Despite a mixed morning of trading in London, US stocks opened positively today as investors grew in confidence among a flurry of economic news, and ahead of the imminent Federal Reserve interest-rate announcement.
At home, after a jittery opening, the FTSE 100 continued its bounce back this afternoon as traders and investors digested a series of impactful announcements: the FSA’s new remuneration code, while clearly aimed at distancing bankers’ bonuses from undue risk and uniting them with sensible long-term profitability, wasn’t as draconian as many had expected.
The Office for National Statistics revealed that UK unemployment hit 7.8%, and while a worrying one-in-six British youths are out of work, the figure was generally less than most economists had forecast. Also, the underlying message from the Bank of England’s quarterly inflation report was one of caution, as it warned that inflation might miss the target of 2% if interest rates were to rise in line with market expectations.
Back in the US, after stocks experienced their worst day in a month yesterday, there was some positive macro-economic news, with the US trade gap increasing less than forecast in June. More good news came in the shape of Bloomberg’s Professional Global Confidence Index, which jumped to a 22-month high of 58.12 from 39.13 in July.
’We have the biggest monetary and fiscal stimulus policy in history, globally, and we’re starting to see it work. Probably the next debate will be about how strong and sustainable the recovery is,’ said Nick Kounis, chief European economist at Fortis Bank Nederland Holding NV, a regular survey participant. [1]
Both of these would have helped to settle a few nerves for US investors as they awaited the announcements from the FOMC meeting (7.15pm London time), when decisions are due on quantitative easing, stimulus programmes and, of course, interest rates.
And it was that after two days of selling that the Dow Jones opened positively today. In the banking sector JP Morgan Chase & Co was up $0.98 (2.38%), while Bank of New York Mellon shares were up some 3.49% ($29.04) after it announced plans to buy Insight Investment Management from UK bank Lloyds.
Retailer Macy’s posted a second-quarter profit that exceeded analyst’s expectations and its shares rose 3.12%. Shares in Wal-Mart were also in demand after it released its second-quarter results, reaching $50.52 (+1.51%). Coca-Cola Co shares dipped, then recovered slightly to $48.98 (-0.12%), perhaps after a widely reported health scare over fizzy drinks.
By around 3.30pm (London time) the Dow Jones Industrial Average was up 120.99 points (1.31%) to 9362.44, the broader S&P 500 was up 10.78 points (1.08%) at 1005.13 and the Nasdaq was stronger too, up 30.11 points (+1.53%).
[1] Source: Bloomberg News (12 August 2009)
By Anthony Grech, Research Analyst, IG Index.
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