US markets finally paused for breath after a two-day rally following Ben Bernanke’s speech on Friday.
The risk-on trade suffered a rude shock after US consumer confidence slumped to levels not seen since April 2009. Meanwhile, gold was back in fashion after comments about more easing from a Fed policymaker.
By 3.30pm (London time), the Dow Jones was down 0.6% at 11,467.20, while the S&P 500 dropped back from a four-week high, falling 0.75% to 1201.05. In London however, the FTSE 100 clung to its gains, up 1.9% at 5229.42.
No respite from bad US data
US new home prices declined once again, although the year-on-year drop was slightly above expectations.
A 4.5% fall between June 2010 and June 2011 was reported, marginally better than the 4.6%. The month-on-month change was -0.1%, almost unmoved, so while there might be no double dip in US housing, there is no stellar recovery either. Keep in mind that this is data from three months ago, so its importance is somewhat limited.
The housing market data was a mere appetiser for the main event of the afternoon, which was the August reading on consumer confidence.
The main reading slumped from 59.2 to 44.2, its lowest level since April 2009, far below the expected figure of 52.
It’s hard to escape the conclusion that two bouts of monetary easing have failed to have much effect in the medium term.
Even worse, the six-month outlook reading collapsed, dropping to 51.9 from 74.9, one of the largest drops in the index’s history. The reading does not bode well for the rest of the week, with ADP numbers due Wednesday, ISM manufacturing on Thursday, and then the all-important non-farm payrolls on Friday.
Gold springs back to life
Gold futures enjoyed a fairly quiet morning, with the price of the yellow metal hovering around the $1790-per-ounce mark, but this came to an end following comments from Chicago Fed president Charles Evans.
Mr Evans said that he thought there was still room for more accommodation in US monetary policy, adding that the Fed’s actions in embarking on QE1 and QE2 had not been a driver of the surge in commodities spread betting prices. Investors are particularly jittery about any mention of further easing, and were quick to react following his comments.
Gold shot higher, touching $1830 per ounce before easing slightly.
If today’s Fed minutes signal that more easing was discussed back in early August, then gold spreads could press higher once again. UBS has reaffirmed that gold will hit $1950 per ounce by the end of September, while JPMorgan continues to expect gold at $2500 per ounce by the end of the year.
Italians do their bit to spook markets
An Italian bond auction provided a mixed picture for observers of the Eurozone debt crisis. An auction of ten-year bonds saw yields edge downwards to 5.22% from the previous sale’s 5.77%, a sign that investors are more willing to invest in Italian government debt.
However, the bid-to-cover ratio, which measures investor appetite, dropped to 1.27, below the previous figure of 1.38 and well below the 1.4 average for the year.
Markets remain nervous that the Italians are teetering on the brink of a financing problem similar to that faced by Greece, Ireland and Portugal, and news that Rome has balked at implementing some of the recently agreed austerity measures will do little to calm nerves.
But FTSE propped up by banks and miners
The banking sector is firmly in demand in London this afternoon, although to be fair, almost everything is up today.
Barclays added 5%, Lloyds gained 6%, and RBS led the way with a 7% gain. By comparison, the 3% gains by Standard Chartered and HSBC seem quite modest, although they have not suffered as heavily as the other three members of the ‘Big Five’.
The banks have also been lifted today by news that the sector is staging a fight back against government plans to split retail and investment banking. The British Banker’s Association has argued that regulatory change at this moment would upset the economic recovery. But then, they would hardly be likely to say anything else.
Also up today are mining stocks, with the big names seeing gains of 4% or more. As hopes for global growth took a nasty knock in recent weeks, miners fell sharply, but they have rebounded today, giving the FTSE 100 a significant shove upwards. Anglo American, Antofagasta, Lonmin and Vedanta all enjoyed advances in excess of 5%.
The FTSE 100 is enjoying its day in the sun, but a quick glance across the Channel and the Atlantic shows that nervousness remains.
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'FTSE 100 Rises Despite Shocking US Consumer Confidence Data', Article by IG Index, last update: 30-Aug-11
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