US Spread Betting Markets Hit by Profit Taking

Posted on | July 28, 2009 |

US markets were back in the red today, as investors continued to take profits on the back of last week’s rally.

Data released today revealed that rising US unemployment has lead to a sharper-than-expected drop in US consumer confidence data. This exacerbated declines on Wall Street because it indicates that household spending is likely to slowdown, a phenomenon that would exert further pressure on future revenue and bottom line growth.

The Conference Board’s confidence index dropped for a second month to 46.6 in July from 49.3 in June. This was worse than Bloomberg’s expectations for a drop to 49.

Not all data released this afternoon was negative, however. The S&P Case Shiller Index showed further signs of stabilisation in US house prices in May - the index rose 0.5% on the month while the annual drop narrowed from 18.1% in April to 17.1% - the smallest year-on-year decline in nine months. The majority of economists surveyed by Bloomberg predicted an annual drop of 17.9% in May.

‘The pace of descent in home-price values appears to be slowing,’ said David Blitzer, the chairman of the index committee at S&P, in a statement. ‘This could be an indication that home-price declines are finally stabilizing.’ [1]

The housing data was predominantly shrugged off, however. By 3.35pm (London time), the Dow Jones Industrial Average had declined 40.36 points (-0.44%) to 9068.15, while the broader (more representative) S&P 500 had lost 6.52 points (-0.66%) to 975.66. The Nasdaq was also in negative territory, down 7.05 points (-0.44%) to 1592.26.

US Steel was in focus today, unveiling a second straight quarterly loss today. Its net loss for the second quarter came in at $392 million, or $2.92 a share, compared with a profit of $668 million, or $5.65 per share, the same quarter a year ago. Excluding one-off items, US Steel’s loss per share was $3.28, below the $3.45 loss expected by Reuters. Revenues were also weaker, down 75% to $2.13 billion. US Steel also warned that its business was likely to operate at a loss in the third quarter as well. Its share price dropped 2.2% to $40.37 this afternoon.

Viacom also made the headlines, reporting a 32% drop in second quarter profits, while revenue fell 14% to $3.3 billion, missing consensus estimate of $3.5 billion. Its share price has remained practically unchanged at $24.40 so far.

Perhaps more encouraging were the results of Amgen, the world’s largest biotechnology company, which reported second-quarter earnings that were substantially ahead of expectations. The company explained that its bottom line was helped by a rebound in sales of its rheumatoid arthritis drug and a tax benefit.

Amgen posted a net profit of $1.27 billion, or $1.25 per share, compared with a profit of $906 million, or 84 cents per share, a year ago. The net profit was helped by a $115 million tax benefit. When adjusting for one-off items, Amgen’s profits came in at $1.29 a share, beating the $1.17 forecast expected by Reuters.

Separately, Amgen also announced that it has entered into a deal with GlaxoSmithKline. It appears that the British drugmaker will commercialise Amgen’s experimental osteoporosis drug, Denosumab, in Europe and in emerging markets.

International Business Machines (IBM) was also in the news today. The company said it plans to acquire SPSS, a provider of predictive analytics software, for $1.2 billion in cash, equivalent to $50 a share – that’s 42.5% higher than Monday’s closing price of $35.09.

IBM said the deal will help it expand its Information on Demand software portfolio and business analytics capabilities. It is important to note that the deal still requires approval from the shareholders of SPSS and regulatory clearances. The deal is expected to close in the second half of this year. Shares in IBM traded 0.60% lower at $116.94.

IBM also said it acquired Ounce Labs, a maker of software that helps companies reduce risks and costs associated with security and compliance concerns. The terms of the deal remained undisclosed, however.

In the meantime, Sprint Nextel announced plans to acquire Virgin Mobile USA in a share transaction that values the smaller mobile phone company at $483 million (£293 million). The third largest US mobile services company also agreed to pay off Virgin Mobile USA’s outstanding debt once the deal closes.

Source: [1] Bloomberg News (28 July 2009)

By Anthony Grech, Research Analyst, IG Index.

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