US shares were under pressure as the Dow opened today – the index shed 62.38 points (0.61%) by 4pm (London time) as investor risk appetite was diminished by concerns over the state of the economy.
A slew of factors are contributing to negative sentiment stateside, with US Treasury yields hovering near 12-month lows, tumbling industrial commodity prices and some poorly received earnings figures and forecasts from leading consumer businesses.
Investor nervousness was compounded by today’s reading of first-quarter US GDP growth which saw the rate of growth revised down from 3% to 2.7%.
Banks were in focus as US lawmakers approved an overhaul of the financial services sector today. Congress voted in favour of a hard-line ban on trading for deposit-taking banks and imposed a $19 billion levy on the industry, adding to the global momentum for regulation after George Osborne’s announcement of a levy on UK-based banks.
However, amid these tough regulations there was some positive news for Wall Street. Lawmakers made key concessions to the banks, notably by allowing them to invest up to 3% of their tier one capital in hedge funds, overturning an initial proposal to put a cap at 2%.
In practice, while this will diminish the amount of capital invested in riskier ventures, the ruling could have been significantly worse for banks. Citigroup, for instance, will now be allowed to invest around $3.5 billion of its own capital in such ventures, as opposed to the $5 billion it has invested in the past.
Bankers broadly welcomed this news, saying it would let financial institutions retain ownership of their internal hedge funds and private equity funds.
A senior Wall Street executive was quoted as saying: 'It is a victory for us because it gets away from this concept that we would have to spin off or sell most of these businesses.'[1]
Overall, investors reacted well to the news, with bank shares propping up an otherwise ailing Dow Jones. JP Morgan Chase and Bank of America were leading the charge, adding 1.29% and 1.13% respectively by 4.30pm (London time).
Wider concerns over global demand and the pace of economic recovery, however, affected commodities as well as equities. There was selling in metal markets, with copper down 0.4% at $6,665 a tonne. Oil prices were running against the trend, up 1.2% at $77.41 a barrel – pushed higher by fears that a hurricane is forming in the Atlantic Ocean.
Gold was also higher on the back of its safe-haven status as traders shun risk assets.
At 4.30pm in London the Dow is still down, but off its intra-day lows, currently at 10097.48, a drop of 55.32 on the day (that’s 0.54%).
Source: [1] The Financial Times (25 June 2010)
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'Spread Betting News 25 Jun 2010', Article by IG Index, last update: 25-Jun-10
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