US markets eked out small gains today, helped by an ISM manufacturing report that was nowhere near as bad as had been feared.
However, poor data out of Asia and Europe this morning meant that any further upward progress was prevented.
By 3.30pm (London time), the Dow Jones was up 0.29% at 11,647.44, while the S&P 500 rose 0.2% to 1221.27. In London, the FTSE 100 staged a modest recovery, up 0.43% to 5417.7.
More mixed US data
Financial spread betting markets had braced themselves for a poor reading from this afternoon’s ISM manufacturing index, but in actual fact the reading was much better than had been feared.
After a slew of bad readings from various regional Feds (with the Philadelphia Fed reading in particular causing everyone to reach for their tin hats), the reading had been forecast to drop below 50 into contraction territory, at 48.5.
The actual reading for August was only slightly lower than the July figure, coming in at 50.6 rather than 50.9. This prompted a rally in spread betting markets, but closer reading of the data showed that the production, employment, prices and exports sub-indices all declined.
The US may have bucked today’s trend of falling PMIs, but the signs of a slowdown in the world’s largest economy are still there.
US initial jobless claims continue to hold stubbornly above the 400,000 level. Data published today showed that 409,000 Americans filed claims last week, which was slightly better than expected (the forecast of experts had been for 410,000).
However, the previous week’s figure was revised upwards (as it has invariably been for the past few months) from 417,000 to 421,000. While the initial claims data is always volatile, the continued lack of improvement remains a cause of concern.
Disturbing patterns in Eurozone bond auctions
Following a Spanish debt auction today, a worrying trend appears to be emerging in European sovereign debt sales.
Madrid was able to sell €3.6 billion in five-year bonds, at a lower yield than before (4.489% versus 4.871%). However, the bid-to-cover ratio slumped from 2.85 at the last auction to 1.76, indicating that investor demand has dropped significantly.
The same pattern was evident in an Italian bond auction earlier this week, and shows that investors are once again becoming wary of holding debt issued by peripheral nations.
Analysis of the debt markets of Greece, Ireland and Portugal (the current three members of the bailout club) shows that the ECB has become almost the sole buyer of government debt for these states.
Bond funds have taken the opportunity to exit the market and leave the ECB ‘holding the baby’, effectively shutting out these nations from international capital markets. Indeed, the ECB intervened in the secondary market today to prevent a general rout.
Engineering firms continue to seek link-up
The battle between two mid-cap engineering firms goes on. Melrose, which acquires underperforming businesses in the hope of turning them around, has increased its bid for welding equipment supplier Charter, lifting the per share price by 10p to 850p per share. This values Charter at £1.44 billion, a premium of around 7.5%.
The new offer also includes an 8p interim dividend, which would actually lift the offer to 858p per share. Charter said that it was in discussion with Melrose, given the heightened market uncertainty. Both companies have said that they will ask the Takeover Panel to extend the ‘put up or shut up’ deadline from 6 September to 21 September.
Remember that financial spread betting is a leveraged product and can result in losses that exceed your initial deposit. Spread betting may not be suitable for everyone, so please ensure that you fully understand the risks involved.
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'Spread Betting Markets Rally on Better Than Expected ISM Data', Article by IG Index, last update: 1-Sep-11
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