Wall Street Faces Volatility After US Data: Spread Betting News

Posted on | December 3, 2009 |

It has been quite a volatile day so far, with Wall Street opening modestly higher after investors interpreted Bank of America’s decision to split from the US government’s grips as a sign of progress.

Market confidence was quickly crushed, however, by a dismal report showing an unexpected contraction in the US services sector last month.

The trading day kicked off quite well, with Bank of America’s share price rallying 4.3% to $16.33 after announcing that it will repay $45 billion of US government bailout funds – a move that will end a number of restrictions imposed on the bank by US regulators.

This development helped lift shares across the sector, with Citigroup seen 0.7% higher to $4.13, Wells Fargo up 1.2% to $27.78 and JPMorgan Chase 2.6% above its previous close at $43.04.

Stimulating risk appetite at the start of trading was a report showing some evidence of life returning to the embattled US labour market.

The Labour department today showed that the number of Americans claiming first-time unemployment benefits (initial jobless claims) fell 5,000 last week to 457,000. This was better than Bloomberg’s expectations for a drop to 480,000.

Meanwhile, a separate report revealed that US labour productivity, a measure of employee output per hour, improved at its fastest pace in six years during the third quarter. The gauge rose at an annual rate of 8.1%, while labour costs fell at a 2.5% pace.

‘The labour market is turning,’ said Dean Maki, chief US economist at Barclays Capital. ‘We are set to break into positive job growth over the next few months. The recovery is proceeding on schedule.’ [1]

Market confidence was struck down by an unexpected contraction in the US services sector, however. The Institute for Supply Management’s overall index of non-manufacturing activity fell to a reading of 49.6 in November from 55.2.

Readings below 50 signal a contraction. Not surprisingly, this development fuelled an immediate sell off, as it suggests that the risks of an economic relapse have increased.

By around 3:30pm (London time), the Dow Jones Industrial Average was 15.72 (-0.15%) points lower at 10436.96, while the broader S&P 500 was 3 points (-0.28%) below its previous close at 1106.18. In contrast, the Nasdaq remained afloat, up 4.6 points (+0.26%) to 1795.42.

In corporate news, Comcast, the largest US cable-television company, announced that it will form a joint venture with General Electric’s NBC Universal, with GE receiving $8 billion in cash out of the deal in which Comcast will hold a 51% stake. Comcast also reported that it was increasing its dividend by 40%.

Fitch Ratings, meanwhile affirmed its ‘BBB+’ rating for Comcast’s Issuer Default Rating (IDR) and senior unsecured debt ratings and said that the company’s rating outlook appears stable.

Comcast’s share price surged 6.8% to $15.95, while General Electric climbed 0.9% to $16.22.

In Europe, the ECB kept interest rates unchanged at 1%, as anticipated. However, the central bank’s president Jean Claude Trichet surprised the market by saying that the Euro region’s recovery may be ‘anaemic’ and that inflation will remain ‘subdued’.

Elsewhere, shares in Irish Life & Permanent surged 7.2% to €3.5 on speculation that that France’s AXA could launch a takeover bid for the bancassurer. ‘There’s a rumour that AXA may bid for Irish Life at €6. It’s purely a rumour. The volume is small,’ one Dublin-based dealer said. [2]

[1] Source: Bloomberg News (3 December 2009)
[2] Source: Reuters News (3 December 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.

Comments