Stock markets wilted briefly following the release of rather downbeat US economic data, but then recovered their poise to post more solid advances on expectations that the Federal Reserve will provide further support for global markets.
By 3.30pm (London time), the Dow Jones was up 1.1% at 10,973.86, while the S&P 500 advanced 1.2% to 1137.5. In London, the FTSE 100 recovered from a brief sojourn in the red to rise 0.4% to 5116.01, although this is still around 77 points off the high of the day.
Still no upturn for US economic news
On the US economic front, there was little to cheer investors. Sales of new homes fell to their lowest level for five months. Sales dropped to an annualised rate of 298,000 in July, down 0.7% from the previous month. Economists had forecast a drop of 0.6%.
Meanwhile, the June figure was revised down to a 2.9% fall, from an original figure of 1%. So, although the figures mark a not insubstantial improvement month-on-month, the figure is hardly much better.
Elsewhere in spread betting news, the Richmond Fed manufacturing index continued to worsen. July’s figure of -1 dropped to -10 in August, far worse than the -5 predicted by experts. The data is the worst figure since June 2009, but is at least an improvement over last week’s near-apocalyptic -30.7 reading from the Richmond Fed’s counterparts in Philadelphia.
But stock markets post gains
Stock markets however shrugged off the bad data, perhaps on the rather perverse logic that continued weakening of economic data makes a Ben Bernanke rescue of the US economy more likely.
It is a strange turn of events when global markets make gains in the wake of news that shows that the world’s largest economy continues to be unable to establish real forward momentum. This ‘hope of QE3’ rally presages a nasty time ahead for global markets if Chairman Bernanke fails to utter the magic words on Friday.
Warning signs still abound however
Markets may be broadly higher today for a second consecutive session, but the signs of nervousness remain.
Yesterday gold was the asset that suggested underlying uneasiness remains, but today US banks are in focus. An index of credit-default swap spreads (which are a form of insurance against default) for US banks has jumped by 13 points to 233 basis points, which is its highest level for the year so far.
One particular bank is leading the way, Bank of America. Its CDS spreads have reached their all-time widest point. These moves reflect growing funding concerns about banks.
European bank CDSs are also coming under pressure, and today’s precipitate drops in German and Eurozone confidence (as measured by this morning’s ZEW surveys) have put the cat amongst the pigeons.
Bank of America shares fell 3% to $6.22 in opening trading, meaning that the company is now worth around $63 billion, down 53% from 1 January. Goldman Sachs, whose shares turned down sharply yesterday following news that CEO Lloyd Blankfein had hired a defence lawyer, continued to retreat, edging down 0.3% to $106.20.
London miners move into the red
Mining stocks enjoyed a good morning in London, helped by the improved China data and results from Antofagasta, but the afternoon has seen the major names give up most of their gains.
In the main, this is due to a strengthening US dollar, whose index spent the morning down around 0.6% but has now recovered somewhat to stand down just 0.1%.
Commodities spread betting prices have fallen from their morning highs, as worries about global growth begin to resurface.
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'Goldman Sachs Shares Drop as CEO Hires Defence Lawyer', Article by IG Index, last update: 23-Aug-11
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