Wall Street opened in positive territory this afternoon, despite a slide in the final hour of trading yesterday, when Moody's downgraded Greece's sovereign debt rating to 'junk' status.
Moody's has received criticism over its timing of Greece's downgrade today, as EU Economic and Monetary Affairs Commissioner Olli Rehn described the actions as 'astonishing and unfortunate'. [1]
Mr Rehn said the rating agency failed to consider the recent measures the country has put in place to tackle its burgeoning deficit.
As a matter of fact, the chief economist of the Organization of Economic Cooperation and Development (OECD) Pier Carlo Padoan praised the efforts implemented by the Greek government. He stated that he is 'convinced that Greece can make it without restructuring because they are doing all the painful things, both in the fiscal and in the structural domain, which need to be done.' [2]
'What you have is a situation where the headline comes up saying four-notch downgrade and the initial instinct is to sell first and ask questions later,' said Gary Jenkins of Evolution Securities Ltd. 'Greece being junk shouldn't be a shock.' [3]
By 3:40pm (London time), the Dow Jones Industrial Average was trading 96.97 points (+0.94%) higher at 10287.86. In addition, the S&P 500 was up 11.03 points (+1.00%) to 1100.66 and the NASDAQ 100 advanced 27.81 points (+0.1.48%) to 1873.29.
Rupert Murdoch's News Corp grabbed the headlines today, after UK pay-TV provider BSkyB rejected the US company's takeover approach.
News Corp's offer, which valued BSkyB over £12.8 billion in total after taking into consideration its 700p-per-share bid for the remaining 61% of the company, was swiftly rejected by the company's board, who said it significantly undervalued the company.
They have indicated, however, that they would consider an offer above 800p. This represents an 11.9% premium on the current share price of 715p.The fact that the share price is trading above the original offer of 700p suggests investors are expecting a higher bid from News Corp, which sees BSkyB as a strategic acquisition offering geographic diversification benefits and reduced exposure to cyclical advertising revenue. News Corp's shares rose 4.57% to $13.72 this afternoon.
Despite the rally in equities there were some heavy casualties, predominantly in the retail sector. Best Buy Co, the consumer electronics retailer, dropped 7.09% to $38.13 after issuing a cautious outlook and reporting first-quarter results that trailed consensus estimates.
Meanwhile, video game retailer GameStop shed 7.04% to $20.34, Ralph Lauren lost 3.30% to $81.39 and RadioShack retreated 1.67% to $45.91. The broad fall among retailers suggests there is still doubt over the strength of consumer spending in the US. The view at this juncture is that the US consumer is opting to save given the difficulties in the labour market.
Economic data released this afternoon indicated that US import prices, an important inflationary gauge, fell 0.6% in May following a revised 1.1% increase in April. This suggests that inflation will remain subdued in the US.
Although this could be viewed as a positive sign for equities in the short-term, there is a risk that if left unchecked, deflation could eventually pose a problem for the US economy, especially if the recovery is not as strong as anticipated.
Sources: [1][4] Reuters (15 June 2010), [2][3] Bloomberg news (15 June 2010)
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'Spread Betting News 15 Jun 2010', Article by IG Index, last update: 15-Jun-10
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