Monday, August 8, 2011

S P 500

Global equity markets are falling as traders are rapidly losing confidence in the strength of the economic recovery. The UK’sFTSE 100 shed another 85 points (1.55 percent) this morning, falling to 5,163.

Hopes for a quick rebound in stock markets following last week’s sell-off suffered another blow late last Friday when Standard & Poor’s decided to downgrade the US credit rating from AAA to AA-plus with a negative outlook.

The move snapped a relief rally that followed Friday’s better than expected US payrolls data, which showed that the US economy created 117,000 new jobs last month and the unemployment rate fell from 9.2 to 9.1 percent.

The FTSE 100 quickly recouped losses in early trade, boosted by the European Central Bank’s decision to buy Spanish and Italian bonds in an attempt to curb the rising borrowing costs for the debt ridden euro zone members.
However, it didn’t take long before the FTSE 100 slipped back into the red.

“All this is good to know but the markets will be looking for reassurance from the Federal Reserve when the Open Market Committee meets tomorrow. Without committing itself to more quantitative easing at this stage, the FOMC is likely to indicate how monetary policy can continue to be used to nurture back to health a recovery that has lost considerable momentum,” said analysts at Brewin Dolphin.

Mining stocks were out of favour today after base metal prices fell sharply on global economic jitters.

Kazakhmys (LON:KAZ) was the heaviest faller in the sector, plunging 6.5 percent to 996 pence.

Peers European Natural Resources (LON:ENRC) and Vedanta Resources (LON:VED) both fell 5.5 percent to 598.5 pence and 1,343 pence respectively.

Rio Tinto (LON:RIO) dropped 4.5 percent to 3,454 pence.

Meanwhile, gold miner Randgold Resources (LON:RRS) rallied 2.7 percent to 5,875 pence to take the lead in the FTSE 100 after gold rose above US$1,700 per ounce, setting another all time high.
Gold is seen as a safe harbour asset and comes in demand amid economic uncertainty.

Wall Street preview

US stocks are projected to move in the same direction as European equities when trading kicks off on Wall Street today.

Futures for the Dow Jones Industrial Average (DJIA) slipped 198 points (1.75 percent) in pre market trade, while futures for the broader S&P 500 index tumbled 24 points (2 percent).

Today’s global macroeconomic calendar is very thin with no updates scheduled in the US and Europe. The markets are looking to tomorrow’s minutes from the latest monetary policy meeting of the federal Reserve.

The minutes will be scrutinized for signs of possible changes to monetary policy as well as the central bank’s assessment of the state of the economy.

Notable pre-market movers in the US included Newmont Mining (NYSE:NEM), which rose 2 percent.

NRG Energy (NYSE:NRG) and Verisign (NYSE:VRSN) dropped 17.5 percent and 10 percent respectively.

UK corporate news

Mining companies generated the most interest in the FTSE 100 today.

Vedanta Resources (LON:VED) has purchased a 51 percent stake in Western Cluster Limited (WCL) for US$90 million in cash to partake in the development of a large iron ore project in Liberia.

WCL’s mining assets are believed to have access to potential iron ore resources of over 1 billion tonnes containing around 330 million tonnes of saleable material.

However, shares in Vedanta dropped 6.5 percent to 1,326 pence this afternoon after the US downgrade dampened market sentiment, pushing lower base metal prices.

Likewise, sector peer Rio Tinto (LON:RIO) was in delcine this afternoon, slipping 4.5 percent to 3,449 pence. the company announced this morning that it has made a proposal together with Mitsubishi to buy rest of the shares in Coal and Allied for a total A$123.2 per share in cash.

Moving to FTSE 250, Barratt Developments (LON:BDEV) confirmed today that it is looking to sell part of its shared equity mortgage portfolio that is currently worth around £170 million.

Shares in the housebuilder dropped 2 percent to 80.55 pence on the news this afternoon.

The shared equity mortgage is where first-time buyers purchase a percentage of the property with the housebuilder taking a stake for the rest of the home. This kind of arrangement is designed to allow the buyer to meet the rising costs of properties.

Midcap oil explorer Heritage Oil (LON:HOIL) has spudded the Miran West-3 well in the Kurdistan region of northern Iraq, kicking off a multi-well appraisal and exploration programme on the Miran West structure.

The well, which is expected to take seven month to drill, is targeting both the Jurassic and Cretaceous reservoir formations intersected by the Miran West-1 and Miran West-2 discovery wells.

Shares in Heritage were down 2.3 percent at 195.7 pence in afternoon trade in London.