28/08/10 - 01:30
UK Research Team, IG Group
Wall Street made a solid start to its final trading session of the week thanks to a promising revision to US second-quarter GDP estimates, while comments from Federal Reserve chairman Ben Bernanke reassured investors that the Fed stood ready to intervene if the outlook for the US economy remained uncertain.
The US economy grew by a revised 1.6% in the second quarter of 2010, as companies cut back their inventories and the US trade deficit widened. The figure, revised from an original 2.4% estimate by the Commerce Department, was higher than the median Bloomberg forecast of 1.4%. Wells Fargo Securities observed that 'the economy has slowed a bit and will probably continue to slow through the second half [of the year]'. The report showed that consumer spending, which accounts for around 70% of the economy, rose by an annual rate of 2%, compared with a previous estimate of a 1.6% increase. The increase was partly due to revised electricity and natural gas usage data. The trade gap in the period widened to $445 billion, from an initial figure of $425.9 billion.
Mr Bernanke said in a speech today that weaker-than-expected consumer growth and a 'depressed' housing market had slowed the pace of the recovery, and added that the US central bank stood ready to intervene to stimulate the economy via 'unconventional steps' if needed. Mr Bernanke admitted that the pace of economic growth had been slower than anticipated and that the sharp deterioration in the US balance of trade had been a surprise. The chairman said measures the Fed could take included the purchase of other long-term securities, a change in the language of its statements or reducing interest paid on excess reserves. Mr Bernanke added that in the short term, the pre-conditions for a pick-up in growth in 2011 'remained in place'. [1]
US consumer sentiment rose slightly in August, although it remained below expectations due to disappointing conditions in the labour and housing markets. A survey by the Thomson Reuters and the University of Michigan, which in July dropped in to 67.8 – its lowest level since November 2009 – showed a small increase to 68.9. Economists surveyed by Reuters had expected an advance to 70. The director of the survey commented that the reading indicated that 'consumers have shown some resilience in the face of slowing economic growth and the media's double-dip drumbeat' but added that 'the bad news is that consumers expect lackluster income and job growth for an extended period of time'. [2]
At 3.30pm (London time), the Dow Jones had risen 52.71 points (0.53%) to 10,038.52, and the S&P 500 had gained 4.49 points (0.43%) to 1051.71. The Nasdaq advanced 6.47 points (0.37%) to 1775.49.
The battle between technology giants Dell and Hewlett Packard (HP) over data storage firm 3PAR reached new heights as each company sought to outbid the other, seemingly with no regard for cost. Dell made an offer of $27 per share before the start of trading on Friday, but this was quickly trumped by HP, which upped its offer price to $30 per share, or $2 billion. Dell opened the bidding at $18 per share on 16 August, and it and HP have been batting offers back and forth since then. 3PAR shares jumped 20.5% to $31.48, while Dell advanced 2% to $11.98 and HP fell back 1.36% to $37.70.
Fellow data storage firm Netezza was the leader in opening trading on Wall Street, leaping 26% ahead to $18.89 as it announced earnings of 9 cents a share in the second quarter, almost double the 5 cents per share predicted by analysts in a poll for Thomson Reuters. The company said that it expects full-year revenue to increase by around 30%, revenue having jumped 45% in the second quarter to $63.8 million.
The main faller was clothing retailer J Crew, which saw its stock fall after it lowered its full-year forecast due to lower consumer spending. The firm posted earnings of 50 cents a share, above Thomson Reuters forecasts of 46 cents per share, but cut its outlook to earnings of $2.25 - $2.35 per share for 2010, from previous estimates of $2.35 - $2.45. The new figure was below the consensus forecast of $2.46 per share. Chief Financial Officer James Scully said that consumers remained nervous about the outlook for the US economy and were deferring purchases as a result. J Crew shares slumped 6.4% to $31.28.
Microchip maker Intel was only slightly lower despite cutting its targets for third-quarter revenue and gross margins due to lower consumer demand for personal computers. The firm forecasts margins of 66% (down from 67%) and revenue of $10.8 - $11.2 billion (from $11.2 - $12 billion). It added that the impact of lower volume was being offset somewhat by higher average selling prices. Intel shares edged back 0.1% to $18.16.
On the currency markets, the US dollar advanced against the yen as the Japanese prime minister said that Tokyo was willing to take the necessary steps to curb the yen's advance; the US dollar's rise was also helped by the better-than-expected second quarter GDP figures from the world's only superpower. The improved figures caused both sterling and the euro to give up some ground against the US dollar. By 4pm (London time), the US currency stood at ¥84.89, while sterling reached $1.5475 and the euro hit $1.2712.
Sources: [1] Financial Times, 27 August 2010, [2] Reuters, 27 August 2010
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