US equity markets continued to descend today, as Spain’s rescue of troubled savings bank CajaSur suggests that Europe’s debt crisis is beginning to engulf the region’s banking sector.
Bank shares suffered today as concerns about the stability of the European financial services sector intensified after the Bank of Spain appointed a provisional administrator for lender CajaSur on Saturday – a development that forced bank borrowing costs to increase and evoked chilling memories reminiscent of the post-Lehman crisis.
LIBOR, the London Inter Bank Offered Rate (the rate banks pay for three-month loans in dollars) rose above 0.5% for the first time in 10 months, suggesting banks are becoming more reluctant to lend to each other.
US banking shares were not immune to the developments taking place in Europe. Unsurprisingly, shares of Bank of America sank 1% to $15.83 while Wells Fargo tumbled 3.3% to $29.12 after Goldman Sachs downgraded the lender from 'buy' to 'neutral', citing 'more relative value' in peers. In contrast, Citigroup managed to buck the negative trend and rally over 4% to $3.91, after Goldman Sachs upgraded the bank from 'neutral' to 'buy' on the back an improvement in consumer credit and a better environment for capital markets. [1]
House builders D.R Horton, Lennar Corp and PultGroup were also in the red, with losses ranging from 0.06% to 0.4% so far, despite a bigger-than-expected rise in existing home sales. According to the National Association of Realtors, US home resales surged 7.6% in April to a seasonally adjusted annual rate of 5.77 million, as buyers rushed to complete sales before the expiration of a government tax credit.
Technology shares were somewhat mixed, however, with IBM, the world's biggest computer services provider, down 0.40% to $124.95 a share after agreeing to buy Sterling Commerce from AT&T in an all-cash deal valued at $1.4 billion.
Separately, AT&T Spreads, the largest US phone company, announced it will increase the fees it charges customers who want to end service before a contract expires, a change that can help it recoup costs and make it harder for subscribers to switch carriers. Its shares sank 1.5% to $24.47, nevertheless.
Apple was among the technology outperformers, meanwhile, gaining 2.6% to $248.6 after Morgan Stanley lifted its price estimate to $310 a share and added the stock to its 'best ideas' list. Google was another star performer, up 2.8% to $485.21, after Citigroup added the company to its top picks list. Meanwhile, Sprint Nextel, the third-largest US mobile-phone carrier, soared 9.5% to $4.83 after Goldman Sachs raised its recommendation on the company from 'neutral' to 'buy'. [2]
By around 4pm (London time), the Dow Jones Industrial Average was 42.67 points (-0.42%) lower at 10150.72, while the broader S&P 500 was 2.21 points (-0.20%) below its previous close at 1085.48. The tech-heavy Nasdaq 100 was 10.6 points (+0.58%) higher at 1833.38, however.
Source: [1] Bloomberg News (24 May 2010)
Source: [2] Bloomberg News (24 May 2010)
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'Spread Betting News 24 May 2010', Article by IG Index, last update: 24-May-10
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