A late afternoon look at the markets from Anthony Grech, Research Analyst, IG Index.
Spread Betting News - 24 Feb 2010
4.30pm update:
The Dow Jones Industrial Average and S+P 500 fluctuated between gains and losses during the first hour following the opening bell, as investors digested dismal US housing figures and the comments of the Federal Reserve Chairman Ben Bernanke.
The trading day kicked off with poor housing data, which sent shivers through equity markets this afternoon.
The Commerce Department revealed that sales of newly built single-family homes in the US unexpectedly dropped to a record low in January, tumbling 11.2% to an annual rate of 309,000 - the lowest reading since records started in January 1963. With the Fed's incentive programme nearing an end it seems as if there's more pain to come for the beleaguered US housing market.
Meanwhile, a separate report from the Mortgage Bankers Association showed mortgage applications falling for a third straight week as demand for home loans sank to the lowest level in 13 years. Poor weather conditions were blamed for the slump.
As you can imagine this data sent equity markets lower, however Federal Reserve Chairman Ben Bernanke saved the day by announcing that interest rates will remain low for an 'extended period'. He also described the US economy as being in a 'nascent' recovery.
'The FOMC continues to anticipate that economic conditions - including low rates of resource utilization, subdued inflation trends, and stable inflation expectations - are likely to warrant exceptionally low levels of the federal funds rate for an extended period,' Bernanke confirmed today. [1]
The Fed chairman also said the central bank will back legislation to let congressional auditors probe its emergency lending programme and to identify, 'after an appropriate delay', those firms which have tapped funding. It seems as though the 'delay' is being enforced in order to prevent potential misconceptions.
'We understand that the unusual nature of those facilities creates a special obligation to assure the Congress and the public of the integrity of their operation,' Bernanke said in a semi-annual monetary policy testimony to Congress. The delay must be 'sufficiently long' that investors won’t view a firm's participation as an indication of current problems, he said. [2]
Also boding well for market morale was the Senate's approval of a $15 billion jobs package today. The bill is said to include a $13 billion payroll tax break for businesses that hire unemployed workers, along with subsidies for state and local construction bonds. It also extends the highway construction fund through the end of the year. [3]
By 3:50pm (London time) the Dow Jones was 98.33 points (+0.96%) higher at 10380.74, while the broader S+P 500 was 9.91 points (+0.89%) above its previous close at 1117.92. The Nasdaq 100 was also higher, up 22.75 points (+1.27%) to 1816.57.
The FT today reported that Hong Kong will raise the tax on sales of luxury apartment to avert a speculative bubble in the domestic housing market.
Heightened levels of risk appetite weighed broadly on the US dollar this afternoon and helped metal prices edge higher. However, miners - which usually tend to respond well to gains in underlying commodities - were under pressure, predominantly due to news of China taking additional steps to cool overheated elements of its economy. Shares of Freeport-McMoRan Copper and Gold traded 0.9% lower at $72.93 a share, while Newmont Mining fell 0.1% to $46.53.
Energy majors were higher, however, following an unexpected drop in gasoline inventories. Chevron's shares advanced 0.2% to $72.2 while Exxon Mobil Corp climbed 0.8% to $65.46. According to the Energy Information Administration, gasoline stocks declined by 900,000 barrels and distillate stocks fell by 600,000 barrels. Analysts polled by Reuters were expecting gasoline inventories to rise by 500,000 barrels.
Source: [1][2] Bloomberg News (24 February 2010), [3] Reuters News (24 February 2010)
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'Spread Betting News 24 Feb 2010', Article by IG Index, last update: 24-Feb-10
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