Wall Street shrugged off a report showing a slowdown in the US services sector today and instead reacted to upbeat developments in China and encouraging remarks from RBA Governor Glenn Stevens.
The Institute for Supply Management US services sector barometer fell to 53.8 in June, which was bigger than the 55 median forecast shown in a Bloomberg survey of estimates. A slowdown in the services sector, which makes up around 90% of the US GDP, continues to suggest that the American economic recovery is cooling.
However, investors seemed to focus more on the equity market rebound that occurred in Asia this morning, partially instigated by the Chinese government’s decision to sell its holding in AgBank – poised to be the biggest Initial Public Offering (IPO) in history, valued between $22 billion and $30 billion. Investors also found confidence in a statement given by Reserve Bank of Australia Governor Glenn Stevens who commented that China’s growth may be moderating to a sustainable level and that despite ongoing concerns in Europe there have been improvements seen in some of the key countries. Interestingly, the statement was not as overly upbeat as many of the reports today are suggesting. Nonetheless, it was enough to help lift investor sentiment today.
Risk appetite was also spurred by reports from Bloomberg, which said analysts are raising their earnings estimates for US companies at the fastest rate since 2004. This suggests we could be in for another strong earnings season in the upcoming quarter. However, investors will be paying very close attention to the future outlook given by companies for any signs of a slowdown.
The news acted as a catalyst for stock market gains, which was appearing oversold on various technical and fundamental gauges. By 4pm (London time) the Dow Jones Industrial Average advanced 145.09 points (+1.48%) to 9831.57, the S&P 500 was 16.96 points higher (+1.63%) to reach 1039.54, while the NASDAQ 100 added 31.42 points (+1.79%) to 1759.76.
A lift in commodity prices saw strong gains across resources stocks on the S&P 500. Peabody Energy, United States Steel and Freeport-McMoRan Copper & Gold surged between 4.77% and 5.28%. BP ADR’s were in strong demand as well, jumping 7.4% to $31.51.
Today was the first chance for the US market to react to news that BP is seeking a ‘white knight’ investor to protect it from a potential hostile takeover attempt. It was reported yesterday that BP has approached certain sovereign wealth funds in the Middle East to become potential investors. BP also confirmed that it will not be issuing new shares to raise capital which had helped the boost the share price today as it rules out possible shareholder dilution.
Banks also advanced today, as early reports are suggesting European banks will pass the stress test. Bank of America, JP Morgan and Citigroup all advanced around 2.3%.
Elsewhere, industrial bellwethers Caterpillar and General Electric rebounded after being battered last week on speculation the US economy was faltering. Caterpillar advanced 3.55% to $61.28 and General Electric gained 2.02% to $14.16.
Later tonight, the ABC/Washington Post Consumer Confidence index is due to be released while tomorrow the first-quarter EU GDP figures will be announced.
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'Spread Betting News 6 Jul 2010', Article by IG Index, last update: 6-Jul-10
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