Wall Street pared earlier losses as investor sentiment improved following an increase in consumer spending in May.
US consumer spending rose by more-than-expected in May, providing signs that the US economy is still improving. Personal consumption rose by 0.2% in May, compared to a median estimate of 0.1% according to economists surveyed by Bloomberg. An improvement in household incomes, which rose 0.4% in May, may have partly contributed to the increase in spending, as consumers show their resilience and willingness to spend amid difficult economic conditions.
If you take into account the Reuters/Michigan consumer sentiment index released on Friday, which showed an improvement in consumer sentiment for the month of June, we are beginning to see a series of positive economic data being released which suggests the US economic recovery is taking hold, albeit very slowly.
However, the data released today initially did little to move US equities, which fluctuated between gains and losses during early trading. Investors are still considering the developments at the G20 meeting held over the weekend, where it was agreed that developed nations would commit to halving their fiscal deficits by 2013. This now poses even more questions, which unfortunately also translates into more uncertainty. Some of those questions include whether implementing these measures will stifle global growth, and whether the US will also be implementing the measures, particularly after it's been so vocally against removing stimulus measures too soon.
The agreement is, after all, legally non-binding, but what would it suggest for the credibility of the G20 if the US does not make serious efforts to implement measures agreed on by the group?
The latest camp promoting fiscal reduction was the Bank of International Settlements (BIS). At its annual report presentation today General Manager Jaime Caruana pointed out the impact prolonged stimulus measures could have in distorting the market's perception of risk.
'If continued too long, this would distort private incentives to trade in markets and thus compromise liquidity and market depth,' Caruana said. 'The market's role in pricing risk would be undermined.'
Caruana went on to comment that 'the sovereign debt crisis in Greece is clearly jeopardising Europe's nascent recovery. It will be difficult to find a source of further treatment should another emergency arise.' [1]
By 4.15pm (London time) the Dow Jones Industrial Average had gained 36.28 points (+0.36%) to 10180.09 while the broader S&P 500 rose 3.96 points (0.37%) to 1080.72. The tech-heavy NASDAQ 100 advanced 7.81 points (+0.42%) to 1846.33.
Retailers were mixed following the better-than-expected increase in personal consumption figures released today. WalMart, Abercrombie and Fitch and Gap rose between 1% and 1.43%, while online retailers Amazon and eBay declined 0.8% to 1.4%.
Banks were mostly lower, with increasing regulation weighing on the sector. In addition to the recent US financial reform bill that was passed by congress, banks must also now factor in the stricter capital requirements that are likely to be imposed following the decision by the G20 over the weekend. Morgan Stanley, Goldman Sachs and JPMorgan Chase had all lost between 1.3% to 1.8%, but Citibank bucked the negative trend by gaining 1.14%.
Source: [1] Bloomberg (28 June 2010)
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'Spread Betting News 28 Jun 2010', Article by IG Index, last update: 28-Jun-10
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