Equity markets rallied sharply higher today, after China rebuffed rumours that it is preparing to sell some of its holding of Eurozone government bonds.
'Europe has been, and will be one of the major markets for investing China’s exchange reserves,' China’s State Administration of Foreign Exchange said in a statement on its website today. In addition, China's official Xinhua News Agency said the nation's $300 billion sovereign wealth fund will maintain its investments in the Euro region. [1]
The announcement helped restore confidence in the Eurozone region, making the recent sell off appear somewhat overdone. With economic data and earnings expectations still running above trend, investors took the opportunity to increase their exposure to equities, especially to blue chips that have strong international brands with an exposure to emerging markets.
It stands to reason that blue chip sector is the safest bet at the moment because if market sentiment does change abruptly, then at least investors would know that they have a higher probability of recouping their losses when the market reverses. On the other hand smaller cap companies are at greater risk, but then the potential returns are larger.
To some extent this observation helps explain why the FTSE 100 has been outperforming the FTSE 250 throughout the day. Although the broader index is moving higher, it is underperforming the blue-chip index since it has a greater exposure to the domestic market.
By 4.00pm (London time) the FTSE 100 was trading 147.63 points (+2.93%) higher at 5185.71 while the broader FTSE 250 was 223.76 points (+2.38%) above its previous close at 9616.43.
At the same time, the Dow Jones Industrial Average was trading at 10176.31, representing a 201.86-point (+2.02%) increase over its previous close. In addition, the broader S&P 500 Index advanced 25.31 points (+2.37%) to 1093.26 and the tech-heavy Nasdaq 100 was 46.03 points (+2.6%) higher at 1842.50.
Equities rose despite a downward revision in first-quarter US GDP growth. According to the Commerce Department, GDP grew at an annual pace of 3% in the first quarter, less than the 3.2% expansion unveiled in the first estimate and below Bloomberg’s median estimate of a rise to 3.4%.
The report also showed a downward revision in first-quarter personal consumption growth, which came in at 3.5%. That was less than a prior estimate of 3.6% and Bloomberg’s expectation for a rise to 3.8%.
In the greater scheme of things, the US GDP data is still pointing to a healthy economic recovery and more recent data seems to suggest that the positive momentum will be maintained in the second quarter.
However, one must also consider that the US is not immune to Europe’s woes and that any shocks emerging from the Eurozone region are likely to impact the US growth as well.
Do bear in mind that the US Dollar has appreciated 6.9% against the Euro over the past month and a staggering 18.3% over a 6 month period. Any additional strains from the Euro region are likely to have an impact on American export growth, if they haven’t already, which would cool or even inevitably switch off the US trade-based recovery.
Meanwhile, a separate report released this afternoon signals that US employers are firing labour more than anticipated. It also suggests that not every sector is fully benefiting from the US economic recovery, perhaps companies are still cautious about the future.
The number of Americans claiming first-time jobless benefits, initial jobless claims, fell by 14,000 to 460,000 in the week ended May 22.
This compares with Bloomberg’s expectations for a drop to 455,000. Meanwhile, the four-week moving average, a smoother gauge, rose by 2,250 to 456,500 last week.
Elsewhere, US pharmaceutical giant Pfizer jumped 1.72% to $15.37 this afternoon after announcing it would stop recruiting patients for a clinical trial for its heart drug Inspra since the study has reached its main efficacy goals. Peer Merck & Co jumped 2.6% to $33.27 and Bristol Myers Squibb gained 2.2% to $23.22.
Banks, which were among the worst casualties last week, rallied as well today, with Citigroup up 3.9% to $4.01, Bank of America up 2.5% to $15.86 and Wells Fargo 3.8% higher at $29.10.
Meanwhile, NetApp, a provider of storage and data management solutions, was among the Nasdaq’s star performers today, advancing 17.4% to $38.06 after fourth quarter earnings came in well ahead of consensus estimates.
Source: [1] Bloomberg News (27 May 2010)
IG Index
- Live Prices, Charts, Indices, Equities, Commodities, Forex and more >> read the
IG Index Review.
Remember that financial spread betting is a leveraged product and can result in losses that exceed your initial deposit. Spread betting may not be suitable for everyone, so please ensure that you fully understand the risks involved.
The above content does not constitute investment advice. Neither Online-Spread-Betting.com nor IG Index accepts any responsibility for any use that may be made of the above.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
'Spread Betting News 27 May 2010', Article by IG Index, last update: 27-May-10
Related articles:
Spread Betting Daily, 9-Feb-12,
The daily afternoon spread betting update featuring the key stock market indices, forex, shares and commodities markets. Daily updates focus on the spread betting markets as the UK closes and the US continues to...see: Spread Betting Daily
Spread Betting News Daily, 8-Feb-12,
The afternoon spread betting update from IG Index - a look at the spread betting markets with the UK closing and the US markets just...see: Spread Betting News Daily
Looking to improve your trading results? Get free trading tips and trading analysis as well as the latest trading offers »
Trading News.
Risk Warning:
Spread Betting carries a high level of risk
to your capital and you can lose more than your initial investment,
it may not be suitable for all investors. Ensure you only
speculate with money that you can afford to lose and that you fully
understand the risks involved and seek independent financial advice where necessary.
Disclaimer:
Online-Spread-Betting.com does not endorse the information and
analysis available on this site. It is provided purely for information
purposes and is delivered as a personal view of the writer. Under no circumstances
is the information hereon to be used or considered as, an offer to sell, or a
solicitation of any offer to buy. The website content does not constitute investment
advice and neither the individual contributor nor Online-Spread-Betting.com accepts any
responsibility for any use that may be made of the content.
* Tax Free Trading:
Tax law is subject to change. It may also differ if you pay tax in a jurisdiction outside the UK.
