What an astounding day in the financial markets.
The European Central Bank unexpectedly cut interest rates by 25 basis points in reaction to weakening inflation. The pace of US growth surprisingly quickened to 2.8% in the third quarter when it had been forecast to slow to 2% (from 2.5%), immediately raising concerns that tapering could be back on the table in the near term should we see a strong US jobs report tomorrow. And of course there was the IPO launch of Twitter (TWTR), whose shares debuted at a whopping $45 a share having been priced at $26.
Strong US GDP data raises taper concerns, forcing FTSE lower
The stronger than expected US GDP data sent equity traders into risk downgrade mode ahead of US non-farm payrolls tomorrow. Whilst on the outset, a 2.8% GDP reading echoes a theme that the US economy is growing at a starkly faster pace than predicted, the data also highlighted the slowest expansion in consumer spending in the last two years, keeping any growth celebrations in check.
The key thing the GDP figure does do is raise anxiety levels in the market with investors preparing for the release of US non-farm payrolls tomorrow. If we get a strong jobs report, this will raise expectations that tapering of US asset purchases could be back on the table in the near term.
Mining and financial stocks took the brunt of the selling as investors sought to minimise their exposure to these two sectors.
The FTSE 100 had initially rallied to a high of 6779 after the ECB surprisingly cut interest rates to 0.25% and, in a sign of how nervous traders typically are 24 hours away from US jobs data, the FTSE subsequently sold off more than 1% in the immediate aftermath of the stronger than expected US GDP data. The FTSE finished the day below the 6700 level.
Twitter debuts at $45 and hits a high of $50
Twitter shares opened for trading today at $45 which is hugely impressive considering initial launch prices a mere week ago were quoted at just $17 to $20 and yesterday prices were confirmed at $26.
Current share prices gives Twitter a market valuation of over $25bn compared to initial forecasts of $14bn.
For every share offered, investors were asking for at least thirty, and this gives some rationale to the high opening price greeting Twitter shareholders today.
We had large indications that Twitter shares would be in high demand due to the fact prices kept being upgraded in the run up to the IPO launch and books closed early. Yet the market open for Twitter shares remains hugely impressive.
Shares hit an initial high of $50 within the first twenty minutes of trading and the debut success is further evidence of the hunger to invest in innovative new media types such as social media.
IPO’s are of course highly volatile so whilst this would appear to be a very successful market debut for Twitter, we must take a step back and judge investor appetite over a longer period of time. Let’s not forget Facebook shares traded as high as $45 on its own market debut but soon fell to a low of $28.65 after a little over a week and $17.55 within three months.
We must let the euphoria surrounding Twitter cool.
by Joshua Raymond