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While you were sleeping: Confusing signals

Tuesday 27th April 2010

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Equities rose in Europe but were flat in New York as corporate earnings helped to offset worries about the debt outlook for Greece and the potential profit hit ahead for Wall Street financial firms.

At midday, the Dow Jones Industrial Average rose 0.31% and the Standard & Poor’s 500 gained 0.01%. The Nasdaq Composite rose 0.02%
The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ rose 2.77% to 17.08.

Among the most actives were Caterpillar Inc, Citigroup Inc, Eastman Kodak Co, Office Depot Inc and Whirlpool Corp.

JPMorgan Chase & Co and Goldman Sachs Group Inc led financials lower on concern new legislation will bar swaps dealers from bank privileges such as access to the Federal Reserve’s discount window, according to Bloomberg News.

Citigroup sank after the US Treasury detailed its plans to sell its shares in the firm.

Stocks also got a boost from merger activity with three deals announced. Hertz Global Holdings Inc will buy Dollar Thrifty Automotive Group Inc, Charles River Laboratories International will acquire WuXi PharmaTech Inc and Stifel Financial Corp is taking over Thomas Weisel Partners Group Inc.

In Europe overnight, the Dow Jones Stoxx 600 rose 1.1% to 270.23. The index has risen 6.4% so far this year and is 71% higher than when it fell to a 12-year low in March 2009.
Among national benchmarks, the UK’s FTSE 100 rose 0.53%, Germany ’s DAX 30 rose 1.16% and France’s CAC 40 gained 1.17%.
Some of the biggest movers included BHP Billiton, Xstrata Plc, TomTom NV, Weir Group Plc and Cookston Group Plc.

Shares in both Greece and Portugal fell after it appeared Germany won't swiftly approve funds to help Greece cope with its deficit.

The backing of Germany, Europe's biggest economy, is vital for any aid package but Merkel fears her party could lose a regional election on May 9, depriving her coalition government of its majority in the lower house of parliament, according to Reuters.

"We need a positive development in Greece together with further savings measures," Merkel told reporters in Berlin.

"Germany will help if the appropriate conditions are met. Germany feels an enormous obligation toward the stability of the euro ... If Greece is ready to accept tough measures, not just in one year but over several years, then we have a good chance to secure the stability of the euro for us all."

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.19% to 81.50.

Chancellor Angela Merkel, who faces public resistance to any aid for Greece, did little to ease worries over the terms and implementation of the 45 billion euro EU-IMF aid package which some leaders suggest may have to be bigger, Reuters reported.

The euro fell 0.5% to US$1.3323 after earlier hitting a session low of US$1.3291. It fell 0.1% to 125.55 yen and 1% to 86.14 pence, near a three-month low of 86.06 pence touched earlier in the session.

Against the yen, the dollar was up 0.17 percent at 94.07.

Measured by Bloomberg Correlation-Weighted Currency indexes, the US dollar has gained 1.9% this year.

The premium on Greek 10-year bonds over benchmark German bunds climbed to 600 basis points, or 6 percentage points, the highest since at least March 1998 when Bloomberg began compiling the generic prices.


The yield on the benchmark 10-year US Treasury note dropped 2 basis points, or 0.02 percentage point, to 3.79% at 10.46am in New York, according to BGCantor Market Data. The 10-year yield touched 3.83%, the highest level since April 16. The two-year note yield was at 1.04% after earlier reaching 1.08%, the highest level since April 12.

Later this week, the US Treasury will see US$44 billion in two-year notes tomorrow, US$42 billion of five-year securities on April 28 and US$32 billion in seven-year debt on the following day.

Investors became less bearish on the outlook for U.S. government debt through year-end, according to a weekly survey by Ried Thunberg ICAP Inc., a unit of ICAP Plc, the world’s largest inter-dealer broker. Bloomberg reported on the survey.

The company’s investor sentiment index rose to 43 for the seven days ended April 23, from 42 the week before. A figure of less than 50 shows investors expect prices to fall. The company, based in Jersey City, New Jersey, interviewed 21 fund managers controlling US$1.38 trillion.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.17% to 278.57.

Concerns about Greece took a bit of the glow off of the price of oil, which dipped below the US$85 mark.

The front-month contract for London ICE Brent crude slipped 12 cents to US$87.13, after rising to US$87.75 earlier, the highest price since early October 2008.

US crude for June delivery fell 36 cents to US$84.76 a barrel by 11.04am EST (1504 GMT), after settling up US$1.42 on Friday.

Gold was steadier amid the lingering worries about euro zone sovereign debt. Spot gold hit a peak of US$1,159.73 an ounce in earlier trade, its highest since April 15, and was at US$1,155.25 an ounce at 1517 GMT versus US$1,155.90 late in New York on Friday.

The combination of risk-averse buying and euro weakness took euro-priced gold to a record 868.57 euros an ounce.

In contrast, copper futures in the US reached a one-week high, following through on gains made on Friday when the US reported strong orders for durable goods and a surge in new home sales.

Copper for July delivery was up 1.95 cents at US$3.55 per lb by 10.09am EDT on the New York Mercantile Exchange's COMEX division.

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