US stocks shed some of yesterday’s gains as negative domestic economic data and a still uncertain global outlook caused investors to take some profits.
Markets in Europe were more badly affected, as worries about Portugal returned, threatening to reignite the sovereign debt crisis.
US manufacturing and housing data
An index of manufacturing in the central Atlantic region of the US fell in March, raising concerns about the sector that, until now, has remained buoyant. The Richmond Fed index fell to 20 from 25 in February, having been expected to decline to 24. Although the figure is still positive, indicating continued expansion, the news is an unwelcome surprise. Employment growth remained steady, while shipments and new orders slowed somewhat. Nevertheless, optimism remained strong, with an increasing number of firms expecting growth over the next six months.
Home prices in the US fell 0.3% from December to January, the Federal Housing Finance Agency said. The fall from November to December 2010 was revised up from 0.3% to 0.1%, but the forecast for today’s figure had been for a 0.2% drop. The US housing market remains firmly in the doldrums, as the number of foreclosures continues to boost the inventory of properties for sale, increasing the choice for buyers and giving sellers limited scope to bargain for higher prices.
Libyan air strikes
Although the allied air campaign continues in the skies over Libya, the tempo has slowed somewhat now that the majority of Libyan air defences have been dealt with. As a result, oil prices, which surged yesterday, have eased back somewhat with light crude now hovering around $102 per barrel and Brent crude below the $115 per barrel mark. Commodity prices in general are in retreat today, although silver remains above $36 per ounce, and natural gas continues to rise on expectation of increased demand from Japan. April natural gas futures now stand at $4.21 per million British Thermal Units.
US equities – Walgreen, Canadian Pacific
By 3.30pm (London time), the Dow Jones had fallen 16.77 points (0.14%) to 12019.76 and the S&P 500 was 3.31 points (0.25%) lower at 1295.07. The Nasdaq 100 lost 4.48 points (0.2%) to stand at 2258.22.
Drug store chain Walgreen reported a 10% rise in second quarter earnings, aided by an increase in ‘flu-related prescriptions’. Net income was 80 cents per share, in line with expectations, and the company reported that in the three months to 28 February, it filled one in five of all prescriptions in the US. Walgreen shares slumped 7% to $38.95, as investors were disappointed that the company failed to exceed expectations, given its strong growth in recent months.
The Canadian Pacific Railroad fell 3.5% to $63.48 after it said that first quarter earnings would be lower than forecast due to winter weather and a lag in fuel recoveries. Earnings would be 22 Canadian cents per share, compared to the forecast of 71 Canadian cents per share, as poor weather slowed trains that affected productivity.
UK afternoon trading – Cairn, Petropavlovsk, JJB Sports, Gulf Keystone Petroleum
London shares moved further into the red during the afternoon, so that by 3.30pm (London time), the FTSE 100 was 0.64% lower at 5751.53.
Cairn Energy disappointed those who had hoped today’s results would announce that a deal had been struck regarding the sale of its Indian assets. The firm repeated previous guidance that the sale was still awaiting approval. The results showed that net profit jumped from $53 million to $1.08 billion, although almost all of this was derived from the Indian business. The continuing business, i.e. the operations in Greenland, lost $303 million. Production rose from 14,000 barrels per day in 2009 to 65,000 barrels per day last year. The firm said the sale of its Indian division, when it finally occurs, will provide it with the funds to pursue growth off Greenland. Shares in Cairn rose 1.8% to 427.2p.
Gold miner Petropavlovsk gained 1.6% to 1031p after it said that a large-scale exploration programme during 2010 had resulted in an increase in reserves by 36%. The company now has 9.1 million ounces of gold in reserves, up from a previous figure of 6.7 million ounces.
JJB Sports shot up 26% to 32.92p today, as the beleaguered company’s creditors backed plans to enter into a Company Voluntary Arrangement (CVA). The proposal will see the closure of 43 stores in the year to 24 April 2012 and a review of the performance of 46 other stores, which could be closed by the end of April 2013. Landlords will receive cash or JJB shares in return for their agreement.
The recent rally in Gulf Keystone Petroleum shares finally came to a halt today after the company reported the results of tests at its Shaikan-2 well in Kurdistan. Testing indicated a flow rate of 10,144 barrels per day, and the oil recovered is of higher quality than that seen at the other two Shaikan wells. Gulf Keystone shares fell 6% to 163.75p, having stood at 125p at the beginning of last week.
More eurozone woes
On the currency markets the euro fell 0.25% against the US dollar as Portugal moved towards a political crisis. The minority Socialist government faces defeat in a vote on further austerity measures, and such a result would trigger a snap election. If this occurs, then Portugal could easily join Greece and Ireland on the list of countries that officially survive solely on life-support from the European Central Bank.
Adding to the woe, Lisbon said that it now expects Portugal to fall back into recession, GBP growth forecasts having been revised from expansion of 0.2% to a 0.9% contraction. Markets have long been of the opinion that Portugal will require assistance, but the temporary calm in the eurozone debt crisis raised hopes that Portugal might succeed with its austerity measures. However, a recent difficult bond auction and a downgrade by Moody’s sent debt yields above the unsustainable 7% level. The spread on five-year credit default swaps for Portuguese debt widened to 503.5 basis points, indicating that investors are becoming increasingly nervous about the country’s stability.
