US equities posted small gains ahead of the Fed press conference this afternoon, helped by a rise in durable goods orders in March and further promising earnings figures.
Markets remain understandably cautious this afternoon in advance of the groundbreaking press conference at the Federal Reserve. Earnings from Amazon and Boeing have added to the view that US companies are performing well, as the busiest week in the US earnings season trundles on.
Durable goods orders rise
US durable goods orders gained for the third successive month, indicating a continuation of capital spending by US firms. Orders rose 2.5% in March, and were up 1.3% excluding transportation. Although this last figure was below expectations, the ongoing growth is still welcome news and is a good finish to the first quarter of the year. Demand for machinery was up 4.2%, while that for computers was 10% higher. Manufacturing continues to lead the US economy out of recession, helped by demand from emerging markets such as Brazil and China.
US equities – Amazon, Boeing
By 3.30pm (London time), the Dow Jones was up 12.83 points (0.1%) at 12608.20, but the S&P 500 was down 1.24 points (0.09%) at 1346.
Amazon, the online retailer, has reported a drop in profits, as the costs of its expansion programme outweighed a jump in sales. Net income was $201 million, at 44 cents per share, instead of the forecast 61 cents per share. However, the firm expects its ambitious growth programmes will bear fruit. It forecasts revenue for the second quarter of $8.85 to $9.65 billion, ahead of the Reuters forecast of $8.7 billion.
Profits at Boeing exceeded expectations for the first three months of the year, and the company restated its outlook for the year. Net profit was $586 million, or 78 cents per share, compared to 70 cents per share last year, and was ahead of the 72 cents per share forecast. The firm continues to expect earnings of $3.80 to $4 per share for 2011.
Fed meeting – economist expectations
Ahead of this afternoon’s Fed meeting, a survey of economists by Bloomberg News showed that Ben Bernanke, the Reserve’s chairman, will prepare to edge back from his unprecedented stimulus measures by abandoning his pledge to keep interest rates near zero for an ‘extended period’. The phrase is expected to disappear from the FOMC statement by the end of the year, with around a third forecasting its demise by the end of September. No major changes are expected today, with interest rates forecast to stay at the zero to 0.25% level, where they have been since December 2008. Bernanke’s overriding concern remains the health of the economic recovery, and the majority of the Federal Reserve board continues to think that inflation effects will prove temporary, thus obviating the need for a knee-jerk response through the raising of interest rates.
UK afternoon trading – Associated British Foods, Game Group
The sluggish open in the US took the shine off the FTSE during the afternoon, with the FTSE 100 giving up earlier gains to stand almost unchanged at 6070.46 by 3.30pm (London time).
Associated British Foods (ABF), which owns discount retailer Primark, has poured cold water on expectations for the full year, saying that margins at the cheap clothing store will be lower as it seeks to maintain its position as a price leader. High cotton prices were blamed for the more difficult trading environment. Revenue for the half year to 5 March was 9% higher at £5.207 billion, and adjusted pre-tax profit was up 7% at £353 million. British Sugar, which is also owned by ABF, enjoyed the benefits of higher sugar prices. ABF shares dropped 7% to 973.5p.
Game Group managed to avoid a sell-off in its shares by reporting good progress in the first few months of 2011 that helped to lessen the impact of a sharp drop in profits for 2010. Pre-tax profits plummeted 70% to £23.1 million, while like-for-like sales were down 6.7% over the year to 31 January. In addition, the firm said that like-for-like sales were 12.1% lower for the 12 weeks to 23 April, although it reassured investors by reiterating its guidance for the full year. The shares jumped 13% to 51.25p.
