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While you were sleeping: Equities await good news

Friday 2nd July 2010

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Equities slid overnight amid further signs of economic weakness in China, Europe and the US though some market watchers were starting to see buying opportunities ahead of the start of the second-quarter earnings season.

In late trading, the Dow Jones Industrial Average slid 0.3%, the Standard & Poor’s 500 Index declined 0.16% and the Nasdaq Composite was off 0.22%.

"We've become increasingly oversold on a momentum basis," Joe Arsenio, president of Arsenio Capital Management in Larkspur, California, told Reuters.

The S&P 500 is trading at 12.7 times projected 2010 earnings, 33% below the 10-year average of 18.8 times the past four quarters’ profits, according to data compiled by Bloomberg News.

Among the most active stocks on Wall Street were General Electric Co, Bank of America Corp and Merck & Co. Among the advancers were Microsoft Corp and Ford Motor Co.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, fell 3.8% to 33.22.

As a backdrop to the stock activity, the latest manufacturing, home and labour market data pointed to a slower pace of growth in the world's biggest economy. Hours earlier the pace of Chinese manufacturing activity was reported to have slowed in June to the lowest since February and a seperate report showed that factory output in Europe weakened for a second month.

The Stoxx Europe 600 Index fell 2.5% to 237.3, a five-week low.

“Fear, concern and uncertainty are in every corner of the market,” Daniel Weston, Munich-based portfolio manager at Schroeder Equities GmbH, told Bloomberg.

“There are limited reasons to be bullish.”

The UK’s FTSE 100 shed 2.26%, Germany’s DAX lost 1.81% and France’s CAC 40 dropped 2.99%.

Among the most active stocks in Europe were Daimler AG, HeidelbergCement AG, BHP Billiton, Xstrata Plc and Chloride Group Plc.

Bond returns are exceeding stock gains by the widest margin in nine years as optimism that greeted the year evaporates and investors around the world question the strength of the economic recovery, according to Bloomberg.

While the MSCI World Index of 24 developed countries fell 9.5% including dividends in the first half of 2010, bonds gained 4.2%, the Bank of America Merrill Lynch Global Broad Market Index shows, reversing the 5.1 percentage point lead stocks had over debt during the same period in 2009.
On the bond market, the US 10-year note yield stayed below 3% for a third day after breaching that level this week for the first time in more than a year, Bloomberg reported.

Yields on benchmark 10-year notes were little changed at 2.94%, according to BGCantor Market Data. The two-year yield advanced two basis points to 0.63%. The 30-year yield dropped two basis points to 3.87%.

Spain sold five-year notes at an average yield of 3.657%, compared with 3.532% at a May 6 auction. Demand was 1.7 times the amount sold, below the bid-to-cover ratio of 2.35 at the May sale.

Spain’s five-year note yield rose two basis points to 3.81% today.

France’s bonds advanced after the nation sold 7.5 billion euros of debt due in 2018, 2020 and 2026. The 10-year securities were sold at a record low yield of 3.04%. The bond drew bids for 3.5 times the amount on offer.

Investors took heart at the outcome of the European Central Bank's offering of six-day loans, which saw banks borrow 111.2 billion euros (US$136.1 billion), a figure that analysts said did not set off alarm bells.

Japan’s 10-year bond yields may fall below 1% for the first time since August 14, 2003 as the faltering US recovery boosts demand for government debt, according to HSBC Holdings Plc.

The Dollar Index, which measures the greenback against a basket of six major currencies, slid 1.7% to 84.54.

The euro weakened 15% against the dollar since December 31, reaching a four-year low of US$1.1877 on June 7. Its worst annual performance was a 14% decline in 1999, the year it was created.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, edged 0.89% lower to 256.21.

Spot gold hit a three-week low of US$1,215.45 and was bid at US$1,219.93 an ounce at 1531 GMT, against US$1,241.35 late in New York on Wednesday. US gold futures for August delivery slid US$24.10 to US$1,221.80.

"Gold has been caught up in commodity liquidation after poor data and as equities (fall)," Simon Weeks, head of precious metals at the Bank of Nova Scotia, told Reuters.

"Usual story - selling first as people need cash... and then further down the road, the gold as a currency demand will kick in."

Platinum hit a session low at US$1,491.50 and was later at US$1,500.30 an ounce against US$1,531.50. Palladium touched a low at US$422.43 and was later at US$428 against US$442.

Falling in tandem with base metals, gold and equity markets, oil prices declined for a fourth straight session, extending the 9.7% slide of the second quarter, the first quarterly drop since 2008.

US crude for August delivery fell US$3.30, or 4.3%, to US$72.33 a barrel at midday in New York, its biggest one-day percentage loss since February 4.

ICE Brent fell US$3.09 on Thursday to US$71.92.

"I think oil is reflecting general negative commodity market sentiment after weaker-than-expected China PMI data overnight," Carsten Fritsch, oil analyst at Commerzbank in Frankfurt, told Reuters.

Three-month copper on the London Metal Exchange declined US$47 to US$6,463 a tonne, after finishing the second quarter down 17%.

The Shanghai-LME arbitrage widened to 661 yuan, from 397 yuan at the previous Shanghai close.

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