A notably bleak report on US existing home sales for July caused Wall Street to move sharply downwards in opening trading, with the Dow Jones briefly below the psychologically important 10,000 mark.
Existing US home sales plunged in July, dropping by 27.2% to a seasonally adjusted annual rate of 3.38 million units. A Bloomberg survey of economists had forecast a 13% fall, and the figure is the lowest level since the launch of the existing series in 1999.
Single family unit sales, which account for the bulk of transactions, stand at their lowest since 1995. The National Association of Realtors said that a 'soft sales pace' would continue for a few additional months, with sales forecast to reach 5 million for 2010 as a whole.
Nomura Securities commented that 'even after four years of declines, housing remains the key threat to the recovery'. [1] The disappointing housing news sent industrial bellwethers Boeing, General Electric and Caterpillar all down more than 2.6%.
Chicago Federal Reserve President Charles Evans made a speech in Indianapolis in which he said that while the US housing market and wider economy have improved, recovery is not yet assured. He added that the recovery was still 'extremely modest', and that the Federal Reserve's current monetary policies were 'appropriate'. [2]
A report from the Richmond Federal Reserve showed that its Manufacturing Index fell in August. The reading dropped to 11 from 16 in July, and was just below the expected figure of 12. The survey includes information on new orders, shipments and inventories, and provides information on current conditions within the US manufacturing sector.
At 3.50 pm (London time), the Dow Jones had slumped by 118.4 points (-1.16%) to 10056.01, and the S&P 500 had retreated 13.32 points (-1.24%) to 1058.37. The Nasdaq fell 28.50 points (-1.58%) to 1779.81.
Medical device manufacturer Medtronic was the heaviest faller on Wall Street, with its shares slumping 10.4% to $31.35 after the firm reported first quarter revenue that fell 4% to $3.77 billion. A Thomson Reuters poll had forecast revenue of $3.96 billion.
In addition, Medtronic lowered its forecast for the year, with earnings per share of $3.40 - $3.48 predicted, down from $3.45 - $3.55.
Video display maker Daktronic jumped 15% to $9 after the company reported first quarter earnings of 6 cents per share. Analysts had expected a loss of 5 cents a share, according to a Bloomberg survey.
Technology firm Dell is reported to be preparing a higher bid for virtual storage systems firm 3PAR, after its first bid was trumped by rival Hewlett Packard. HP bid $1.6 billion for 3PAR, besting Dell's $1.5 billion attempt, with HP arguing that it would be a better fit for 3PAR.
However, HP's executive vice-president, Donatelli, didn't say what would happen if Dell came back with a higher proposal. Dell shares fell 3.27% to $11.55, while those of 3PAR rose 2.11% to $26.64. HP lost 0.87% to reach $38.70. [3]
A report in the Wall Street Journal served to highlight divisions within the Federal Reserve over a return to a form of quantitative easing. The paper said that at least seven of 17 top officials at the US central bank had reservations about the decision to buy more treasuries.
Banyan Partners' chief strategist Robert Pavlik observed that the news 'gives you the feeling that the Fed is losing a bit of control, and along with the housing data only highlights how the economy is on a real slow track'. [4]
The poor US housing sales data sent investors running for the safe haven of the Yen, and the US Dollar hit a fresh low of ¥83.61 as risk aversion took hold throughout financial markets. The Euro gained against the US currency, reaching $1.2697 by 3.50 pm (London time).
Sources: [1] Reuters, 24 August 2010,
Sources: [2] Bloomberg News, 24 August 2010,
Sources: [3] Bloomberg Businessweek, 24 August 2010,
Sources: [4] Reuters, 24 August 2010.
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'Spread Betting News 24 Aug 2010', Article by IG Index, last update: 24-Aug-10
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