Wall Street contributed to the global rally today, following the release of better-than-expected US retail sales. A pledge to maintain stimulus measures by Asian government leaders at the Pacific Economic Cooperation (APEC) summit also fuelled risk appetite.

US retail sales impressed the market rising by a larger-than-expected 1.4% in October. The rise was better than Bloomberg’s expectations for a 0.9% increase and came as a result of stronger demand for autos, which grew without the aide of the government’s cash-for-clunkers programme.

The surge in retail sales demonstrates that the US consumer is still willing to spend on big ticket items. This bodes well for the spending prospects at the upcoming important festive season.

When excluding automobiles, retail sales grew by 0.2%.This was, nevertheless, weaker than Bloomberg’s expectations for a 0.4% increase. Sales at clothing stores, department and health and personal care stores also gained. In contrast, sales at electronic, furniture and building supplies stores all showed declines.

Conditions in the New York manufacturing sector were disappointing, however. The Federal Reserve Bank of New York’s Empire Manufacturing survey’s general business conditions index fell by 11 points to 23.51 in November.

In addition, the index for new orders dropped to a reading of 16.66 in November from 30.82 the prior month. Investors seemed to shrug off the manufacturing data and focus on other events, however.

The spotlight was on automaker General Motors today. The company stated that it produced positive operating cash flows of $3.3 billion in the third quarter and said it will begin to repay its government loans. This news benefited rival Ford, which gained 3.1% to $8.67.

Banks were also responsible for pushing Wall Street higher today, with Wells Fargo up 2.5% to $28.37 and Bank of America trading 1.25% higher at $16.18. Citigroup’s shares surged over 4% to $4.23 on the back of reports claiming that respected hedge-fund manager Paulson & Co bought 300 million shares in the bank during the third quarter.

Miners Freeport-McMoRan Copper & Gold and Newmont Mining also advanced on the New York Stock Exchange, with the former up 2.8% to $89.85 and latter 2.4% higher at $52.23 after further US dollar weakness pushed metal prices higher. December gold touched a new record high of $1,134.9 per troy ounce this afternoon.

Elsewhere, PC maker Dell added 3.2% to $15.89 after posting third quarter earnings and revenues that were ahead of expectations. The company’s bottom line was helped by stronger demand for PC’s as well as a weakening US dollar. Sanford Bernstein Research maintained an ‘outperform’ rating on the company and set its price target at $18 a share, leaving a potential upside of 13%.

In contrast, one of the worst performing stocks on the Nasdaq was Poniard Pharmaceuticals, a biopharmaceutical company focused on the development and commercialization of cancer therapy products.

Its shares tumbled 75% to $1.92 after its lead lung cancer therapy drug picoplatin failed a pivotal phase 3 trial. This company could be worth keeping on your watch list, however, as the sell-off may have been overdone in my opinion.

By 3:35pm (London time), the Dow Jones Industrial Average was trading 125.76 points (+1.22%) above its previous close at 10396.23 while the broader S&P 500 was trading at 1109.3, representing a 15.82 gain (+1.45%). The Nasdaq, meanwhile, gained 20.95 points (+1.17%) to 1809.56.

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.

Wall Street was trading in positive territory this afternoon following the release of solid quarterly earnings from Walt Disney and Abercrombie & Fitch.

Investors cheered after Walt Disney, the world’s biggest media company, reported a bigger-than-expected 18% increase in fourth-quarter profit of $895 million. After excluding certain one-off items, profits were 12% higher than Bloomberg’s median analyst estimates at 46 cents a share.

Sales were up by 4.5% to $9.87 billion, helped by higher fees from pay TV operators that carry its ESPN sports programmes. Sales were also ahead of Bloomberg’s $9.3 billion median forecast. Walt Disney’s shares rallied 4% to $30.22 after reporting its figures.

JP Morgan’s Imran Khan raised his fiscal 2010 earnings target for Walt Disney to $1.86 a share from $1.78, and lifted his price target to $28 from $22. The revision reflects ‘an improving ad outlook, which will be somewhat offset by challenging studio results and pension and post-retirement costs.’

Khan maintained his underweight rating on the shares while Doug Mitchelson of Deutsche Bank Securites reiterated his ‘buy’ rating on Walt Disney, saying strong income growth from the cable networks, ‘well-positioned’ international businesses, and ‘excellent’ governance create more room for the shares to rise. [1]

Teen-clothing retailer Abercrombie & Fitch (ANF) was also in the spotlight today. It shares rallied over 6% to $39, after reporting a third-quarter adjusted profit of 30 cents per share, 50% higher than Bloomberg’s median estimates. Goldman Sachs also added the US retailer to its ‘conviction buy’ list, citing the potential for international sales growth.

‘While the international profit opportunity has been part of the bull case for some time, we see it as a bigger catalyst for shares in the coming quarters as the pace of openings is accelerating notably,’ said Michelle Tan of Goldman Sachs. ‘We expect ANF could accelerate their pace of international openings in 2011 and beyond.’ [2]

Not all retailers fared well; Nordstrom plunged 4.8% to $32.86 after predicting a drop in full-year same-store sales and disappointing gross margins. In the meantime, Nordstrom posted a net profit of $83 million, or 38 cents per share, in the third quarter. This was 17% higher than last year’s comparative but slightly below Reuters’ expectations. Third-quarter revenues rose 3.5% to $1.87 billion.

Elsewhere, Google made the headlines after the Swiss Federal Data Protection and Information Commissioner said it is taking the internet advertising giant to court over its Street View service, which had failed to protect people’s privacy. Google’s share price edged 0.40% higher to $570.06 a share, nevertheless.

By 3.30pm (London time) the Dow Jones Industrial Average was 40.43 points (+0.40%) above its previous close at 10237.9, while the broader S&P 500 was 2.27 points (+0.21%) higher at 1089.51. The Nasdaq, meanwhile, gained 6.92 points (+0.39%) to 1780.06.

In economic news, an official government report revealed that the US trade deficit widened the most in a decade in September, as a result of rising demand for imported oil and automobiles.

The trade gap grew by a wider-than-expected 18% to $36.5 billion, as imports surged 5.8% to a 16-year high of $168.4 billion. This outpaced exports, which grew by only 2.9% to $132 billion. According to the report, sales of civilian aircrafts, industrial machines and petroleum products contributed to the rise in exports.

Although trade deficits are frowned upon, it could be interpreted as a positive indicator this time around because the surge in imports suggests that US domestic demand is recovering.

In contrast, US consumer confidence data surprisingly fell in November, highlighting the fact that the American economy still faces significant hurdles ahead.

The Reuters / University of Michigan preliminary index of consumer sentiment declined to 66 from 70.6 in October – Bloomberg’s median estimates were pointing to a rise to 71. The drop in consumer confidence suggests that spending in the upcoming holiday season may be subdued – the US jobless rate is after all at a 26-year high.

[1] Source: Market Watch (13 November 2009)
[2] Source: Bloomberg News (13 November 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.

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The trading floor was buzzing with activity this afternoon, as Wall Street managed to defy a negative start and rise on the back of better-than-expected jobless claims figures and a rally across technology shares.

The US session kicked off with a government report showing fewer Americans signing on for jobless benefits last week. This is an encouraging sign because it suggests that the US labour market may finally be at the threshold of a recovery.

The number of Americans filing for unemployment benefits for the first time (initial jobless claims) fell by 12,000 to 502,000 in the week ended November 7, the lowest since January and substantially better than Bloomberg’s median estimates for a drop to 510,000. The four-week moving average for initial jobless claims, a less volatile gauge, decreased 4,500 to 519,750.

Meanwhile, those continuing to claim jobless benefits for more than a week (continuing jobless claims) dropped by 139,000 to 5.63 million in the week ended October 31.

It is also interesting to know that President Barack Obama last week signed into law a plan to extend jobless benefits, provide tax credits to first-time homebuyers and tax refunds to money-losing companies.

Technology shares also contributed to upbeat sentiment today, with chip maker Advanced Micro Devices rallying 23% to $6.55 after rival Intel agreed to pay the company $1.25 billion as part of a legal settlement to end an ongoing dispute.

The settlement includes all antitrust litigation and patent cross-licence disputes. The companies also agreed to a new 5-year cross-license pact and will give up any claims of a breach from the previous agreement.

3Com Corp, a global enterprise networking solutions provider, soared nearly 32% to $7.50 after pc maker Hewlett Packard (HP) agreed to acquire the company for $2.7 billion, valuing 3Com at $7.9 a share. The move is certainly a strategic one for HP, as 3Com has many complimentary products, which will help HP expand its product base and literally become a one-stop shop for IT services.

In addition to this development, HP announced a profit, excluding one-off items, of $1.14 a share in the fiscal fourth quarter, topping Bloomberg’s average estimate of $1.11. Sales fell less than expected, down 8% to $30.8 billion over the same period.

HP also said it expects first quarter revenue to come in between $29.6 billion and $29.9 billion, and earnings per share to be between $1.03 and $1.05. Sales were ahead of Bloomberg’s median forecast of $29.2 billion while earnings were in line with expectations. HP’s share price edged 0.2% lower at $49.9.

Retail companies Wal-Mart and Kohl’s Corp were in the spotlight as well after unveiling stronger than expected quarterly results.

Wal-Mart gained 1.2% to $53.62 after reporting that third-quarter profits rose 3.2% as a result of heavy inventory rundowns. Net income came in at $3.24 billion, equivalent to 84 cents a share, beating Bloomberg’s average estimate of 81 cents a share. Revenue over the period advanced 1.1% to $99.4 billion.

Kohl Corp, meanwhile, reported third-quarter earnings that were also ahead of expectations and raised its full-year earnings guidance, saying it expects to earn between $2.98 and $3.08 a share.

All of the developments helped Wall Street move out of the red this afternoon. By 3:50pm (London time) the Dow Jones Industrial Average was 9.59 points (+0.09%) higher at 10300.85 while the broader S&P 500 was 1.53 points (+0.14%) in the black at 1100.04. The Nasdaq fared relatively better, however, up 6.55 points (+0.37%) to 1789.50.

Weighing on Wall Street today were the comments of China’s Premier Wen Jiabao, who spurred concern over the sustainability of the global economic recovery by saying that ‘a total recovery will be slow and bumpy process.’

To be quite frank, this is not really news and I would personally take advantage of any stock market weakness in the short term.

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.

Wall Street opened positively this afternoon – the Dow was up 76 points by 3.30pm in London, passing 10,320 to reach a new year-high after a spate of Dollar weakness.

In London this afternoon the FTSE also reached an intraday high for 2009 as unemployment levels came in better-than-expected, with the rise of 12,900 out of work considerably better than the forecast of 20,000. The index briefly breached 5300 before retreating slightly.

As was the case on the European markets, the US rally today was led by financial equities. Bank of America, which saw its share price up 3.49%, was heading the leader board after an hour of trading. American Express was also trading strongly, with a gain of 1.89% by 3.50pm (London time).

China today hinted that it may allow appreciation of the Renminbi as it faced international criticism for keeping the currency undervalued. The country also reported a higher-than-expected trade surplus and a healthy credit situation, indicating that the nation’s economic recovery remains on track. All this news will have helped the Dow today.

However, the underlying catalyst for strength in the US equity markets seems to be the weakness of the Dollar. It fell to a 15-month low today, encouraging traders to turn to equity markets as interest rates look set to remain at record lows on both sides of the Atlantic.

Dollar weakness will also have the knock-on effect of driving up commodity prices, which again increases the relative attractiveness of equities.

The other side effect of the Dollar’s weakness was an extension of gold’s run. Spot bullion reached a record level of $1,117 per ounce as investors favoured its relative stability.

Other metals benefited from this rally, with copper, nickel and zinc all adding between 1.6% and 2.1% today.

This strength was played out on the FTSE, as miners led the UK market’s rally today.

Oil prices also rose gently, with Nymex gaining 51 cents a barrel to reach $79.56.

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 seemed as though Wall Street took a bit of a breather at the start of trading today.

A glance at the S&P 500 chart reveals that there’s a potential head-and-shoulders pattern forming – a bearish indicator which could also help explain why Wall Street has kicked off in the red today.

The US trading day opened with some disappointing quarterly results from US engineering firm Fluor, which tumbled 5.5% to $45.35 after lowering its full-year earnings forecast. The company unveiled a third-quarter profit of 89 cents a share today, slightly off Bloomberg’s median forecast of 90 cents a share

An aversion towards most financial stocks weighed on Wall Street as well. MBIA, the world’s largest bond insurer, slumped 16.7% to $4 a share after posting a third-quarter net loss of $727.8 million, or $3.50 a share, predominantly due to a drop in the value of insured credit derivatives. This was substantially deeper than Bloomberg’s estimates for a loss of $1.09 a share.

These results also exerted pressure on rival Ambac, which saw its share price tumble 11% to $1.05. Although banks fared better than bond insurers, appetite for the former was somewhat lacklustre, with Citigroup and Wells Fargo both down by 0.5% to $4.17 and $28.27 respectively.

American International Group was among the few financial stocks that staged a rally, however, jumping 4.3% to $37.74 after reporting better-than-expected third- quarter results.

The insurance company unveiled net income of $455 million, or $0.68 a share, which is substantially better than last year’s net loss of $24.5 billion. AIG explained that its bottom line was helped by fewer write downs, aggressive cost cutting and the disposal of non-core units.

AIG also said it is considering the closure of more branches. It said that it may sell off some of its loan portfolios to bolster its balance sheet and may be able to pay back certain loans.

There have been some other outstanding movers today – the share price of online travel agency Priceline.com surged nearly 17% to $202.9 after announcing quarterly sales and profits that topped consensus expectations. The company also said it anticipates further growth in revenues in the fourth quarter.

Internet advertising giant Google was also in the spotlight after unveiling plans to acquire mobile advertising start-up AdMob Inc for $750 million in stock. The purchase forms part of Google’s plan to increase its dominance in advertising to mobile phones. Google’s share price traded 0.6% higher at $565.96.

House builder Beazer Homes was another star performer, up 9.2% to $5.13 after posting its first quarterly profit in three years. The company earned 87 cents a share in its fiscal fourth quarter, substantially ahead of Bloomberg’s average estimate for a loss of $1.40 a share.

Elsewhere, December Light Sweet crude futures traded 0.5% higher at $79.87 a barrel this afternoon, despite the International Energy Agency saying that a new global deal to limit carbon emissions could sharply dampen the growth in oil consumption in the years ahead.

IEA said that if this deal is reached, global crude demand may grow by only four million barrels a day, substantially lower than current levels of 89 million barrels a day. If this agreement does materialise, it could limit crude oil’s upside and the profitability of certain oil companies.

By 3.30pm (London time), the Dow Jones Industrial Average was trading 30.38 points (+0.30%) higher at 10257.32, while the broader S&P 500 was 2.62 points (+0.24%) above its previous close at 1095.70.

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 appears as if Friday’s worse-than-expected American unemployment figures were shrugged off today, with Wall Street rallying on the back of takeover news and stimulus support at the G20 meeting.

A number of events contributed to Wall Street’s euphoric mood this afternoon. We had finance ministers at the G20 meeting vowing to maintain their economic stimuli and the International Monetary Fund claim that low US interest rate expectations have transformed the US Dollar into a funding currency for carry-trades.

The G20 meeting helped erase fears over what may happen to the global economic recovery if governments prematurely removed their economic stimuli while the IMF’s statement contributed to further US Dollar weakness – add one and two together and you get a recipe for a mining sector rally that’s driven by higher metal prices.

By 3:30pm (London time), the Dow Jones Industrial Average had advanced by 116.31 (+1.16%) to 10139.73, while the broader S&P 500 was 13.43 points (+1.26%) above its previous close at 1082.73. The Nasdaq fared relatively better, up 25.02 points (+1.45%) to 1755.78.

Broad US Dollar weakness encouraged investors to increase their exposure to precious metals, particularly gold, which hit a new record high of $1,111.7 an ounce today.

Not surprisingly, Gold miners outperformed this afternoon. Barrick Gold rallied 3.6% to $43.13 while Freeport-McMoRan Copper & Gold surged 4.6% to $83.24.

Deal news may have also added to the excitement. Kraft Foods formally announced a hostile takeover bid for Britain’s Cadbury this afternoon - offering shareholders at the British confectioner 300p per share in cash plus 0.25489 new Kraft shares for each Cadbury share.

The terms were the same as Kraft’s initial takeover approach in September. Kraft’s share price has fallen since then, which means that Cadbury is now being valued at £9.8 billion or 717p a share - 3.9% lower than Kraft’s original £10.2 billion bid.

‘We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury’ said Irene Rosenfeld, the Chairman and CEO of Kraft Foods, in a regulatory statement released this afternoon. ‘We believe that our proposal offers the best immediate and long-term value for Cadbury’s shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent.’

Cadbury’s Chairman Roger Carr was disappointed with Kraft’s proposal, however. He said, ‘The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive. As a result, the Board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all.’ [1]

Cadbury’s share price edged 0.3% higher to 760p a share in London while Kraft’s shares dropped 1.3% to $26.45.

There were a number of other companies in the spotlight this afternoon. Electronics retailer RadioShack was among the New York Stock Exchange’s best performers, surging 13.7% to $20.17 after unveiling plans to sell Apple’s iPhone 3G and iPhone 3GS at some of its stores in the Dallas-Fort Worth and New York metropolitan areas beginning later this month.

Elsewhere, Ariad Pharmaceuticals jumped 10.6% to $2.4 after JPMorgan Chase raised its recommendation on the drug maker from ‘neutral’ to ‘overweight’, saying two of the company’s cancer-fighting drugs could ‘ignite investor interest and drive meaningful share price appreciation’ in the next three to six months.

This might be a good stock to keep on your watch list. The world’s largest steelmaker ArcelorMittal also benefited from an upgrade, its shares climbed 3.33% to $24.52 after MF Global raised it from ‘neutral’ to ‘buy.’ [2]

[1] Source: London Stock Exchange regulatory news filing ( 9 November 2009)
[2] Source: Bloomberg News ( 9 November 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.

If you’re looking for encouraging signs, take a look at the level of the DJIA and the S&P 500 index and you’ll see signs of Wall Street attempting to defy some pretty miserable employment numbers by rebounding into positive territory.

We weren’t expecting great things from the non-farm payroll figures which came out at 1.30pm (London time), but the numbers being bandied around by analysts in advance of the announcement were a lot less ugly than those ultimately reported by the US Labour Department.

A survey conducted by Reuters suggested that 175,000 jobs had been shed by the US economy last month, and that the unemployment rate had risen to around 9.9%. In actuality, though, the unemployment rate had shot up to 10.2% – the highest level of unemployment seen since 1983 – and it was 190,000 jobs that were cut by employers.

Now, these numbers were by no means disastrous, but after the groundswell of positive sentiment that had accompanied the better-than-expected jobless claims figures yesterday, this news came as something of a gut-shot for the market and shortly following the opening on Wall Street there was an inevitable knee-jerk reaction and share prices quickly sank, with the Dow Jones Industrial Average dipping as low as 9936 (-0.7%) at one point.

Upgrades to a couple of key stocks shone a ray of encouragement though, and by 3pm most stocks were out of the red.

Bernstein Wealth Management upgraded Amazon.com to ‘outperform’ and raised its price target from $125 per share to $160, leading to a surge in the share price as soon as the market opened. By 3.30pm Amazon was up $4.64 or 3.8% at $125.25.

Bernstein and Oppenheimer & Co both upgraded US bellwether General Electric, which climbed 5.7% to $15.31, which was single-handedly responsible for adding around 6 points to the DJIA index.

At 3pm wholesale inventories data were announced and offered further positive signs: the figures showed that stocks fell for the thirteenth consecutive month and that sales rose for the fifth straight month. The 0.9% drop in inventories was not quite as good as had been anticipated by economists though. A Reuters poll had forecast a 1% drop.

And so, for a brief moment, it looked like the market had shrugged off the employment situation as a lagging indicator and instead chosen to embrace the upbeat news.

But this is 2009: confidence in the financial markets is still a fragile thing, and bearish attitudes once again began to hold sway as the afternoon wore on, with more and more stocks slipping back into the red. The price of gold, perhaps the ultimate flight to quality instrument, soared above $1100 for the first time ever.

By 4pm, the overall direction of the market was still hanging in the balance, with stock index levels just about flat. There is a sense of investors exhibiting caution, taking stock, looking for clearer signs. They will, no doubt, be looking towards the G20 meeting this weekend for an inkling of which direction the winds of commerce are blowing.

By Peter Martin, Director, Client Education and Training, 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.

Stocks on Wall Street opened fairly robustly this afternoon, after the pre-market release of encouraging labour data and upbeat news from Cisco Systems and Costco.

By 2.40pm (London time) the Dow Jones was trading up 78 points or 0.8% at 9880 and by 3pm had progressed to 9928 (+1.3%). The wider S&P 500 was up by 6.30 points or 0.6% at 1052.8, while the Nasdaq 100 climbed 1.2% to 1700.

Last night the Fed renewed its pledge to maintain interest rates at their current low levels for an ‘extended period’, citing the high level of unemployment as an ongoing concern. Data released today from the US Labor Department was better than had been expected though, showing that the number of workers filing new claims for jobless insurance last week fell to a 10-month low.

Jobless claims were reduced by 20,000 to a seasonally adjusted 512,000 during the week ended 31 October. A Reuters survey had suggested a figure of 523,000.

This fall in the number of applicants for unemployment insurance is obviously welcome news, but for a sustained recovery it’s essential that the labour market continues to improve.

Although we received confirmation last month that the US economy emerged from recession during the third quarter, much of that growth can be attributed to the US government’s stimulus programme.

Eventually those stabilisers are going to have to come off, and a solid labour market will be needed to keep things upright. Further indications of the state of the labour market will be gleaned tomorrow with the release of October’s non-farm payrolls at 1.30pm (London time).

Cisco Systems said last night that quarterly revenue had increased more than expected and that its board has allocated as much as $10 billion for buying back its own shares.

Cisco CEO John Chambers said, ‘The numbers are indicating us being in the early, initial phase of a recovery, with the US leading the way.’[1]

Cisco was trading at $23.29, up by 53 cents or 2.3% by 3pm.

Wholesaler Costco announced that its October comparable store sales had surpassed expectations, reaching 5%, against the 4.2% previously estimated. [2]

Its share price reacted only mildly to the news, climbing 0.2% to $58.92, but Costco’s position as a leading light in the world of retail means that these surprisingly good results bode well in a wider sense as an indicator of consumer spending and confidence, key pillars of the US economy.

The positive opening in US markets has had a beneficial effect on stock markets around Europe, with the FTSE 100 and the German DAX both tentatively creeping out of the red by mid-afternoon, after weak morning sessions. By 3.30pm both indices were up by around 0.5%.

Tesco was one of the success stories on the London Stock Exchange this afternoon, trading up more than 2% at 419p, this follows Tuesday’s upgrade of the stock from ‘Neutral’ to ‘Buy’ by Goldman Sachs.

Another retailer performing well today is Dutch grocer Ahold, which is up around 5%. Its strong performance comes in the wake of news that two key executives are being freed up from day-to-day operations, which has led to speculation that the company is gearing up for strategic initiatives or acquisitions. Complicating issues somewhat, ING analysts suggested on Monday that Ahold itself might be a target for Tesco. [3]

[1] Source: Bloomberg (5 November 2009)
[2] Survey by Retail Metrics in Swampscott, Massachusetts
[3] Source: Reuters (5 November 2009)

By Peter Martin, Director, Client Education and Training, 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 100 is trading around the 5100 level, while US markets have opened higher following positive employment statistics.

Retail and mining sectors continue to hold onto the mornings gains. Miners Fresnillo and Kazakhmys continue to be up on the day, up 61p (+8.12%) and 75p (+6.70%) respectively.

While retailers Next and Marks and Spencer continue to hold onto their gains, up 124p (+6.85%) and 20.50p (+6.01%) respectively.

In banking, Lloyds Banking Group experienced a dip in its share price after having its safety rating downgraded by Moody’s. The ratings agency downgraded Lloyds following Monday’s announcement that the bank would not take part in the Government’s Asset Protection Scheme, Lloyd’s plans to raise £13.7 billion from its investors in the largest cash call in UK corporate history.

Elisabeth Rudman, senior credit officer at Moody’s, noted that while the capital being raised should provide a sufficient buffer against further losses, Lloyds is now ‘more exposed towards the tail-risk of a potentially worse-than-expected asset quality deterioration.’ Lloyds has so far fallen 2.62% to 85.04p.

Other losers include energy giant Royal Dutch Shell, down 0.97% at 1744.00p and pharmaceutical company GlaxoSmithKline, down 1.02% to 1216.00p.

Before the opening bell US stock-index futures indicated that the US markets would open positively, and they did not disappoint. By 3.00pm (London time), the Dow Jones Industrial Average was trading up 67.94 points (+0.70%) at 9839.85, while the broader S&P 500 was also up 11.92 points (+0.82%) to 1058.36. The Nasdaq was also in positive territory, up 7.78 points (+0.38%) to 2065.10.

Today’s Challenger job cuts survey provided further evidence that the US economy is emerging from the recession. Planned job cuts fell 51% in October to 55,679 from 112,884 the same time last year.

John A. Challenger noted in a statement that ‘the continued decline in job-cutting … is a positive sign that the economy is slowly improving,’ adding the caveat that it ‘is important to realize that, as deep and widespread as this recession was, it is going to be a long and sometimes painful recovery.’ [2] While the survey shows that employers are more willing to keep on employees; businesses are still not hiring, with analysts’ expecting unemployment figures to continue to rise.

On the Dow Jones, major banks JP Morgan and Bank of America were among the early winners, gaining 1.80% to $43.47 and 2.84% to $15.22 respectively. While entertainment giant Walt Disney saw its share price grow as it announced that it won approval to build a theme park in Shanghai. Disney’s share price now currently stands at $28.37, up 2.72%.

Later today analysts are widely expecting the FOMC to keep interest rates at ultra-low levels when the decision comes through at 7.15pm London time.

Source: [1] This is money (4 November 2009)
Source: [2] Bloomberg News (4 November 2009)

By Anthony Grech, Research Analyst, IG Index.

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The downtrend on the Dow and S&P 500 resumed, as wider-than-expected losses at UBS and a downgrade on semiconductor stocks encouraged investors to reduce their exposure to equities.

The downtrend on the Dow and S&P 500 resumed, as wider-than-expected losses at UBS and a downgrade on semiconductor stocks encouraged investors to reduce their exposure to equities.

US banking shares came under pressure this afternoon after Swiss banking giant UBS unveiled disappointing quarterly results. UBS reported a third quarter net loss of 564 million Swiss francs, which was more than double the 207 million loss expected by Reuters.

The bank’s key wealth and asset management business continued to haemorrhage, with total net withdrawals coming in at a staggering 36.6 billion Swiss francs.

UBS’s shares sunk 4.7% to $16 a share on the New York Stock Exchange. Meanwhile, Citigroup’s shares slid 2.3% to $3.9 and Bank of America fell 1% to $14.48 a share.

Semiconductor shares were also under pressure after being struck by a downgrade from Morgan Stanley. The broker lowered its rating on US semiconductors stocks from ‘attractive’ to ‘cautious’, warning that fundamentals are peaking across the sector and that inventories are beginning to creep up again.

Morgan Stanley also downgraded chip giant Intel Corp from ‘overweight’ to ‘equal weight’ and lowered its ratings on Micron Technology, Altera Corp and Xilinx, among others. [1]

Intel’s shares plunged 3.4% to $18.36 and Micron Technology fell 2.7% to $6.40. Altera declined 2.69% to $19.39 while Xilinx dropped 2.6% to $21.18.

By 3.30pm (London time) the Dow Jones Industrial Average was trading 46.4 points (-0.47%) in the red at 9743.04, while the broader S&P 500 was 4.98 points (-0.48%) below its previous close at 1037.90. The Nasdaq fared relatively worse, falling 10.04 points (-0.60%) to 1662.87.

Railroad transportation shares managed to buck the negative trend today after Berkshire Hathaway, owned by renowned billionaire investor Warren Buffett, made its biggest acquisition in the sector.

Berkshire announced that it has agreed to acquire the remaining 77% stake of the railroad company Burlington Northern Santa Fe Corp for $100 a share in cash and stock, valuing the transaction at around $44 billion.

Buffett made this acquisition on the view that the US economy will continue to recover from one of the worst recessions in history. He views railroad companies as having an advantage over other forms of transportation that depend on fuel.

‘As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four,’ Buffett told his shareholders at an annual meeting back in 2007. ‘There could be a lot more business there than there was in the past.’ [2]

Interestingly, my calculations show that Buffett is paying 18.1 times Burlington’s estimated 2010 earnings of $5.528 per share and around 2.65 times its estimated book value of $37.688 a share.

In comparison, rivals Union Pacific and CSX Corp traded at multiples that were substantially lower than Burlington’s forward multiples. This could, in theory, suggest that there may be further upside in the share values of Union Pacific and CSX Corp – although I must warn that theory may not necessarily prevail in current market conditions.

Union Pacific’s share price traded 5.3% higher at $58 a share this afternoon, which is 13.77 times its 2010 earnings-per-share estimates of $4.213 and 1.67 times next year’s forecast book value of $34.78 a share.

In order for Union Pacific to trade at similar multiples to Burlington, its share price would have to be trading 31% higher at $76.

Similarly, CSX Corp, another of Burlington’s rivals, traded 6.9% higher at $45.80 a share this afternoon. This is 14.01 times its 2010 estimated earning per share of $3.269 and double next year’s forecast book value of $22.93 a share.

In theory, CSX Corp would have to be trading around 29% higher at $59 a share in order to be trading close to Burlington’s 2010 estimated multiples. [3]

The Black & Decker Corporation, the maker of power drills, also bucked the trend, rallying 26% to $59.64 after agreeing to be acquired by Stanley Works for $3.5 billion in stock. Stanley Works advanced 6.7% to $48.17 a share following the announcement.

Source: [1] Wall Street Journal (3 November 2009)
Source: [2] Bloomberg News (3 November 2009)
Source: [3] The 2010 per share earnings and book value estimates for Union Pacific and CSX Corp was based on Bloomberg’s median analyst estimates and on GAAP accounting standards.

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.