The pendulum of sentiment has swung again today, the momentum switching once more to the upside as geopolitical anxieties recede, just as the financial market had been depressed on Friday by reports of escalation in the Ukrainian conflict.
By Peter Martin
Monday, August 18, 2014
Reports from the tail end of last week suggested Ukrainian artillery had destroyed part of a Russian military column that had crossed the border, leading to fears of an escalation in hostilities and a consequent nose-dive in risk appetite, but news today that a dialogue had taken place over the course of several hours in Berlin between the Ukrainian and Russian foreign ministers has boosted morale in the market, especially after Pavlov Klimkin, the foreign minister for Ukraine, described the talks as resulting in ‘moderate progress.’
By early afternoon in New York, the US stock market had enjoyed a dynamic relief rally, with the Dow Jones Industrial Average surging 0.99% or 166 points to 16,828, while the wider-ranging S&P 500 index climbed 0.88% or 15.9 points to 1970.9. The NASDAQ 100 also performed strongly, rising 0.85% or 33.7 points to 4021.1, after striking 4022.48 earlier in the session, its highest level since the heady days of the dot.com boom in 2000.
The stock market was also boosted by more merger activity: Dollar General ($DG) has offered $78.50 per share for Family Dollar Stores($FDO), which comes to around $9.7 billion, exceeding a previous offer from Dollar Tree ($DLTR) of $8.5 billion. With both Dollar Tree and Dollar General possibly becoming embroiled in a bidding war for the dollar store segment, the news has sparked a rush of buying in both Dollar General and Family Dollar, with the former jumping more than 10% in trading today and the latter just over 5%.
Risk sentiment has also been given a lift by a report showing confidence amongst house builders is surprisingly high. The National Association of Home Builders (NAHB) reported that its housing market index, which seeks to gauge the sentiment of its members, ascended to 55 in August, from July’s level of 53, and above the consensus estimate of analysts. ‘As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,’ said NAHB Chairman Kevin Kelly in the accompanying press release. In light of this positive result, it will be interesting to see how the July reports for housing starts turns out (due to be released pre-market on Tuesday).
Also contributing to the easing in geopolitical concerns were reports that Iraqi and Kurdish forces had regained control of Mosul Dam, the largest dam in Iraq, from Islamic State insurgents. There has been a resultant decline in the risk premium priced into the value of oil. Brent crude oil futures slipped 1.8%, while US light crude oil futures dropped 0.72% to $96.62 per barrel.
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