ongoing recessionary pressures continued to depress inflation.

The Labor Department today reported that its producer price index had declined 5% on the year in May. That decline was steeper than Bloomberg’s median estimate for an annual drop of 4.4% from April, when it had fallen by 3.7%. On the month, wholesale prices grew by only 0.2% in May, weakened by a drop in food costs and lower than Bloomberg’s median expectations for a 0.6% rise (compared with a 0.3% increase the month before). This data is clearly pointing to elevated deflationary risks and it would be interesting to see if tomorrow’s US consumer price index continues to point to the same phenomenon.

Another macroeconomic report, meanwhile, indicated that US industrial production, a measure of output from factories, mines and utilities fell 1.1% in May. This was in line with Bloomberg’s median estimates and followed a revised 0.7% decrease in April.

The auto sector was the biggest drag on industrial production; motor vehicle and parts production plunged 7.9% in May after declining 1.2% the month before – not surprising given the restructuring efforts taking place at Chrysler and General Motors. Excluding automobiles, factory production in May dropped 0.6%, utility production decreased 1.4% and mining output, which includes oil drilling, fell 2.1%.

An hour after the opening bell, at 3.30pm (London time), Wall Street equity market indices had lost some steam; the Dow Jones Industrial Average was trading only 1.67 points (+0.02%) higher at 8613.80, while the boarder S&P 500 had risen by 1.17 points (+0.13%) to 924.89.

Supporting US stock markets were steel and oil stocks, which snapped their two-day losing streak after bargain hunters re-entered the market following yesterday’s aggressive sell off.

US Steel Corp was seen advancing 3.34% to $38.34, while Nucor Corp jumped 4.7% to $47.92 and AK Steel surged 6.2% to $19.45. In the energy sector, ConocoPhillips gained 1.95% to $43.94, Chevron added 0.4% to $71.37 and Schlumberger rose 0.7% to $58.99. Energy companies were given a boost by a rebound in crude oil prices today; July Light Sweet crude oil was up by 2.3% to $72.26 a barrel, while August Brent climbed 2.4% to $71.93 a barrel this afternoon.

Elsewhere, electronics retailer Best Buy made the headlines after reporting a 15% drop in first-quarter profits, which fell on the back of restructuring charges and a decline in same-store sales – a reflection of weakening consumer demand. The retailer’s first quarter net income came in at $153 million, or 36 cents a share, down from $179 million, or 43 cents a share a year earlier. Revenues, meanwhile, increased 12% to $10.1 billion helped by Best Buy Europe, but same-store sales, or sales at stores open at least 14 months (including internet sales) fell 6.2%. Shares in Best Buy plunged 5.2% to $36.67.

Biotech company Amgen, meanwhile, garnered support jumping 3.5% to $51.17 after Sanford C Bernstein upgraded the company from ‘market perform’ to ‘outperform’, saying the stock ‘should benefit from a significant re-acceleration in revenue and earnings growth’ over the next year. [2]

Banks were somewhat lacklustre, with Citigroup down 1.2% to $3.33 despite Reuters reporting that five companies were in the bidding for its Japanese asset management arm. Bank of America slid 2.9% to $12.94 and JP Morgan Chase edged 0.5% lower to $33.82.

[1] Source: Bloomberg News (16 June 2009)
[2] Source: Bloomberg News (16 June 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.