A late afternoon look at the markets from Anthony Grech, Research Analyst, IG Index.
Spread Betting News - 26 Feb 2010
3.15pm update:
US equity markets fell into negative territory this afternoon, as weaker-than-expected fourth-quarter consumer spending data signalled a slowdown in US economic growth
The focus of today’s trading day has been on the US and UK fourth-quarter GDP figures, which grew at a faster pace than initially thought.
The Commerce Department reported that the US economy grew at an annualised pace of 5.9% in the fourth quarter, exceeding its initial forecast for a 5.7% expansion.
The US economy predominantly expanded on the back of a substantial improvement in business investment, which grew at a 6.5% annualised rate in the fourth quarter. Also bolstering growth was a weak Dollar, which helped exports surge at an annual rate of 22.4% in the fourth quarter - the biggest rise in 13 years.
Although seemingly encouraging, there was a major disappointment in today’s US GDP data. Consumer spending, which makes up around 70% of US economy, grew at a weaker-than-expected annualised pace of 1.7% – down from 2.8% in the third quarter and below expectations for a 2% expansion. On the year, household purchases dropped 0.6%, the biggest decrease since 1974.
This has led the market to speculate that US growth may slow substantially in the following quarters, as contributions from business spending and inventories wane.
Some may argue that the introduction of a recent employment stimulus package may aide the beleaguered American labour market by bolstering household income and spending going forwards. Others may claim that there’s room for additional inventory growth.
‘There’s still room for inventories to add to growth,’ said MF Global’s James O’Sullivan. ‘Going forward, the question comes back to sustainability, and the key to that is a clear pickup in the labour market, which I think is coming.’ [1]
In the UK, investors heaved a sigh of relief after the Office for National Statistics revealed that the economy expanded 0.3% in the fourth quarter, beating initial estimates for a 0.1% expansion. The UK economy managed to exit the recession at a faster pace following stronger growth in the dominant services sector.
Back to the US, The Reuters/Michigan consumer sentiment index unexpectedly fell to a reading of 73.6 in February from 74 the prior month while existing home sales plunged 7.2% to an annualised rate of 5.05 million in January.
Unsurprisingly, the Dow Jones Industrial Average was 4.38 points (-0.04%) lower at 10316.65 while the broader S+P 500 was 0.15 points (-0.01%) below its previous close at 1102.79 by 3pm (London time).
On the corporate front, insurer American International Group saw its shares plunge 8% to $25.27 during the early US trading session after reporting a fourth-quarter operating loss, excluding certain items, of $53.23 a share, missing the $3.94 average loss shown in a Bloomberg survey.
Banks were also seen suffering, with Bank of America and Wells Fargo down by 0.54% to $16.46 and 1.3% to $27.07 respectively.
[1] Source: Bloomberg News (26 February 2010)
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'Spread Betting News 26 Feb 2010', Article by IG Index, last update: 26-Feb-10
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