Spread Betting Update - Mixed Afternoon for Wall Street

Posted on | May 15, 2009 |

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Anthony Grech, Research Analyst, IG Index.

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