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While you were sleeping: Stocks slide on weak results

Thursday 4th February 2010

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Stocks in Europe and on Wall Street slid overnight as results from Electrolux, Outokumpu, Pfizer and Ryder System provided reasons to sell.

At midday, the Dow Jones Industrial Average had fallen 0.58%, the Standard & Poor’s 500 Index  was 0.82% lower and the Nasdaq Composite had shed 0.47%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ rose 1.7% to 21.85.

The Dow Jones Stoxx 600 declined 0.6% to 249.4. The FTSE 100 lost 0.5&%, Germany’s DAX dropped 0.66% and France’s CAC 40 slid 0.49%.

“We cut our exposure to equities last week as we expect a growth slowdown that may turn out to be a bit more than what we think is currently priced in by the market,” Joost van Leenders, an Amsterdam-based strategist at Fortis Investments, told Bloomberg News. “Lower-than-expected growth will lead to lower profits.”

On a bright note, the U.S. jobs market appears to be moving into a new phase.

A report by ADP Employer Services showed the U.S. lost 22,000 private sector jobs last month, smaller than the 61,000 jobs lost in December and below economists' forecasts of a 30,000 loss in January, Reuters reported.

“The trend continues to get less worse. This is consistent with job growth returning in the United States,” said Dave Sloan, senior economist at 4Cast Ltd in New York. “I do believe the U.S. economy is now strong enough to create jobs.”

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.63% to 271.48.

Spot gold was bid at US$1112.70 an ounce at 1549 GMT, against US$1113.95 late on Tuesday. U.S. gold futures for February delivery fell US$5.30 to US$1112.1 an ounce.

Among other precious metals, silver was bid at US$16.50 an ounce. Platinum was bid at US$1567.50 an ounce, while palladium was at US$440.50.

U.S. commercial stockpiles of crude jumped by 2.3 million barrels to 329 million barrels in the week to January 29, eclipsing analysts' forecasts for a modest 200,000-barrel increase, the Energy Information Administration (EIA) said.

The numbers confirmed data from trade group American Petroleum Institute whose report on Tuesday showed national crude oil inventories up a whopping 4.7 million barrels.

U.S. crude for March delivery was trading around US$77.55 by 1604 GMT, up US32 cents. London ICE Brent crude for March was up rose US50 cents at US$76.56.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.46% to 79.34.

The US Deparatment of the Treasury Department said it would offer for sale US$81 billion of securities to refund about $US48.3 billion of maturing securities. There will be a 3-year note sale of US$40 billionn on February 9, a sale of US$25 billion of 10-year notes on February 10 and the sale of US$16 billion of 30-year bonds on February 16.

“Treasury believes that auction sizes are at levels that give us the ability to adequately address a broad range of potential financing needs, while allowing the average maturity of debt to gradually extend,” it said in a statement on its web site. “As such, Treasury anticipates that nominal coupon auction sizes will stabilise at current levels.”

Based on current projections, Treasury expects to reach the debt ceiling - now at US$12.4 trillion - as early as the end of February.  “However, the government's cash flows are volatile, making it difficult to forecast a precise date,” it said.

The Treasury is working with Congress to pass legislation to increase the debt ceiling.

The 10-year note yield climbed four basis points to 3.68% as of 10:19am in New York, according to BGCantor Market Data. It touched 3.69%, close to the highest since January 20.

The benchmark note’s yield will rise to 4.13% by year-end, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings.

Credit-default swaps, derivatives used to hedge against losses and speculate on credit quality, tumbled in Europe after the EU backed Greece’s three-year deficit plan.

Contracts on the high-yield Markit iTraxx Crossover Index dropped 14 basis points to 434, according to JPMorgan Chase & Co. prices at 11:45am in London, after climbing for the past three weeks, Bloomberg reported.

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