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Relief Rally Disappears After Fresh Economic Data

August 1, 2011 by Leave a Comment

Stocks on Wall Street followed European and Asian financial markets higher Monday but their sigh of relief over the last-minute agreement in Washington to raise the United States debt limit was short-lived.

After a short burst that put the three main Wall Street indexes up more than 1 percent, they turned negative as the reality of the challenges ahead for the recovery caught up with investors.

That dip also coincided with the release of new data that showed American manufacturing growing more slowly. The Institute for Supply Management reported that its index registered 50.9 percent in July; with a reading over 50, that means the manufacturing sector expanded for the 24th consecutive month. But it did so at a slower rate, registering below the 55.3 of June, the survey showed. Production and employment also showed continued growth in July, but at slower rates than in June.

The latest ISM index was particularly bad news on the heels of the government’s report last week that the nation’s gross domestic product grew at an annual rate of less than 1 percent in the first half of 2011, with the first quarter and the second quarter at 0.4 percent and 1.3 percent, respectively. The G.D.P. data was revised going back to 2003, showing the recession was deeper and the recovery weaker than originally thought.

“I think when the market opened up, there was a sigh of relief,” said Nick Kalivas, vice president of financial research at MF Global. “There was some expectation that a deal would get done, so the reaction was not extreme or overly strong.”

But now, he said, “The market is focusing on the global growth picture.”

By midmorning, the benchmark Standard Poor’s 500-stock index was down 6.65 points, or 0.51 percent, to 1,285.63. The Dow Jones industrial average, after gaining 125 points, was off 46.17, or 0.38 percent, to 12,097.07 , and the Nasdaq fell 9.85 points, or 0.36 percent, to 2,746.53.

In London, the FTSE 100 index was up 0.45 percent to 5,841.57, although concerns about the outlook for Europe remained apparent.

Speaking before the American markets opened, Stefan de Schutter, an asset manager at Alpha Trading in Frankfurt, said: “We’re seeing a relief rally on the U.S. debt deal, which was the cause of much uncertainty last week. There’s more of an appetite for risk today. But if we look ahead, we’ll see a return to the focus on the economic problems in Europe.”

The key index in Japan jumped 1.3 percent and the Hang Seng index in Hong Kong added 1 percent, picking up steam after the deal in Washington was announced by President Obama.

In Japan, investors were also encouraged by the fall of the yen against the United States dollar after the debt deal.

The debt woes in the United States had undermined the dollar’s value in international currency markets in recent weeks, especially against the yen — a worrying trend for Japanese exporters, as a strong yen makes their goods more expensive for shoppers overseas.

Around midday in London on Monday, the dollar bought 77.1 yen, about 1 yen more than on Friday in New York.

The euro rose slightly against the dollar as some investors moved into currencies previously perceived to be higher risk. The euro stood around $1.4426 in London on Monday.

Expressing a general sense of guarded optimism about the debt deal, Yukio Edano, Japan’s chief cabinet secretary, said Monday, “We welcome the deal, which we hope will lead to market stability.”

Similarly, Wayne Swan, the Australian treasurer, said the debt agreement was an important first step, but that United States fiscal consolidation was necessary to ensure global growth.

Aside from the details of the debt reduction plans, analysts said uncertainty remained about the subsequent ratification by Congress and the reaction of the ratings agencies.

“Last night’s deal is a good step forward but uncertainty will remain,” said Elsa Lignos, a senior currency strategist at Royal Bank of Canada in London.

The debt-ceiling debate, said David Carbon, an economist at DBS in Singapore, “has made people realize just how much there is left to do on the fiscal front.”

United States economic growth has been slow over several quarters, Mr. Carbon said, and the risk of a double-dip recession is now much greater than it appeared a year ago.

Gold, which has struck multiple record highs amid the uncertainty of the past weeks, fell nearly 1 percent to $1,613 an ounce. Oil rose about $1 to $97 a barrel.

The announcement of a deal between the Republicans and Democrats “could take some of the froth out of the gold market,” said Caroline Bain, economist with the Economist Intelligence Unit in London. “However, we expect the market to remain strong at least until 2013 when we expect the normalization of O.E.C.D. monetary policy to start in earnest.”

Christine Hauser reported from New York and Matthew Saltmarsh reported from London. Bettina Wassener contributed reporting from Hong Kong and Hiroko Tabuchi contributed from Tokyo.

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Stocks and Bonds: Equities Rise Modestly Amid Conflicting Signals

July 7, 2011 by Leave a Comment

Union Pacific climbed 0.8 percent to lead gains in shipping companies, while Costco Wholesale rallied 1.7 percent to help lead an advance in companies that sell consumer goods. Bank of America and JPMorgan Chase slumped at least 1.1 percent as financial stocks retreated.

The Standard Poor’s 500-stock index gained a scant 0.1 percent, or 1.34 points, to 1,339.22. The Dow Jones industrial average climbed 56.15 points, or 0.5 percent, to 12,626.02. The Nasdaq composite rose 8.25 points, or 0.3 percent, to 2,834.02.

“We’re beginning to put the short-term economic issues behind us,” said Robert N. Schaeffer, a money manager at Becker Capital Management in Portland, Ore. “We’re likely to get better economic data over the next months and that will rally the stock market on an intermediate basis even if the long-term problems, such as too much debt, remain unsolved.”

The recent rally has exposed a partial shift that had favored companies less sensitive to economic growth. Since the S. P. 500 slipped to its low for the year in March, drug makers, phone companies, utilities and makers of household products have gained most, according to data compiled by Bloomberg. But the biggest advances in last week’s rally were among so-called cyclical stocks, including energy companies, computer makers, automakers and industrials.

Market indexes fell early on after the Institute for Supply Management services index fell to 53.3 in June from 54.6 a month earlier. A reading above 50 signals expansion. The slower pace is a sign the economy cooled at the end of the first half of 2011.

Other data showed employers announced 5.3 percent more job cuts in June than a year earlier, according to Challenger, Gray Christmas, a firm based in Chicago. The report comes two days before the Labor Department’s monthly jobs report, which is expected to show unemployment unchanged at 9.1 percent.

Stock-index futures had also retreated after China’s central bank said Wednesday that it would raise its benchmark deposit and lending rates by one-quarter point . This is the third time this year China has raised rates as it tries to cool its economy, the world’s fastest growing.

“China is perceived as the economic engine of the world right now,” said Oliver Pursche, president of Gary Goldberg Financial Services based in Suffern, N.Y. “Them slowing down by raising interest rates at a time when we have an overhang of high unemployment and low growth in the U.S., as well as the sovereign debt issues in Europe, causes investors to get concerned about what the impact will be on our markets and economies.”

General Motors rose 1.1 percent after Morgan Stanley upgraded American carmakers.

The News Corporation fell 3.6 percent to $17.47. The company’s News of the World, the tabloid accused of hacking into a murder victim’s voicemails, is losing advertisers including G.M.’s Vauxhall and Lloyds Banking.

The Treasury’s 10-year note rose 2/32, to 100 4/32 to yield 3.11 percent, down from 3.12 percent.

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Stocks Fall as New Data Shows Slower Job Growth

June 1, 2011 by Leave a Comment

Private employers added just 38,000 jobs in May, down from 177,000 in April, according to the payroll processor ADP. It was the weakest result since September. The report may offer a preview of Friday’s more comprehensive job report from the Labor Department, which includes hiring by both private employers and the government.

The Standard Poor’s 500-stock index fell 12 points, or 0.9 percent, to 1,334 in morning trading. The Dow Jones industrial average dropped 105 points, or 0.8 percent, to 12,464. The Nasdaq composite index fell 17 points, or 0.6 percent, to 2,818.

Treasury prices rose as investors looked for safer types of investments. The yield on the 10-year Treasury note fell below 3 percent for the first time in 2011.

“As far as we can tell, employers have hugely overreacted to the surge in oil prices, which has slowed but not killed consumption,” said Ian Shepherdson, chief United States economist for High Frequency Economics. The weak ADP results pushed him to cut his forecast for overall job growth in Friday’s report to 75,000. He earlier had forecast growth of 175,000 jobs.

The ADP report has been wrong before as an indicator for the Labor Department’s job report. Last month, it underestimated growth. The private sector added 268,000 jobs in April, according to the government.

Even the manufacturing industry, one of the economy’s bright spots since the recession ended, is slowing. A report from the Institute for Supply Management showed manufacturing expanded in May for the 22nd straight month, but at a slower pace. Manufacturers have benefited since the recession from stronger overseas demand, but China, India and other developing nations are struggling with inflation.

The ISM’s manufacturing index fell to 53.5 from 60.4 in April. A reading of more than 50 indicates the manufacturing industry is growing.

Reports on the nation’s economy have often been discouraging since the spring, raising worries about the strength of the recovery. Weaker-than-expected reports helped knock the S.P. 500 index down 1.4 percent in May. The index had climbed 8.4 percent in 2011 through April on stronger corporate earnings, a recovering global economy and mergers and acquisitions.

Sealed Air, the maker of Bubble Wrap and other packaging, fell 2.3 percent after saying it would buy Diversey Holdings for about $2.9 billion in cash and stock. Diversey provides cleaning products and sanitizers.

Dollar General, the discount store operator, fell 7.1 percent after its first-quarter profit growth fell short of analysts’ expectations.

JoS. A. Bank Clothiers also reported first-quarter profit growth below analysts’ expectations. The men’s clothing maker fell 13.3 percent.

Lions Gate Entertainment rose 4.4 percent after it returned to a profit in its fiscal fourth quarter on lower distribution and marketing costs.

Article source: http://www.nytimes.com/2011/06/02/business/02markets.html?partner=rss&emc=rss

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Wall Street Turns Higher, Led by Technology Shares

April 5, 2011 by Leave a Comment

National Semiconductor jumped 71 percent after Texas Instruments said late Monday that it had agreed to buy the chip maker for $6.5 billion, or $25 a share. Texas Instruments rose 1.5 percent. Other companies — Cisco Systems, Intel and Microsoft — also rose.

The technology push overshadowed other issues that weighed on markets — higher oil prices, the disaster in Japan, China’s increase of its benchmark lending rate and another downgrade of Portugal’s credit rating.

On Wall Street, the Dow Jones industrial average was up 29.03 points, or 0.23 percent, while the broader Standard Poor’s 500-stock index gained 4.36 points, or 0.33 percent. The technology heavy Nasdaq gained 15.80 points, or 0.57 percent.

Japan’s benchmark Nikkei 225 index began the day by dropping 1.1 percent, amid frantic and unsuccessful efforts to control a radioactive leak at a nuclear plant damaged by the earthquake and tsunami on March 11.

The other big source of geopolitical tension, the conflict in Libya, kept oil prices high. The apparent stalemate in Libya, a country that accounts for about 2 percent of daily oil production, pushed the price of crude to $108.47 a barrel in New York on Monday. Prices were only slightly lower on Tuesday.

In economic news, the American service sector expanded in March, although growth slowed. The Institute for Supply Management, a private trade group, said its index of service-sector activity dropped to 57.3 last month, from 59.7 in February. That was the first decline in seven months. Still, any reading above 50 indicates expansion.

Apple’s shares slipped about 1 percent before recovering after the Nasdaq OMX Group announced that a rebalancing of the Nasdaq 100 next month would reduce Apple’s weighting in the index to 12 percent from 20 percent. That will probably force money managers to reduce their holding to reflect the new index.

The home builder KB Home lost 5 percent after it reported a first-quarter loss of $1.49 a share, far more than the 25 cents analysts were expecting.

In London, the FTSE 100 index was down 0.1 percent, while the DAX in Frankfurt was flat. The CAC 40 in Paris was 1.18 points lower.

While Libya and Japan will continue to be of interest the rest of the week, central banks are taking center stage.

The Reserve Bank of Australia kicked off a raft of statements this week by keeping its benchmark interest rate unchanged at 4.75 percent, followed soon after by the decision by the People’s Bank of China to raise its benchmark interest rate by a quarter percentage point as it looks to fight inflation. The increase was announced on a Chinese holiday.

While the European Central Bank is widely expected to raise interest rates when it meets on Thursday, there is more uncertainty about what the Bank of England will do, with most economists predicting it will leave borrowing rates unchanged despite a forecast-busting services sector survey.

The Bank of Japan also meets this week and investors will be looking to see if it enacts any further policy measures. The central bank has pumped billions of yen into the economy as it tries to keep liquidity flowing through the system in the wake of the disasters. It has received international support to stem the export-sapping appreciation of the yen.

The intervention has clearly helped. The dollar was up 0.2 percent on the day at 84.26 yen — substantially higher than the record low of 76.53 yen.

Meanwhile, the euro, which has gained a lot of ground as traders priced in the growing likelihood that the European Central Bank will tighten policy, was at $1.4221 as investors continue to fret about Portugal and whether it will have to get a financial lifeline. The country’s borrowing costs hit fresh euro-era highs Tuesday after Moody’s downgraded its bond rating by a notch to Baa1 and warned that another cut may be in the offing.

The Federal Reserve will also be in the spotlight later Tuesday when the minutes to the last rate-setting meeting are published. Investors will be looking to see if there are any signs of the central bank ending its current $600 billion monetary injection before June, and whether interest rates may start to rise sooner than the markets expect.

If the minutes do suggest that the Fed is sounding a more hawkish tone, analysts said the dollar could garner some support on views of higher future returns. Stocks may also suffer as higher interest rates tend to weigh on growth.

Ronan Carr, an analyst at Morgan Stanley, said equities would not like it when the monetary stimulus ends.

“Combined with the other headwinds we see — peaking leading indicators, margin pressures and inflation’s impact on growth — it suggests to us a more difficult phase ahead for equities,” Mr. Carr said.

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