Spread Betting 16 Mar 2010
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For today's update see Spread Betting.
The Daily Update from Anthony Grech, Research Analyst, IG Index.
Spread Betting 16 March 2010
The FTSE managed to regain its place above the 5600 level this morning following a late recovery on Wall Street last night.
The Dow Jones Industrial Average ended the session 17.46 points higher (+0.16%) at 10642.15. This came after US banking stocks pared losses on the back the ‘watered down’ financial reform proposals presented by Senate Banking Committee Chairman Christopher Dodd last night.
Mr Dodd’s draft bill shelved plans for a single regulator that would have stripped the Federal Reserve and Federal Deposit Insurance Corp of bank supervision roles. Instead it proposed the creation of a new consumer protection bureau within the Federal Reserve to oversee all lending transactions.
A new process would be set up to put struggling firms under government control and break up large companies if they could threaten the stability of the financial system. The bill also limits risky trading by banks.
‘I don’t see this legislation as so momentous that it’s going to halt the financial services industry in its tracks,’ said Gilbert Schwartz, a former Federal Reserve attorney and a partner at law firm Schwartz & Ballen LLP. 'It has a lot of the same provisions that we’ve already seen. It’s more of a ho-hum proposal.' [1]
The draft removed some of the uncertainty surrounding the US banking sector and also helped lift British banks this morning.
HSBC advanced 1.4% to 690.6p, Standard Chartered climbed 1.16% to 1751.5p. Barclays rose 2.3% to 356.6p, after Morgan Stanley raised its price target on the stock by 19% to 440p. [2]
Royal Bank of Scotland, which is 70% government owned, saw its share climb 2.3% this morning as investors welcomed reports the bank is planning to buy back at least £10 billion of its £28 billion of debt in order to strengthen its balance sheet.
Energy majors were also en vogue today, with Royal Dutch Shell up 1.5% to 1857p after unveiling strong reserve additions that would underpin longer term growth.
The company also announced plans to cut $1 billion in costs and sell off non-core assets worth between $1 billion and $3 billion. These plans will help the company become leaner.
Peer BP advanced 0.63% to 623.2p after unveiling plans to take a majority stake in an oil sands project in Canada.
Its share price was also helped by an upgrade to from ‘add’ to ‘buy’ at Oriel Securities. The broker also upped its target price on the company to 725p, saying this factors in the results from BP’s Rumaila project and the acquisition of Devon Energy’s assets. [3]
Miners were also stronger, with gains ranging between 0.9% and 2.8%. Rio Tinto was in the spotlight today, up 1.2% to 3702.5p. This followed an Australian newspaper report that the miner is in talks with Chinese aluminium giant Chinalco to develop the Simandou iron ore project in Guinea. The cost of developing this project has been estimated at $12 billion (£8 billion).
In corporate news, Debenhams announced that its first-half sales and profits rose on the back of an increase in selling space for its own brands.
Revenues at stores open at least a year, an important gauge, rose 0.3% in the 26 weeks ending February 27, exceeding the 0.1% increase reported for the 18 weeks ended January 2. In addition, pre-tax profits rose in line with expectations.
‘Today’s update should reassure rather than excite’ said Kate Calvert, an analyst at Shore Capital who has a ‘buy’ rating on the stock.
‘Management can continue to grow gross margin though increasing own-bought participation and the momentum within its Designer at Debenhams brands.’ [4] Debenhams gained 0.07% to 71.05p.
Looking ahead, all eyes are on the Fed's policy meeting, due to conclude at 6:15 pm (London time). According to Bloomberg News, the Fed is expected to keep rates unchanged at a historic low of 0%-0.25%.The meeting follows last month's surprise quarter-point hike in the US discount rate.
Investors will also be assessing the speech that will follow today’s monetary policy decision, with the main focus being the Fed’s plans to whether to unwind emergency liquidity measures.
Furthermore, many will want to see if the Fed intends to keep interest rates low for an 'extended period'. A change in the wording here is likely to help the US Dollar appreciate, which may in turn weigh on commodity prices and equities.
The US housing starts and building permits will be released as well today. They are due at 12:30pm (London time).
By 10:45am (London time) the FTSE was trading 28.71 points (+0.51%) higher at 5622.56 while the broader FTSE 250 was 47.33 points (+0.48%) above its previous close at 9926.34.
Meanwhile, March Dow and S&P 500 futures were mixed, perhaps on caution ahead of this afternoon’s reports.
Sources: [1] Bloomberg News (16 March 2010)
Sources: [2] Bloomberg News (16 March 2010)
Sources: [3] FT (16 March 2010)
The above comments do not constitute investment advice and neither IG Index nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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Spread Betting 16 March 2010: 6am Update
After a negative session on the FTSE yesterday we saw the S&P bounce from its intra-session lows to close at 1150.
With the S&P 500 trading at 1143 at the time of the FTSE close we need to factor a positive finish from US markets into the UK open.
Yesterday we saw traders position themselves for this evening's FOMC statement, looking to the safe haven of the USD, with the currency moving higher against all majors.
We saw a mixed set of data releases, with industrial production increasing by 0.1%, some degrees below the 0.9% rise reported in January. Capacity utilization improved mildly, with some suggesting this is an indication of future hiring.
As mentioned, the big risk event for both equities and forex traders is today's FOMC statement. The tone of the narrative will no doubt be scrutinised by traders to see if the Fed will signal additional plans to unwind emergency liquidity measures.
It is apparent that the labour market is improving, albeit at a slow pace, with economists positive we are likely to see reasonably strong jobs growth in March. We are also seeing signs that retailers are feeling a touch more optimistic and generally manufacturing trends are improving as well.
As per the last few meetings, the key focus will be on the 'extended period' phrase. While this is unlikely to change, if they do drop this wording we should see the Dollar catch a strong bid.
We have seen a few Fed officials becoming more outspoken about the Fed’s monetary and fiscal policies so these meetings are becoming increasingly interesting for traders and investors looking to position their portfolios for a future rate rise.
Across Asia, as at 05:15, regional indices are mainly higher ahead of the FOMC meeting in the US and amid speculation that the Bank of Japan will take undertake further measures to counter deflation via monetary policy easing. The Nikkei, the Hang Seng and the Kospi are all down between 0.2% and 0.4%.
The Australia 200 closed higher by 0.3% at 4797, having traded to a morning high of 4806, with the defensively-postured telecoms, healthcare and information technology sectors among the best percentage gainers.
Several times over the last week the market has sought to break out above 4840 but has quickly been rebuffed with what appears to be little investor conviction to push the index beyond this level.
Blue chips seem to be taken a breather for now and are looking relatively fair-valued in general. However, with Arrow seemingly set to reject the Shell/PetroChina deal and look for a higher bid, and CBH having a battle for its share register, we know there is something out there for the day traders and certainly exciting times in the resource space.
Turning our attention to the European markets, currency traders will no doubt be keeping an eye on the German ZEW survey.
Earnings data remains a little on the thin side too, although earnings from blue chip security provider G4S will potentially be worth watching, likely to be helped along by increased public sector work.
As the week progresses, however, numbers such as UK unemployment, US PPI and UK public sector borrowing all stand to provide their own impetus to the market, so any sense of calm could well be short lived.
Ahead of the open we’re calling the FTSE up 24 at 5618, the DAX up 37 at 5941 and the CAC up 24 at 3915.
The above comments do not constitute investment advice and neither IG Index nor SpreadBets.org.uk accept any responsibility for any use that may be made of them.
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"Spread Betting 16 Mar 2010" last update by AG, 16-Mar-2010
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