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While you were sleeping: Stocks suffer on outlook

Thursday 29th July 2010

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Equities declined on fresh signs of a slowdown in the pace of economic recovery, with orders for US durable goods unexpectedly falling in June while the Federal Reserve said economic expansion had weakened in some areas over the past two months.

Orders for US goods meant to last at least three years dropped 1% in June, depressed by less demand for aircraft, Commerce Department figures showed.

The Federal Reserve said economic growth slowed in some areas over the past two months, dragged down by commercial real estate and the expiration of a tax credit for homebuyers.

“Economic activity has continued to increase, on balance, since the previous survey,” the central bank said in its Beige Book business survey, while noting that two of the Fed’s 12 districts reported the economy “held steady” and two said the expansion slowed.

The Fed’s district banks of Cleveland and Kansas City reported economic activity “generally held steady,” today’s report said. The Atlanta and Chicago Fed said the “pace of economic activity had slowed recently”.

Their outlook was less optimistic than the previous Beige Book on June 9, when the Fed said that economic activity had “continued to improve” in all 12 districts at a “modest” pace.

In late trading, the Dow Jones Industrial Average dropped 0.54%, the Standard & Poor's 500 Index declined 0.77% and the Nasdaq Composite Index fell 1.12%.

Among the most active on Wall Street were Boeing, General Electric and Eastman Kodak.

Boeing,  the world’s second-biggest commercial-jet builder, said second-quarter sales dropped 9.2% to US$15.6 billion, falling short of analysts’ US$16.2 billion prediction.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, rose 4.66% to 24.27.

The Stoxx Europe 600 Index fell for the first session in seven, declining 0.4% to 257.21.

Across Europe, the UK’s FTSE 100 dropped 0.9% and Germany’s DAX fell 0.5%.
France’s CAC 40 edged 0.1% higher.

Among the most active stocks in Europe were Yell Group, Nexans SA and Invensys.

US Treasuries gained, benefitting from the fresh signs of a slowdown in the pace of economic recovery.

The government sold US$37 billion of five-year notes in the smallest auction of the debt in a year, the second of three note sales this week totaling US$104 billion.

The yield on the current five-year note dropped 8 basis points, or 0.08 percentage point, to 1.71% at 2.27pm in New York, according to BGCantor Market Data. The benchmark 10-year note yield fell 5 basis points to 3%.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.04% to 82.19.

The greenback rose against the euro but fell against the yen amid concern about a slowing pace of recovery in the world’s biggest economy.

In late afternoon trading in New York, the euro traded at US$1.2982, down 0.1%.

The greenback lost 0.5% to 87.48 yen.

“The US data now is the main focus in the forex markets, and it continues to come on the disappointing side,” Amelia Bourdeau, a currency strategist at UBS AG in Stamford, Connecticut, told Reuters.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.6% to 266.05.

Oil prices fell a second straight day on economic concern and rising oil inventories.

A US Energy Information Administration inventory report showed crude oil stocks rose 7.31 million barrels last week as imports jumped. A Reuters analyst survey had forecast crude oil stocks would be down 1.6 million barrels.

The crude oil inventory growth was the biggest jump since the week to October 3, 2008, according to EIA data.

Gasoline and distillate stocks also rose, though not as much as had been projected, the EIA said.

US crude for September delivery fell 47 cents to US$77.03 a barrel at 1.12pm EDT.

In London, ICE Brent edged down 20 cents to US$75.93 a barrel.

Gold edged higher from the lowest level in three months, underpinned by strong demand from top consumer India.

Spot gold was bid at US$1,161.30 an ounce at 1514 GMT, against US$1,159.65 late in New York on Tuesday. US gold futures for August delivery rose US$1.60 an ounce to US$1,159.70.

From a technical perspective, gold is set for further weakness after breaking through support in the US$1,175-US1,180 an ounce area, analysts say.

“For now, the metal looks very bearish technically and to be honest, all these moves since yesterday are heavily technically driven,” Standard Bank analyst Walter de Wet told Reuters.

“I think it is going to fall more, but longer term, we still see the bull market intact. Underlying, the same issues that have pushed gold higher still remain.”

Copper rose to an 11-week high on signs growth was sufficient in China to spur demand. Copper for September delivery climbed 1.2% to US$3.2460 a pound in New York.

Lead and zinc also advanced in London, bolstered by China’s central bank’s comments that  the country’s economic fundamentals are “good”.

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