A disappointing mortgage approvals reading and poor earnings data helped to push US markets lower after the opening bell as deepening gloom about the US economic recovery took hold.
US mortgage applications fell for the fourth consecutive week, indicating that many Americans are unable to take advantage of record low interest rates. The Mortgage Bankers Association (MBA) said that its index of applications fell 0.8% in the week to 24 September. This was an improvement on the previous week's figures of a 1.4% decline.
The four-week moving average, which smoothes out the volatile figures, fell by 3.3%. The slight increase was the first glimmer of hope in three weeks for the US housing industry, although the MBA's index of refinancing applications was also down, by 1.6%.
The drop in home loan refinancing demand is bad news for the US economy as this activity usually encourages increased consumer spending thanks to lower mortgage payments.
The news helped to push the US markets lower, with the Dow Jones down 45.07 points (-0.42%) to 10,813.07 and the S&P 500 falling 6.57 points (-0.59%) by 3.30pm (London time). At the same point in the afternoon the Nasdaq 100 had moved back 7.51 points (-.037%) to 2004.92.
American Greetings Corp, the second-largest maker of greetings cards in the US, reported a sharp decline in earnings in the second quarter due to a party goods transaction and also costs incurred from the integration of Papyrus and Recycled Paper Greetings.
Net income was $8.53 million or 21 cents per share, far below the Thomson Reuters forecast of 38 cents per share. The firm's chief executive, Zev Weiss, said that the company expected an erratic recovery in the US. [1] The firm's shares slumped 9.39% to $18.73.
Boeing shares ascended 0.4% to $64.78 as the company announced that it had received a contract worth $5.3 billion from the US Defense Department. The company will build 124 F-18 fighter jets, adding to the 210 F-18s it is already building under an $8.5 billion contract that was awarded in 2003.
Green Mountain Coffee Roasters was hit by news that US regulators were conducting an inquiry into some of its revenue recognition practices and its relationship with a vendor. The firm relies on a single vendor, M Block & Sons, to distribute products to retailers.
This relationship covers just over half the balance of accounts receivable. Piper Jaffray said that it believed the accounting process was sound [2], but Green Mountain shares crumbed 17.18% to $30.71.
Elsewhere in online spread betting markets, technology bellwether Hewlett-Packard advanced 1% to $42.05 after it said that it expected 2011 earnings excluding costs to be in the region of $5.05 - $5.15 per share on sales of $131.1 - $133.5 billion. Bloomberg polls of analysts had forecast sales of $131.7 billion and earnings of $5.01 per share.
ModusLink, the supply chain, posted fourth-quarter results that proved to be a disappointment, with shares falling 15.24% to $6.12 as a result. The company endured a net loss of 58 cents per share, compared to 9 cents per share in the previous year.
Revenue increased by 13% to $228.1 million, but was offset by higher expenses. ModusLink added that it expected economic uncertainty to adversely affect its top line in the next quarter.
Chip-maker Standard Microsystems (SMSC) beat earnings estimates for the second quarter, but issued an outlook for the next three months that was below expectations. The firm had earnings of 57 cents per share, ahead of last year's loss of 30 cents per share and beating Thomson Reuters forecasts of 42 cents per share.
For the third quarter SMSC expects earnings of 42-43 cents per share, but analysts were forecasting earnings in the region of 46 cents per share. The share price fell back 1.2% to $22.15.
The UK market remained subdued this afternoon as banks continued to weigh on the FTSE 100 after comments from Financial Services Authority chairman Adair Turner.
Mr Turner said that the UK's big banks should face higher capital markets than their smaller counterparts, as the risks to the wider economy in the event of bankruptcy are greater. HSBC was the heaviest faller, down 1.5% to 649p while Barclays lost 0.9% to 306.05p.
BP gained 3.15% to 417.90p as the troubled oil giant benefited from optimism that it may avoid litigation over the Gulf of Mexico oil spill. The Associated Press cited reports from a Louisiana Republican politician who said that a possible settlement with BP was under discussion.
Dairy Crest advanced 6.13% to 370.40p on news that the German company Theo Mueller Group had acquired a 3% stake. Panmure Gordon suggested that the move indicates that Mueller may make a formal offer for Dairy Crest in a bid to widen their product base in the UK. [3]
Meanwhile, in Europe a strike brought Spain and Belgium to a standstill as workers protested against spending cuts by European governments. Labour unions are opposed to the austerity measures planned across the continent, and strikes are planned in twelve more countries, including Italy, Ireland and Portugal.
The extra yield demanded by investors to hold Spanish ten-year bonds over their German equivalents rose to 195 basis points, compared with a two-month low of 137 on July 27.
Citigroup observed that the combination of a disappointing budget, an effective general strike and a rating review of Spanish debt which completes on 30 September ‘could supply the catalyst' for investors to sell Madrid's bonds. [4]
Speculation about a return to quantitative easing by the Federal Reserve weakened the US dollar against the euro, but the US currency trimmed losses against the yen on reports that while the Bank of Japan remained keen on further weakening the currency. By 3.30pm (London time), the euro stood at $1.3593 and the dollar equalled ¥83.8388.
Source: [1][3] Bloomberg Businessweek (29 September 2010), [2] Reuters (29 September 2010), [4] Bloomberg (29 September 2010)
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'Spread Betting News 29 Sep 2010', Article by IG Index, last update: 29-Sep-10
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