While you were sleeping: Hammer drops on equities

Wednesday 30th June 2010

Stocks and base metals fell, while perceived safe-haven investments such as gold and US Treasuries rose on renewed evidence of a slowdown in the pace of the global economic recovery.

In late trading, the Dow Jones Industrial Average dropped 2.62%, the Standard & Poor’s 500 Index declined 3.12% to below its lowest closing level of the year, and the Nasdaq Composite plunged 3.78%.

In the US the Conference Board’s gauge of confidence among consumers slumped to 52.9 this month from a revised 62.7 in May as Americans became pessimistic about the outlook for the labour market and the economy. The median forecast called for a decline to 62.5, and the gauge was lower than all projections in a Bloomberg News survey of 71 economists.

The Conference Board today revised its April leading economic index for China to 0.3%, from a gain of 1.7% reported June 15.

“It’s ugly out there,” James Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, told Bloomberg News.

“Consumers are pulling back. There’s concern about a China slowdown. We’re close to important technical levels on the S&P 500, with 1,040 being closely watched. It’s end of quarter, investors have to close their books and they are selling the stocks that did poorly.”

Among the most active stocks on Wall Street were Caterpillar Inc, Alcoa Inc and JPMorgan Chase & Co.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, soared 16.3% to 33.73.

Stocks in Europe didn’t fare much better as the Stoxx Europe 600 Index declined 2.8% to 244.42, the biggest drop since May 19.

The UK’s FTSE 100 lost 3.10%, Germany’s DAX declined 3.33% and France’s CAC 40 fell 4.01%.

Among the most active stocks in Europe were Rio Tinto Group, Lafarge SA, HSBC Holdings Plc and Vodafone Group Plc.

Investors fled into the perceived safety of U.S. Treasuries, pushing two-year note yields to a record low, on the signs of a slowing global economic recovery.

Ten-year note yields dropped below 3% for the first time in more than a year. U.S. government bonds are headed for their best quarter since the 2008 financial crisis.

The yield on the two-year note fell two basis points, or 0.02 percentage point, to 0.61% at 1.20pm in New York, according to BGCantor Market Data.

The 10-year note yield fell six basis points to 2.96%. The 30-year bond yield touched 3.95%, the lowest since October 2, 2009.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.47% to 86.08.

The euro hit an all-time low versus the Swiss franc, while the Japanese yen rallied as investors dumped riskier assets.

Declines in the European currency accelerated after a report showed a steep fall in US consumer confidence.

Traders also cited significant US dollar short-covering ahead of the monthly payrolls report on Friday that provides a key reading on the US economy.

"It's not a good time to be long risk," Douglas Borthwick, head of trading at Faros Trading LLC, a full service FX execution firm in Stamford, Connecticut, told Reuters.

The yen gained 2% versus the euro and 1% against the greenback.

The euro was down nearly 2% after hitting a session low of 107.33 yen, its weakest since late 2001. It fell to 1.3197 Swiss francs according to Reuters data, the lowest since the single currency's 1999 launch.

Against the dollar, the euro lost 1% on the day to hit a two-week low of US$1.2152 earlier, according to Reuters data.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 2.91% to 255.85.

Oil prices fell more than 3%. Prices hit an intraday seven-week high on Monday, before ending lower after forecasts indicated that Tropical Storm Alex would skirt the Gulf of Mexico’s main production centers.

At 12.50pm EDT, US crude for August was down US$2.55, or 3.26%, at US$75.70.

ICE Brent crude fell US$2.34 to US$75.25.

"It is a return to risk aversion," Eugen Weinberg, a commodity analyst at Commerzbank in Frankfurt, told Reuters.

"Gold is outperforming other commodities, a sign of a move to safe havens, and base metals are down on worries over the economy."

US copper futures plunged on concern about economic growth in China and fiscal problems in the euro zone.

Most-active copper for September delivery dropped 12.55 cents, or 4.1%, to US$2.9640 per pound by 9.48am EDT (1348 GMT) on the COMEX metals division of the New York Mercantile Exchange.

Gold prices were bolstered by renewed fears about European credit contagion.

Spot gold was at US$1,243.20 an ounce at 12.27pm EDT, against US$1,236.05 late in New York on Monday. US gold futures for August delivery rose US$5.60 to US$1,244.20.

Businesswire.co.nz

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