While you were sleeping: Bump in the recovery road

Tuesday 26th January 2010

An unexpected drop in existing home sales in the US has reinforced the belief that investors have been too fast on placing bets that the world’s biggest economy was on a growth track.

Stocks slipped in Europe and gave up early gains in Wall Street after the latest housing data. Another key reason for muted trading was the extended slide in the price of crude oil.

Near midday, the Dow Jones Industrial Average edged 0.09% higher and the Standard & Poor’s 500 was up 0.53%. The Nasdaq Composite slid 0.18%.

Bank stocks were higher as was Intel and AK Steel.

The Chicago Board Options Exchange Volatility Index, or VIX, fell 5.9% to 25.70. Traders are betting that the VIX will remain above 25 for six months after having averaged 20.29 over its two-decade history, according to Bloomberg News.

The VIX had its biggest annual drop ever in 2009, falling 46%, as the smallest stock-market swings in two years reduced the value of equity derivatives. The gauge is still down 66% from a record 80.86 in November 2008.

In Europe, the Dow Jones Stoxx 600 slid 0.5% to 248.58. The FTSE 100 fell 0.57%, Germany’s DAX shed 0.84% and France’s CAC 40 lost 0.79%.

Among the decliners were Ericsson, which reported a sharp drop in fourth-quarter net income. Bayer also fell. Among the advancers were Eurobank, Royal Philips Electronics and Spyker Cars.

Another top investor is forecasting a downturn for global stocks. In an interview with Bloomberg in Hong Kong, Jim Rogers allied himself with Nouriel Roubini, who last week issued a warning for investors about the outlook for global equities.

“We’re overdue for a correction” said Rogers, chairman of Rogers Holdings, said in an interview in Hong Kong. “Stock markets around the world have been going up for the past 10 months.”

It wasn’t all doom and gloom for investors.

The outlook for Greece improved as demand for a planned sale of government bonds signalled investors were confident that the country was making progress in addressing its budget woes.

Greece may sell at least 5 billion euros ($7.1 billion) of five-year debt through banks this week, according to a Bloomberg. Investors placed orders for about 20 billion euros of the bonds, according to a banker involved in the deal.

“There’s strong demand on the auction,” Panagiotis Kladis, an analyst at National P&K Securities in Athens, said in an email to Bloomberg. That “eases concerns over the country’s ability to borrow from international markets.”

The outlook also may be improving for the US dollar.

The retreat in the dollar that sent the currency down as much as 17% from its 2009 peak against six main trading partners may be over, according to Pacific Investment Management’s Paul McCulley. The portfolio manager told Bloomberg that the “dollar bear market” was almost, if not already, at its end.

McCulley also said fears about higher US interest rates were “overblown”. The Fed’s policy committee meets this week and will release a statement on Wednesday afternoon in Washington.

The dollar fell 0.1% to 1.4151 against the euro in New York. The U.S. currency slipped 0.4% against the pound to 1.6178, and lost 0.3% versus the yen to 90.05.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.1% to 78.20.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.26% to 276.27.

The price of oil continued to slide into a third week after reaching US$83.95 on January 11. US crude for March delivery fell 20 cents to US$74.34 a barrel by 1510 GMT. London ICE Brent rose 9 cents to US$72.92.

Investors in oil may have little to gush about this year. US crude oil is expected to rise to an average of US$77.50 a barrel in 2010, according to a Reuters poll of 29 market analysts on Monday.

Businesswire.co.nz

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