While you were sleeping: Doubt on US economy

Friday 18th June 2010

Stocks in the US fell as a gain in jobless claims and slower growth in manufacturing reignited concern about the recovery in the world’s largest economy.

In late trading, the Dow Jones Industrial Average fell 0.49%, the Standard & Poor’s 500 Index declined 0.51% and the Nasdaq Composite lost 0.36%.

Among the most active stocks on Wall Street were Alcoa Inc, American Express Co, Home Depot, Toll Brothers Inc and Bed Bath & Beyond Inc.

U.S. shares gave up early gains after the Federal Reserve Bank of Philadelphia’s general economic index dropped to 8 in June from 21.4 the previous month. That was below the economist forecast of 20, according to the median of 58 projections in a Bloomberg News survey. Earlier a jobs report showed an increase in first-time unemployment claims.

"The economy continues to take three steps forward and two steps back, and this week thoroughly has been driven by the two steps back," David Katz, chief investment officer at Matrix Asset Advisors, told Reuters.

Meanwhile, PIMCO's US$228 billion Total Return Fund, the world's biggest bond fund, raised its market value weighting in US government debt to 51% at the end of May from 36% in the previous month, data on the company's website showed.

Bill Gross, the manager of Total Return, and Mohamed El-Erian, who shares the title of PIMCO's co-chief investment officer with Gross, remained negative on Treasuries on a "long-term basis".
PIMCO's government allocations refer not only to nominal Treasuries, but also TIPS, agencies, interest rate swaps, Treasury futures and options as well as FDIC guaranteed corporate securities.

PIMCO also cut its exposure to non-U.S. developed market debt - corporate bonds and sovereign debt from non-US developed countries - to 6% at the end of May. The weighting stood at 13% at the end of April.

The Chicago Board Options Exchange Volatility Index fell 0.08% to 25.90.

The Stoxx Europe 600 Index gained 0.2% to 254.88.

The FTSE 100 added 0.30%, France’s CAC 40 rose 0.19% and Germany’s DAX advanced 0.53%.

Among the most active stocks in Europe were Banco Santander SA, BP Plc and Fresnillo Plc.

Spain sold 3.5 billion euros (US$4.3 billion) of bonds, the maximum set for the auction, easing concern that it would struggle to finance looming debt maturities. The country with the third- largest deficit in the euro region faces debt redemptions of 24.7 billion euros in July.

Spain sold 3 billion euros of 10-year debt at an average yield of 4.864%, less than the 5.04% that the bonds traded at today before the sale. Demand was 1.89 times the amount on offer. It also sold 479.2 million euros of 30-year debt at 5.908%, and the bid-to-cover ratio was 2.45, higher than the 1.38 at the previous sale on March 18.

"Spain ... wanted to show it could issue paper without problems. But they paid a lot to get the paper away," Huw Worthington, a bond strategist at Barclays Capital in London, told Reuters.

The well-covered auction helped narrow the spread of Spanish yields over benchmark Bunds from an earlier euro lifetime high of 237 basis points.

The Dollar Index, which measures the greenback against a basket of six major currencies, declined 0.51% to 85.64.

The euro rose 0.41% against the U.S. dollar to US$1.2357.

Against the yen, the euro dropped 0.20% to 112.29 yen. The greenback also fell against the yen, down 0.60% to 90.87 yen as the weak U.S. data increased risk aversion.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.33% to 263.29.

Spot gold was bid at US$1,246.75 an ounce at 1425 GMT, against US$1,229.60 late in New York on Wednesday. U.S. gold futures for August delivery rose US$14.50 to US$1,245.10.

Shanghai copper pared gains after rising more than 2% in early trade, as momentum was slowed by China demand concerns and the mixed U.S. economic data.

London copper fell more than 2% and zinc nearly 4%, after U.S. housing starts fell more than expected in May to their lowest level in five months.

Shanghai's benchmark third-month copper futures contract rose to a two-week high of 52,690 yuan a tonne in early trade, before easing to end at 51,850 yuan a tonne, up 0.8% from the close before the holiday.

Three-month copper on the London Metal Exchange fell 2.3% to US$6,505 a tonne by 0701 GMT, down from a two-week high of US$6,775 reached in the previous session.

LME copper is expected to drop to US$6,421 per tonne as a top could have formed at US$6,775, said Wang Tao, a Reuters market analyst.

Businesswire.co.nz

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