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While you were sleeping: Mixed messages reign

Wednesday 28th July 2010

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Wall Street was mixed as solid earnings by companies including DuPont Co were offset by a bigger-than-anticipated decline in US consumer confidence and a leading economist’s expectations for a double-dip recession.

In late trading, the Dow Jones Industrial Average edged 0.11% higher. The Standard & Poor's 500 Index slipped 0.17% and the Nasdaq Composite Index fell 0.38%.

Among the most active on Wall Street were DuPont and Lexmark International, which both beat earnings estimates. Also active were Bank of America Corp and Citigroup.

However, there is still plenty to be concerned about. One of the US property market's best-known economists said the state of the economy was worrisome and that there was a high possibility of a double-dip recession.

"For me a double-dip is another recession before we've healed from this recession... The probability of that kind of double-dip is more than 50%," Robert Shiller, professor of economics at Yale University and co-developer of Standard and Poor's S&P/Case-Shiller home price indexes, told Reuters Insider.

"I actually expect it."

A report showing that confidence among US consumers declined more than expected in July also kept alive concern about the economy’s recovery. The Conference Board’s confidence index fell to 50.4 from a revised 54.3 in June.

“It’s one step forward, two steps back,” Mike Ryan, New York-based head of wealth management research for the Americas at UBS Financial Services Inc, told Bloomberg News.

“We’ve seen a very solid earnings season. The numbers have been consistently above expectations. I don’t believe the economy is rolling over. However, we need to get more data on the economic front.”

Of the 179 companies in the S&P 500 that reported results since July 12, about 82% have beaten the average analyst profit forecast and earnings per share have grown 60%, according to Bloomberg data.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, rose 1.41% to 23.05.

The Stoxx Europe 600 Index advanced 0.4% to 258.11, gaining for a sixth consecutive session.

Across Europe, the UK’s FTSE 100 rose 0.27%, France’s CAC 40 climbed 0.83% and Germany’s DAX gained 0.21%.

Among the most active stocks in Europe were Deutsche Bank AG, UBS AG, and Tomkins Plc.

Banks were bolstered by the Basel Committee on Banking Supervision which yesterday softened some of its proposed capital and liquidity rules while introducing new restrictions on how much lenders can borrow in order to rein in their risk-taking. The panel agreed to allow certain assets, including minority stakes in other financial firms, to count as capital.

Meanwhile,  BP Plc's newly named chief executive Bob Dudley called the Gulf oil spill a "wake-up call" for the entire industry and said safety would be among his highest priorities as he tried to refurbish the oil company's battered reputation. Dudley will replace Tony Hayward as CEO on October 1.

BP also said it would offset the cost of the spill against its taxes, costing U.S. taxpayers almost US$10 billion. The company reported a second-quarter loss of US$17 billion, including US$32 billion in charges related to the oil spill, the largest in U.S. history. It also announced plans to sell US$30 billion in assets over the next 18 months to help cover its liabilities.

US Treasury two-year note yields rose the most in more than a month as the government sold US$38 billion of the securities, the first of three note auctions this week.

The sale drew a record low yield of 0.665%. The sale’s bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.33, compared with an average of 3.18 at the past 10 auctions.

Current two-year note yields were at 0.63%, up 5 basis points, at 1.42pm in New York, according to BGCantor Market Data. The yield on the 10-year note rose 5 basis points to 3.04% and touched 3.05%.

The Treasury will auction US$37 billion in five-year notes tomorrow and US$29 billion in seven-year debt on July 29.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.20% to 82.20.

The euro gave up gains against the US dollar after the worse-than-expected consumer confidence report for the world’s biggest economy.

In mid afternoon trading in New York, the euro fell 0.2% to US$1.2966 after touching US$1.3045 earlier, according to Reuters data.

Against the yen, the dollar gained, last trading at 87.83 yen.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.83% to 264.46.

Oil prices dropped after the consumer confidence data. US benchmark oil prices fell US$1.65 a barrel to US$77.33 by 12.04pm EDT. ICE Brent fell US$1.63 to US$75.87 a barrel by the same time.

Gold was another commodity hit by the weak US consumer confidence numbers, falling to a 12-week low.

Also hurting the precious metal was a decline in holdings of the world's biggest gold ETF, New York's SPDR Gold Trust, which suggested the investment demand that drove prices earlier in the year was weakening.

Spot gold was bid at US$1,168.75 an ounce at 10.31am EDT, against US$1,183.75 late in New York. US gold futures for August delivery fell US$15.10 to US$1,168.00.

US copper futures fell. Copper for September delivery dropped 3.55 cents to US$3.1875 per pound at 10.10 EDT (1410 GMT) on the COMEX metals division of the New York Mercantile Exchange.

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