The American spread betting markets turned sharply downward in opening trading thanks to an unexpected interest-rate rise in China that threatens to curb demand in the world's second largest economy.
In a surprise move, the Chinese central bank, the People's Bank of China (PBOC), raised its benchmark rate for one-year lending by 25 basis points to 5.56%. The deposit rate will rise from 2.25% to 2.5%.
The move comes ahead of data that may show inflation accelerated to its highest level in two years, with a Bloomberg median forecast predicting that the figure will reach 3.6% in September.
China last raised interest rates in December 2007, with deputy governor Zhu Min saying that rates were a 'heavy-duty weapon' and that alternative measures were working well. [1]
It is likely that the rate rise is another part of Beijing's attempts to slow growth in the property markets: last week it raised reserve requirements for the country's six largest banks, and has begun the trial of a property tax in some major cities.
By 3.30 pm (London time), the Dow Jones had slumped 101.76 points (-0.91%) to 11041.93 and the broader S&P 500 had fallen 10.43 points (-0.88%) to 1174.28. The tech-focussed Nasdaq 100 had dropped 25.61 points (-1.22%) to 2078.54.
Bank of America, America’s largest lender, reported a loss of $7.3 billion for the third quarter, linked to the cost of new rules on consumer accounts and credit cards. The figure, at 77 cents per share, is almost triple that for the same period in 2009.
Excluding the credit card writedown, net income was $3.1 billion, or 27 cents per share, almost double the 14 cents per share forecast in a Bloomberg survey. Revenue was 2.3% higher at $27 billion.
Chief Executive Brian Moynihan said that the bank was continuing to adapt to the new regulatory environment, while credit quality continued to improve and the group continued to manage risk and build capital. [2] The shares dropped 1.86% to $12.11.
Goldman Sachs beat estimates for its third quarter earnings as well, with earnings of $1.9 billion, or $2.98 per share, a 40% drop on its 2009 figure of $5.25 per share. A Thomson Reuters poll had predicted a figure of $2.98 per share.
Revenue slumped by 27% to $7.78 billion, as activity in the bond and equities markets slowed during the three months to September. Goldman shares gained 0.77% to $155.10.
Communications equipment manufacturer Infinera plummeted 33.58% to $8.18 as it reported better-than-expected profit for the third quarter, but forecast a weaker fourth quarter.
The company expects adjusted revenue of $115-120 million, below the $132.5 million forecast in a Thomson Reuters poll, saying that customers had already completed network expansions and were not expected to drive Infinera's revenue for the rest of the year.
Gross margins for the fourth quarter are predicted to be 45-47%, below the 50% of the third quarter. In the three months to September, net earnings were $4.36 million, or 4 cents per share, compared to last year's loss of 17 cents per share. Revenue was $130.1 million, ahead of forecasts for $126.4 million.
VMWare, the software and computing firm, suffered like its larger peers Apple and IBM as its shares fell 6.3% to $73.40 due to the lack of sales growth in the third quarter. Cash flow from operations was $197 million, far below the $311 million forecast. New sales dropped by 3% from the previous quarter, after increasing 15% in the three months to June.
It did exceed expectations for earnings, with income of 39 cents per share compared to Reuters forecasts for 35 cents per share, and it also expects fourth-quarter revenue to be ahead of expectations of $774 million, at between $790 and $810 million.
Chief Financial Officer Mark Peek did caution that growth could slow significantly in 2011, although he added that he still expected 20% expansion in sales during the year. [3]
US housing starts unexpectedly rose to a five-month high in September, indicating that the housing market in America is starting to stabilise, albeit at a depressed level. Housing starts rose to 610,000, up 0.3% from a revised August figure of 608,000, ahead of the Bloomberg forecast for 580,000.
Building permits dropped to their lowest level in more than a year however, to 539,000, reflecting a slump in volatile multi-family units. However, an increasing number of foreclosures, record-low home sales and a dearth of jobs will mean that any recovery in the US housing market will take some time to develop. State Street Global Markets echoed this sentiment, observing that the increase in activity will be 'a slow, steady-as-she-goes improvement'. [4]
UK markets gave up early gains this afternoon, as the Chinese interest-rate rise hit mining stocks hard. The increase in borrowing costs may limit growth in the world's fastest-growing economy, with a consequent reduction in demand for commodities.
The heaviest faller was Xstrata, which slumped 5.5% to 1233.50p, with Fresnillo down 4.6% to 1231p and Antofagasta, Rio Tinto and Vedanta all dropping 3%. Banks however remained largely immune thanks to the positive effects of results from Bank of America and yesterday's news from Citigroup. By 3.15 pm (London time), the FTSE 100 had lost 30.08 points (-0.52%) to reach 5712.80.
The US dollar benefited considerably with the news from China, with the American currency mounting a wholesale advance against all its major counterparts.
By 3pm (London time), the dollar had posted gains of 1% against sterling and the euro, while a 1.8% rise against the Australian dollar pushed that currency further away from last week's parity.
Source:
[1] Bloomberg News(19 October 2010)
[2] Wall Street Journal (19 October 2010)
[3] Reuters (19 October 2010)
[4] Bloomberg News(19 October 2010)
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.
IG Index
- Live Prices, Charts, Indices, Equities, Commodities, Forex and more >> read the
IG Index Review.
The above content does not constitute investment advice, it is provided purely for information purposes and is delivered as a personal view of the writer. Neither the contributing company (or writer) nor Online-Spread-Betting.com accepts any responsibility for any use that may be made of the content.
'Spread Betting News 19 Oct 2010', Article by IG Index, last update: 19-Oct-10
Content approved / provided by IG Index which is Authorised and regulated by the Financial Services Authority, FSA Register number 114059.
Related articles:
Spread Betting Daily, 18-Apr-12,
The daily afternoon spread betting update featuring the key stock market indices, forex, shares and commodities markets. Daily updates focus on the spread betting markets as the UK closes and the US continues to...see: Spread Betting Daily
Spread Betting News Daily, 17-Apr-12,
The afternoon spread betting update from IG Index - a look at the spread betting markets with the UK closing and the US markets just...see: Spread Betting News Daily
Looking to improve your trading results? Get free trading tips and trading analysis as well as the latest trading offers »
Trading News.
Risk Warning:
Spread Betting carries a high level of risk
to your capital and you can lose more than your initial investment,
it may not be suitable for all investors. Ensure you only
speculate with money that you can afford to lose and that you fully
understand the risks involved and seek independent financial advice where necessary.
Disclaimer:
Online-Spread-Betting.com does not endorse the information and
analysis available on this site. It is provided purely for information
purposes and is delivered as a personal view of the writer. Under no circumstances
is the information hereon to be used or considered as, an offer to sell, or a
solicitation of any offer to buy. The website content does not constitute investment
advice and neither the individual contributor nor Online-Spread-Betting.com accepts any
responsibility for any use that may be made of the content.
* Tax Free Trading:
Tax law is subject to change. It may also differ if you pay tax in a jurisdiction outside the UK.
