While you were sleeping: Risks rise for equities

Thursday 25th March 2010

When it rains, it pours and so with a downgrade of Portugal’s credit rating and another report showing that the US housing market’s woes continue, equities dropped overnight on Wall Street.

In afternoon trading, the Dow Jones Industrial Average fell 0.45% and the Standard & Poor’s 500 slid 0.55%. The Nasdaq Composite gave up 0.61% - but was holding ever so slightly above the 2400-mark at 2400.43.

Among the decliners were Chevron Corp, Genzyme Corp and Google. Procter & Gamble Co, Caterpillar Inc and General Mills Inc also fell.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ surged 7.4% to 17.56.

In Europe overnight, stocks were little changed. The Dow Jones Stoxx 600 rose 0.1% to 262.19.

Among national benchmarks, the UK’s FTSE 100 edged 0.07% higher. Germany’s DAX 30 added 0.36% and France’s CAC 40 ended down 0.07%. Portugal’s PSI-20 Index shed 1% and Spain’s IBEX 35 Index lost 1.2%.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 1.22% to 81.81, rising as traders made bets that the euro would extend its decline.

In mid-afternoon trading in New York, the euro was down 1.2% at US$1.3337. It was the biggest one-day move since February 17.

Against the yen, the dollar was 1.8% higher at 92.08 yen after touching a session high of 92.23 yen.

The lack of resolve on what to do to help Greece with its deficit woes was exacerbated overnight when Fitch Ratings downgraded Portugal amid concerns about its fiscal condition.

Infighting among European leaders and talk of Greece being pushed to ask the International Monetary Fund could continue to pressure the euro.

“Europe has failed to clear its first serious hurdle,” UBS Investment Bank deputy head of global economics Paul Donovan told Bloomberg Radio. “If Europe can’t solve a small problem like this, how on earth is it going to solve the larger problem, which is the euro doesn’t work.”

Leaders of euro-zone members will meet in Brussels for two days starting tomorrow.

In the text of a speech by Chinese Vice Commerce Minister Zhong Shan in Washington, he reiterated that China had no plans to adjust its currency.

“A dip in the value of dollar will undoubtedly bring great repercussions to the global financial system and the world economy. It is in nobody's interest, China's, the U.S.' or other countries', to see big ups in the renminbi or big downs in the dollar,” he said.

“The right way to reach trade balance between China and the US should be expanding exports from the US to China, rather than limiting China's exports to the US,” Zhong said.

Treasuries dropped as the record-tying $US42 billion auction of five-year notes drew the lowest demand from a group of investors that includes foreign central banks since July, Bloomberg reported.

Indirect bidders, a class of investors that includes foreign central banks, purchased 39.7% of the notes, the lowest level since July. The auction drew a yield of 2.605%, compared with the average forecast of 2.556% in a survey of eight of the Fed’s primary dealers.

At the record-tying $US44 billion two-year note auction a day earlier, investors bid for 3 times the amount on offer, the lowest since December’s sale, according to Bloomberg. The government will auction a record-tying US$32 billion of seven-year notes tomorrow.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.76% to 269.65. Most commodities tracked the greenback lower.

U.S. crude oil futures for May fell US$1.15 to US$80.76 a barrel. The futures have traded between US$69 and US$84 so far this year. London ICE Brent for May slipped US$1.03 to US$79.67.

In addition the currency’s influence, oil slid after US crude stockpiles jumped 7.3 million barrels in the week ended March 19, according to the US Energy Information Administration, which for the most confirmed what the American Petroleum Institute reported a day earlier.

Spot gold fell as low as US$1088.05 an ounce, its weakest since February 12, and was bid at US$1091.95 an ounce at 1513 GMT.

Palladium was the biggest faller among the precious metals, sliding more than 4 per cent to a session low of US$443.50 an ounce.

Copper for May delivery off US3.75 cents at US$3.3415 per pound by 1435 GMT on the New York Mercantile Exchange's COMEX division.

Businesswire.co.nz

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