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While you were sleeping: Equities lose their way

Friday 25th June 2010

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Rising concerns about the global economic outlook, heightening divisions among the G20 and the shock exit of Italy from the World Cup did little to inspire investors overnight.

In late trading, the Dow Jones Industrial Average fell 1.32%, the Standard & Poor’s 500 Index fell 1.55% and the Nasdaq Composite was 1.47% lower.

The S&P 500 is near a level that, if broken, could lead the U.S. equity benchmark to a 14-month low, according to BTIG.

Among the most active stocks on Wall Street were Bank of America, JPMorgan Chase, Bed Bath & Beyond and Nike, which reported sales data below analysts’ expectations.

"There hasn't been too much good news, from housing and all the way down this week," Alan Lancz, president at Alan B. Lancz told Reuters.

"There are clouds on the horizon with the financial regulatory reform and more talk on that front hurting banks."

It’s not all grim though.

Stock indexes should end the year with double-digit gains over current levels, a Reuters poll showed.

The S&P 500index is forecast to rise to 1,230 at the end of 2010, according to the median forecast of 52 money managers and strategists at top Wall Street dealers, brokerages and fund managers polled June 16-24.

That consensus is almost identical to the 1,225 median forecast for end-2010 in the March poll.

And while the All Whites exited the World Cup overnight after a 0-0 draw with Paraguay, the football heroes are heading home undefeated. Not so for the Italians, like the French, who ended their cup hopes with a dramatic collapse.

Slovakia finished off the Italians, and reigning champions, with a 3-2 victory today.

The Chicago Board Options Exchange Volatility Index surged 7.9% to 29.04.

The Stoxx Europe 600 Index fell for a third day, sliding 1.8% to 249.78, paced by declines in Greece, Spain and Portugal.

The FTSE 100 fell 1.51%, France’s CAC 40 dropped 2.37% and Germany’s DAX shed 1.44%.

“We are concerned about Europe,” Jane Coffey, who helps manage US$51 billion at Royal London Asset Management told Bloomberg News. “They have addressed the problems but the key is in the execution. Markets are still hostage to various sentiment swings concerning macro data.”

Among the most active stocks in Europe were EFG Eurobank, Rio Tinto and Adidas.

The Dollar Index, which measures the greenback against a basket of six major currencies, slipped 0.2% to 85.61.

The yen strengthened 0.3% to 89.59 per dollar at 2.52pm in New York. It touched 89.23, the strongest level since May 21. The euro advanced 0.2% to US$1.2332, and was little changed at 110.50 yen.

President Barack Obama said on Thursday China had made progress in announcing greater currency flexibility but it was "too early to tell" whether the appreciation of the yuan's value would be sufficient.

Obama, speaking at a joint news conference with visiting Russian President Dmitry Medvedev, said initial signs were positive and the United States would continue monitoring how rapidly changes were taking place with the yuan.

"I think China made progress by making its announcement that it is going to be returning to its phased-in, market-based approach" to the currency, Obama said, according to Reuters.

On the bond market, the two-year U.S. note’s yield advanced one basis point, or 0.01 percentage point, to 0.69% at 2.06pm in New York, according to BGCantor Market Data. The 10-year note’s yield increased one basis point to 3.13%.

Today’s auction of seven-year notes produced a yield of 2.575%, compared with the average forecast of 2.586% in a Bloomberg News survey of 5 of the Federal Reserve’s primary dealers.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.01, compared with an average of 2.78 for the past 10 sales.

Indirect bidders, an investor class that includes foreign central banks, purchased 51% of the notes, compared with an average of 53.33% for the past 10 sales.

The US Treasury sold US$38 billion in five-year notes yesterday at a yield of 1.995%, compared with the average forecast of 1.961% in a Bloomberg News survey.

A sale of US$40 billion in two-year notes on June 22 produced a record low yield of 0.738%.

Five-year credit default swaps, or CDS, on Greek government debt climbed to a record 1,085 basis points from 934.2 basis points at the New York close on Wednesday. It now costs 1.085 million euros to insure an exposure of 10 million euros of Greek government bonds, up from 934,200 euros.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials,  edged 0.61% higher to 261.30.

Oil fell after an unexpected rise in U.S. crude stockpiles, though the losses were offset in part by better than expected weekly jobless claims data.

U.S. crude for August fell 43 cents to $75.92 a barrel by 1343 GMT after earlier sinking to $75.55.

ICE Brent futures were down 32 cents at $75.95.

Spot gold was at US$1,245.05 an ounce by mid afternoon in New York versus US$1,235.20 late in New York on Wednesday. U.S. August gold futures settled up US$11.10 at US$1,245.90.

Having hit a record US$1,264.90 on Monday, prices have struggled to make further headway, which has left the market prone to short-term setbacks.

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