US equities staged a modest recovery today following yesterday’s turmoil, as investors’ risk appetite grew once more, moves that were mirrored in a general recovery in commodities (aside from oil) and in losses for the US dollar.
Steady growth in US housing has helped to restore investor confidence, while good results from Goldman Sachs has provided more optimism about the outlook for the US economy. Problems remain, most notably in the shape of the eurozone debt crisis, but they are on the back burner for now as the shock of yesterday fades.
US housing market picks up
The number of housing starts in the US rose in March, although the gain was insufficient to make up all the lost ground, signalling continued weakness in the construction sector. Work was begun on 549,000 houses, up 7.2% from February, and ahead of the 520,000 forecast by economists, but the likelihood is that the sector will remain under pressure due to continuing high levels of unemployment and the number of foreclosures throughout the US. Building permits, an indicator of future construction, rose 594,000, or 11.2%, which was also ahead of expectations.
US equities – Goldman Sachs, NYSE Euronext
By 3.30pm (London time), the Dow Jones was 35.27 points (0.29%) higher at 12236.86, and the S&P 500 had gained 3.96 points (0.3%) to 1323.64.
Profits at Goldman Sachs were ahead of estimates for the first three months of 2011, helped by a strong performance in its fixed income division. Net income was $2.74 billion, down from 2010’s first quarter of $3.46 billion, with earnings per share equalling $1.56, far in excess of the 81 cents per share forecast by a Bloomberg survey. The previous year’s earnings were $5.59 per share, and the drop was in part due to a dividend payment of $1.64 billion to Berkshire Hathaway, as part of Goldman’s repurchase of preferred shares issued to Warren Buffett’s company at the height of the financial crisis. The fixed income business saw revenue more than double from the weak final quarter of 2010, from $1.64 billion to $4.33 billion. The capital markets division endured a more difficult period, with net revenues down 22% from a year earlier.
The battle for control of NYSE Euronext goes on, as Nasdaq-ICE make a fresh offer for the firm following the repulse of their first offer. Nasdaq and Intercontinental Exchange (ICE) will pay a $350 million break fee, having obtained $3.8 billion in funding that the firms said would be used to purchase NYSE Euronext stock. Nasdaq-ICE said that its new offer valued NYSE Euronext at $42.67 per share, a 21% premium to the price offered by Deutsche Börse in its offer.
UK afternoon trading – Reed Elsevier, Heritage Oil
The FTSE 100 continued its ascent during the afternoon, being given a leg-up by the gains on US markets. By 3.30pm (London time), the leading index was up 0.72% at 5912.50.
Reed Elsevier, the publisher, has enjoyed underlying revenue growth at each of its businesses. The firm reiterated that it expects gradual and sustained growth throughout the year. Reed’s exhibitions business also saw good growth, with strong trading in emerging markets. The shares gained 0.5% to 538p.
Heritage Oil saw losses widen in 2010 following a $10.5 million write-down in relation to expenditure on African licence areas. The pre-tax loss was $44 million, up 20% from the previous year, although revenue almost doubled, to $5.02 million. Chief Executive Tony Buckingham said that the firm was in talks with the Kurdistan government for fast-track development of the Miran gas field in the region. Heritage shares fell 2% to 246.5p.
Oil prices retreat
Oil prices dropped back today, as the after-effects of the S&P move on US debt continues to be felt. Brent crude has slipped below $120 per barrel as concerns mount that the Western economic recovery may yet falter, while comments from OPEC officials to the effect that oil is not in short supply have also done much to reverse the gains seen following the Egyptian and Libyan risings. Having fretted for some time about supply, the market has now begun to worry about demand, since expensive oil will hinder corporate earnings and also crimp consumer spending. As a result, Bloomberg News reported, traders have made $80 crude the second-largest bet in the options market, with open interest for $80 Put options for the December 2011 contract more than doubling since January.
Greek debt worries
Greek problems continue to dog the eurozone and the wider global environment, as worries linger about whether the country will need to engage in large-scale debt restructuring. An auction of €1.6 billion in three-month debt saw the yield demanded rise from 3.8% to 4.1%, while the yields on ten-year bonds issued by Athens have passed above 14% for the first time since the creation of the eurozone. Officials throughout Europe continue to be quoted as saying that a restructuring of Greek debt is unavoidable, and this has sent continued jolts through the euro, slowing the gains made by the single currency that had occurred as a result of expectations of further interest rate increases by the European Central Bank.
