The Dow and S&P 500 plunged nearly 1% at the open, before regaining all they'd lost after stronger-than-expected US economic releases encouraged bulls back to the market.
Fresh data released this afternoon showed US construction spending surging 2.7% in April, the most since August 2000, and manufacturing activity expanding for a tenth straight month in May, suggesting that US factories have continued to spur the American economic recovery.
The Institute for Supply Management's (ISM) US manufacturing gauge fell to 59.7 in May. This was smaller than expected and follows a reading of 60.4 in April.
Equally important, however, was the sub-index for new orders, which held steady at 65.7 last month, suggesting the broad US Dollar rally hasn't weighed on new demand. ISM figures above 50 indicate the sector is expanding.
Manufacturing data in the UK and Germany was also encouraging. Figures released earlier today showed the UK Purchasing Managers' Index (PMI) for the manufacturing sector remaining unchanged from April at 58, its highest level in over fifteen years.
In addition, PMI manufacturing in Germany, Europe's biggest economy, fell less than expected to 58.4 in May from 61.5 the prior month.
This data contrasted with that of China, which today indicated a slowdown in manufacturing activity in May. China's Federation of Logistics and Purchasing showed that its domestic Purchasing Managers' Index fell to 53.9 in April, lower than Bloomberg's 54.5 median estimate. This left investors feeling as though the country's economy is beginning to lose momentum, threatening the global economic recovery.
But the data released in the West today seemed to quash those fears, and OECD Secretary-General Angel Gurria today told reporters at a news conference that the world should not slip into double-dip recession.
'No, I do not see a double-dip, I do not see a recurrence of the recession,' he said, when asked about the potential impact of widespread governmental budget cuts. Gurria said latest indicators show there is a chance that low growth and high unemployment could persist for years, but said the worst could be prevented if the right policy changes are made. [1]
By around 4pm (London time), the Dow Jones Industrial Average was trading at 10185.90, representing a 49.27-point (+0.49%) increase over Friday's close.
At the same time, the S&P 500 was 2.16 points (+0.20%) higher at 1091.57 and the tech-heavy Nasdaq 100 was 17.21 points (+0.93%) higher at 1869.60.
The rebound on Wall Street helped the FTSE 100 offset most of its earlier losses, meanwhile. The UK blue-chip index traded at 5152.39 by late afternoon, up from an earlier low of 5063.20.
Blue-chip companies such as Apple, Wal-Mart Stores, Microsoft, Coca Cola and Caterpillar were all higher this afternoon, with gains ranging between 0.50% and 2.7%.
US financial stocks were predominantly lower, however, with the likes of Citigroup, JPMorgan Chase and American Express losing between 0.3% and 1.3% so far.
It seems as though investors remain averse to the sector following a warning from the ECB last Monday, which said that Eurozone banks face up to €195 billion of writedowns between 2010 and 2011.
BP was another casualty this afternoon. The company's American Depositary Receipts tumbled 12.9% to $37.42 after the company failed to plug the oil leak in the Gulf of Mexico using the 'top kill' method.
The company said it will implement further measures to contain the disaster, but it is clear given the share price reaction that investors have lost confidence in the company's ability to stem the flow anytime soon.
Costs associated with the spill are said to have reached a staggering $1 billion so far. The biggest fear in the market at this juncture is that the company's costs are poised to continue rising. Here I am not just talking about the potential impact from huge lawsuits but also more permanent factors such as reputational damage and the risk of being expelled from future US business activities, where it generates a material level of income.
Meanwhile, brokers Arbuthnot cut their rating on BP shares from 'Buy' to 'Sell' today and withdrew their price target on the oil giant.
Analyst Dougie Youngson said he's not confident about BP's new plan to replace the damaged riser pipeline and that the key question now is whether the company, and not just BP's CEO Tony Hayward, can survive.
'What worries us the most is the emotive language coming from the Obama administration and the reputational damage done so far. It is difficult to see how the company can recover and it remains unclear what punitive measures will be put in place in terms of its operations in the Gulf of Mexico,' he said.
'Given the collapse in the share price and the potential for it to fall further we expect that it could become a takeover target - particularly if its operating position in the US becomes untenable.' [2]
Source: [1] Thomson Reuters (1 June 2010), [2] MarketWatch (1 June 2010)
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'Spread Betting News 1 Jun 2010', Article by IG Index, last update: 1-Jun-10
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