Investors probably shouldn't look too much into today's stock market moves, as equities are likely to experience some volatility on the back of quadruple witching.
Quadruple witching is when stock index futures, stock index options, stock options and single stock futures concurrently expire on the same day, forcing investors to unwind and repurchase their derivative positions before contract expiry. This phenomenon occurs on the third Friday of the last of each quarter; March, June, September and December.
By 4pm (London time) the Dow Jones Industrial Average was trading at 10476.49, representing a 42.32 point (+0.41%) increase. At the same time the broader S&P 500 was 4.71 points (+0.42%) higher at 1120.75 and the Nasdaq 100 was 14.21 points (+0.74%) higher at 1924.86.
Commodities were somewhat mixed today, with August gold futures hitting a fresh nominal all-time high of $1,262 per troy ounce, as investors sought to reduce the risk profile of their portfolios by increasing their exposure to safe-haven assets.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, hit a record high of 1,307.963 tons yesterday.
'We expect gold to continue to perform well, given continued fiscal/debt challenges in Europe and the potential for this to spread to other regions,' wrote Deutsche Bank analysts in a note. [1]
Silver tracked gold higher today, reaching a four-week high of $19.12 an ounce. July light sweet crude oil pared earlier losses, gaining 0.6% to $77.23 a barrel this afternoon while July high grade copper futures retreated 0.3% to $2.8985 per pound.
The drop in copper prices weighed on resource shares that have a large exposure to the metal this afternoon. The likes of Freeport-McMoRan Copper & Gold and Southern Copper were all marginally lower. Unsurprisingly, Barrick Gold and Goldcorp tracked gains in the underlying metal, gaining 2.2% to $45.82 and 2.1% to $45.86 respectively.
Elsewhere, BP's shares fell 0.2% to $31.66 on the New York Stock Exchange this afternoon, after Moody's slashed the company's credit rating by three notches. This is the third time this week that BP has had its credit rating downgraded.
‘Moody's cautions that the agreement over the $20 billion claims fund does not in any way cap BP's potential liabilities. Indeed, the rating agency believes that uncertainty over the ultimate cost for massive litigation claims and other contingent liabilities will be an overhang on BP's creditworthiness that will persist for years to come.’
The credit rating agency, however, said that it 'views the staggered contributions to be made by BP into the fund over the next three and a half years as manageable from a liquidity perspective, considering the strong cash flow generated from its global operations and the various measures BP has announced to conserve cash. These measures include the suspension of dividends, significant cuts in capital spending and an increase in planned divestments to approximately $10 billion over the next 12 months.' [2]
Standard & Poor's cut BP plc's long-term credit rating to A from AA-, keeping the company on a negative outlook. 'The downgrade reflects our opinion of the challenges and uncertainties that BP continues to face in the aftermath of the explosion on the Deepwater Horizon rig in the Gulf of Mexico on 20 April, 2010, and the subsea Macondo well blowout,' said Simon Redmond, an S&P credit analyst. Fitch had downgraded BP's credit rating earlier this week as well.
In the meantime, BP is said to be planning to sell up to $10 billion of corporate debt as early as next week to help bolster its cash reserves.
Source: [1] Reuters News (18 June 2010), [2] Moody's website (18 June 2010)
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'Spread Betting News 18 Jun 2010', Article by IG Index, last update: 18-Jun-10
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