The recent sell-off sparked a flurry of M&A activity, which helped lift Wall Street on the open today despite weaker-than-expected US manufacturing data and concerns about Europe's bleak outlook.
The New York Empire State Manufacturing Index came in well under expectations, but still showed growth in the US manufacturing industry. Median estimates from Bloomberg analysts were expecting the index to come in at 30, but the index in fact fell to 19.1. While not as strong as analysts may have hoped, that the index was positive indicates that manufacturing is still improving. 'This is just confirmation that the recovery is not exactly robust. Yes, we have a recovery, but everyone sees the recovery as basically more of a stabilisation than a new growth trend,' said Peter Kenny of Knight Equity Markets. [1]
As a matter of fact, bellwether General Motors provided the market with a sign of manufacturing stability today. The auto manufacturer reported it has swung into profit for the first time since 2007 – quarterly operating profits came in at $1.2 billion on the back of robust sales and costs savings achieved as a result of a restructuring forced upon the company while in administration. The result marks a good start in the company repaying the $50 billion it received last year from the US government, but clearly there is still a long way to go in repaying the debt.
But the real news today has been the swathe of M&A activity that has flooded the market. As mentioned in this morning's report, UK hedge fund manager Man Group has made a $1.6 billion offer to rivals GLG Partners, equivalent to $4.50 per share. The announcements sent GLG's shares skyrocketing 48.45% to $4.32, while Man Group shares sank 8.13% to 203.50p.
Pactiv Corp, the maker of Hefty garbage bags, surged to the top of the S&P 500 today, jumping 17.8% to $28.23 on rumours that private equity firm Apollo Global Management is planning to take over the company. If the deal does go ahead, it will be the largest leveraged buyout in the past two years.
Elsewhere, Japanese drug maker Astellas Pharma revised its initial takeover offer, made back in February, to $4 billion in cash for US-based OSI Pharmaceuticals, while Universal Health Services unveiled plans to purchase Psychiatric Solutions for $2 billion in cash, or $33.75 per share, in order to extend its facilities for mental-health care. Shares of OSI Pharmaceuticals sank 4.1% to $57.36, while Psychiatric Solutions edged 0.7% lower to $32.41.
By 3.45pm (London time), the Dow Jones Industrial Average was 23.28 points (-0.22%) lower at 10596.88, while the S&P 500 was trading 1.68 points (-0.15%) off its previous close at 1134. The tech-heavy NASDAQ 100 had gained 4.57 points (0.24%) to 1911.67.
Wall Street was unable to hold onto earlier gains, however, after President Obama criticised the federal government's 'cozy relationship' with the oil industry, sparking concern that further regulations could be imposed on off-shore oil drilling. The news comes after BP finally announced it was making progress in stemming the oil spill in the Gulf of Mexico.
Unsurprisingly, shares in oil stocks suffered with Exxon Mobil losing 0.6%, Chevron shedding 0.26% and ConocoPhillips falling 0.18%.
Banking stocks were out of favour as well, as Europe's deficit woes and news about Greece seeking legal action against major US investment banks for their role in exacerbating the country’s debt crisis left the sector vulnerable to additional selling pressures. This follows last week's allegations that a series of banks are now under investigation over their role in misleading investors when selling collateralised debt obligations (CDO’s). Shares in Citibank sank 2.01%, Goldman Sachs slumped 1.24% and Wells Fargo retreated 0.56%.
American Express managed to buck the negative trend and rise 0.52% on news that it has teamed up with UK private equity firm Permira to bid for Royal Bank of Scotland's (RBS) WorldPay payment processing arm. RBS was forced to sell this part of its business after participating in the government's bailout programme.
Later today the National Association of Home Builders (NAHB) announces its Housing Market Index in the US, while tomorrow inflation indicators in the UK, Europe and the US are scheduled to be released.
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'Spread Betting News 17 May 2010', Article by IG Index, last update: 17-May-10
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