A late afternoon look at the markets from Anthony Grech, Research Analyst, IG Index.
Spread Betting News - 25 Feb 2010
4.30pm update:
Stock market sentiment turned bearish today, with the Dow and S&P 500 tumbling over 1% during the first hour of trading, as heightened fears of a debt rating downgrade in Greece sparked a sell-off across US banking shares.
An unexpected drop in US durable goods orders (excluding transportation), and surprise rise in the jobless claims data also weighed on sentiment today.
Corporate new flows have also been disappointing, with mobile phone maker Palm Inc slashing its sales forecasts on the back slower than expected consumer adoption of its products, which have lead to sluggish orders.
There simply is too much bad news for the market to handle today, and that's clearly crushing morale: by 3.30pm (London time), the Dow Jones was trading at 10219.91, representing a decrease of 154.25 points (-1.5%) from the prior day’s close.
In the meantime, the broader S&P 500 sank 15.64 points (-1.42%) to 1089.60, completely wiping out gains made during yesterday's rally, when the Fed Chairman Ben Bernanke confirmed that domestic interest rates would have to remain low for an extended period in order to help stimulate growth.
Fears over the a relapse in the pace of the global economic recovery resurfaced today after credit rating agency Standard & Poor's warned that it may cut Greece's BBB+ rating by one or two notches within a month.
Meanwhile, Moody's Investors Service today said that it may cut Greece's sovereign debt rating within a month as well unless the country meets the objectives of its fiscal deficit reduction plan.
A sovereign credit rating downgrade would make it more difficult and expensive for Greece to borrow funds, driving the possibility of a default on its debt obligations even higher.
The Fed Chairman Ben Bernanke, who yesterday delivered the central bank's semi-annual testimony on the economy and monetary policy to a House of Representatives, appeared before the Senate Banking Committee again today. He said that he was reviewing the arrangements of Goldman Sachs and other companies with Greece. 'We are looking into a number of questions relating to Goldman Sachs and other companies and their arrangements with Greece,' Bernanke said today.
More details are needed, however, a Greek default could potentially trigger a global banking sector relapse – so watch out!
Shares of Goldman Sachs and Citigroup fell 2% to $155.14 and $3.37 respectively. In addition, Bank of America declined 1% to $16.16 and Wells Fargo lost 1.8% to $27.16.
Back home, Barclays traded 1.6% lower at 305.1p, HSBC fell 1.3% to 708.6p while Standard Chartered sank 2% to 1526.5p. RBS and Lloyds were the only two domestic banks to buck the negative trend, with the former up 5.2% to 38p and latter 1.6% higher to 54.37p. Lloyds will release its results tomorrow – will its results live up to the market's expectations?
Meanwhile, the BoE Governor King today said that banking sector reforms are necessary because failing to implement them may pave the way for an 'even bigger' financial crisis in the future.
'My fear would be, we have had this debate and we will set out possible alternative models for the structure of banking, but not very much will happen,' King said. 'It won't actually prevent the next crisis - the next crisis will be even bigger.' [1]
Also weighing on risk appetite was an unexpected decline in orders for durable goods, which declined by 0.6% in January, missing the 1% gain shown in a Bloomberg survey. On a positive note, however, the figure for December was revised to show a 2% gain instead of a 0.9% rise – so the net effect is minimal.
Separate figures, meanwhile, indicated that the US labour market has began to deteriorate again. An official report has indicated that the number of Americans claiming first-time unemployment benefits rose to 496,000 in the week ending February 20, missing expectations for a drop to 460,000. In addition those continuing to claim jobless benefits rose to 4.62 million.
Elsewhere, Palm was among the worst performing technology stocks today, down by as much as 16% to $6. After saying it expects third quarter adjusted revenues to come in between $300 million and $320 million in 2010, missing Bloomberg's average analyst estimate for sales of $409 million.
Coca Cola was another loser, down 4% to $52.88, after agreeing to acquire bottler Coca Cola Enterprises for $12.3 billion. Coca Cola Enterprises surged 34.15% to $25.73 following this announcement.
[1] Source: Thomson Reuters (25 February 2010)
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'Spread Betting News 25 Feb 2010', Article by IG Index, last update: 25-Feb-10
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