December 4, 2022

Stocks Stall, Wary of Fed Action and Budget Showdown

Uncertainty about the Federal Reserve’s next step and the potential for a budget showdown in Washington led stock markets to a mixed close on Tuesday.

By the end of trading, the Standard Poor’s 500-stock index was 0.3 percent lower, the Dow Jones industrial average was 0.4 percent lower and the Nasdaq composite gained just under 0.1 percent.

Investors initially celebrated when the Federal Reserve said last week it would refrain from cutting back its huge economic stimulus program. The $85 billion in monthly asset purchases by the Fed helped pump life into the economy and stock markets, but enthusiasm has waned as the reasoning behind the decision — that the United States economy is still weak — began to sink in.

Still, the central bank is still expected to scale back its purchases at one of its upcoming meetings — in late October, in mid-December or sometime early next year, so “tapering” is not off the table.

Tuesday’s data did little to cement expectations of when the Fed may act. A house price report from the Standard Poor’s Case-Shiller index and a consumer confidence survey from the Conference Board were a little softer than expected.

The approaching budget battle between the White House and Republican lawmakers also threw an element of uncertainty at markets. The government will reach its borrowing limit, or debt ceiling, by Oct. 1. If Congress does not raise that limit, the government will not be able to pay all its bills.

Republicans are demanding that any increase must result in expenditure cuts of an equal amount. President Obama is demanding a debt-limit increase with no conditions attached.

“The re-emergence of debt ceiling concerns, along with muddled central bank guidance, has helped to inspire caution rather than risk,” said Brenda Kelly, senior market strategist at IG.

In Europe, the FTSE 100 index of leading British shares closed up 0.2 percent at 6,571.46 while Germany’s DAX rose 0.3 percent to 8,664.60. The CAC 40 in France ended 0.6 percent higher at 4,195.61.

Asian stocks were mostly lower. Japan’s Nikkei 225 fell 0.1 percent, to close at 14,732.61 points. Hong Kong’s Hang Seng dropped 0.8 percent, to 23,179.04. Australia’s SP/ASX 200 shed 0.4 percent, to 5,234.20. South Korea’s Kospi fell 0.1 percent, to 2,007.10.

Trading elsewhere was muted. Among currencies, the euro was down 0.1 percent at $1.3481 while the dollar was flat at 98.80 yen. In the oil markets, a barrel of benchmark New York crude was trading 22 cents lower at $103.37.

Article source:

Bank of England’s Governor to Keep Interest Rates Low

The new governor, Mark Carney, used the speech to talk directly to the backbone of the British economy: the owners of small and medium-size businesses.

“The knowledge that interest rates will stay low until the recovery is well established should give greater confidence to households to spend responsibly and businesses to invest wisely,” Mr. Carney said in Nottingham, a city 110 miles north of the bank’s offices in London.

Mr. Carney’s main mission is to shore up the nation’s economy, which has lagged behind competitors in rebounding from the worst global recession since the 1930s.

The United States economy has grown 5 percent over the last five years, but Britain is producing 3 percent less than it did at the start of the recession, Mr. Carney said.

His main act since taking the helm at the start of July has been to introduce an element of “forward guidance” to the bank’s monetary policy. The idea is that by indicating that borrowing costs will not rise for some time, businesses and households will be encouraged to invest and spend. The Federal Reserve has had such guidance for years.

However, Mr. Carney’s initial guidance this month generated some unwanted uncertainty.

On Aug. 1, he said that Britain’s benchmark rate would remain at a record 0.5 percent until unemployment fell to 7 percent, from the current 7.8 percent, or up to three years. Many economists thought the unemployment threshold meant interest rates might rise far sooner than expected and Britain’s borrowing rates in the markets increased.

In his speech on Wednesday, at the University of Nottingham, Mr. Carney said that the bank would not raise interest rates until “jobs, incomes and spending are recovering at a sustainable pace.” He also said that the 7 percent threshold would not necessarily lead to a rise in the interest rate.

“The Bank of England’s task now is to secure the fledgling recovery, to allow it to develop into a period of sustained and robust growth,” he said. “We aim to get there in part by reducing the uncertainty that has held back growth.”

Mr. Carney also touched on bigger themes. In the international arena, he explained that Britain must detach its monetary policy from that of the United States.

“While much has been made of the special relationship between the U.S. and U.K., it is not so special that the possibility of a reduction in the pace of additional stimulus in the U.S. warrants a current reduction in the degree of monetary stimulus in the U.K,” he said.

Article source:

Data on Factories and Lending Raise Hopes for Euro Zone Recovery

The survey of purchasing managers by Markit, a data provider, suggested that Europe might be near the end of a prolonged slump that has pushed unemployment to record highs. But the recovery is likely to be slow and fragile, economists warned, and recession could persist in some southern countries.

Evidence also appeared Wednesday that a credit squeeze in the euro zone was easing. A survey of banks by the European Central Bank showed that credit for consumers was becoming more available for the first time since the financial crisis began in 2008. While credit for businesses remained tight, tentative signs indicated that lending could begin to recover within months.

“The recession in the euro zone seems to be coming to an end after two years,” Ralph Solveen, an economist at Commerzbank in Frankfurt, said in a note to clients. But he added that the upturn could be uneven, with some indicators continuing to fall. “Activity is still dampened by numerous problems,” he wrote.

The Markit index of economic output rose to an 18-month high of 50.4 in July, from 48.7 in June, preliminary figures showed. A reading above 50 is considered a sign of economic growth. The July figure was the first above 50 since January 2012.

European stocks rose after the survey was released. Benchmark indexes in Madrid, Paris and Rome all ended up more than 1 percent, and the euro gained slightly against the dollar.

The Markit index suggested that growth was increasing in Germany and that the recession was nearly over in France. Manufacturing was rebounding in both countries, perhaps aided by growth in the United States economy, which has increased demand for European exports.

Daimler, the maker of Mercedes-Benz cars, said on Wednesday that unit sales of passenger vehicles rose 9 percent in the second quarter, in part because of surging demand in the United States for models like its redesigned S-Class luxury sedan, and its net income more than doubled from the period a year ago.

The Markit survey showed that the French economy continued to contract over all, but more slowly, while manufacturing was growing again for the first time since February 2012. The data suggested that the French economy, the second-largest in the euro zone after Germany, was stabilizing and could emerge from recession soon.

In Germany, managers reported solid growth in manufacturing and services, raising hopes that the country could help haul the rest of the Continent out of its slump.

Markit did not issue separate data for other European countries, but an index of economic sentiment in the rest of the euro zone that was part of the report also showed signs of stabilization.

The various encouraging data mean the European Central Bank is probably not likely to cut the benchmark interest rate, already at a record low of 0.5 percent, when it meets next week. Unemployment, often one of the last problems to respond to economic growth, could be near its peak after reaching 12.2 percent in the euro zone, its highest.

Still, the region remains vulnerable. More than a quarter of workers are unemployed in Greece and Spain. Signs of slowing growth in China, which accounts for about 25 percent of European exports, also present a risk for the euro zone.

“An economic recovery is looming, which is encouraging,” Martin van Vliet, an economist at ING Bank said in a note, “but we still doubt whether the region is about to embark on a sustainable recovery.”

Article source:

Bucks: Investment Plans and Forecasts Don’t Mix

Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at the BAM Alliance. His book, “The Behavior Gap,” was published this year. His sketches are archived on the Bucks blog.

“I know you can’t time the market. But in your view, where is the market going?”

I still get this question from people, at event after event, even after people have heard me talk about the importance of behavior and how we can’t predict short-term market performance.

During a recent trip to South Africa, I got even more specific questions:

  • Where is the United States economy headed?
  • Where are interest rates headed?
  • Is now a good time to invest in Japan?
  • Is the housing recovery for real?

Here’s the thing: I totally understand why people are asking questions about timing. First, there’s an assumption that having an opinion — whether it’s about the market, the economy, or Japan — makes someone look smart. Being able to talk about these subjects must mean you have more money and your investments do better, right?

Not true.

Second, if you don’t talk about sports or politics that only leaves economic issues (Again, not true. It just feels that way). Now maybe you like to talk about all three, but it’s reached the point where talking about the economy and markets is an official spectator sport. We all feel capable of playing.

And while it may be fun to chat about what the market might do next at your neighborhood barbeque, don’t kid yourself. What we know about the market comes down to a bunch of guesses, also known as forecasts.

Forecasts about the future of the market are very likely to be wrong, and we don’t know by how much and in which direction. So why would we use these guesses to make incredibly important decisions about our money?

That’s right. You shouldn’t because you know better, and relying on what’s really just a hunch is an all but guaranteed recipe for financial pain.

Instead of relying on guesses to dictate our financial decisions, we need to focus on the investing basics:

    • Figure out where you are today
    • Make a guess about where you want to go
    • Buy diversified, low-cost investments that have the best shot of getting there
    • Behave for a long time

Obviously, this list isn’t nearly as interesting as speculating about whether the Dow will break 16,000 before the end of the year. But it is a list that will keep you from doing something dumb, like thinking it’s a good idea to bet your portfolio on a guess.

So, just in case I’ve left you in doubt, please don’t forget: Plans and guesses don’t mix!

Article source:

S.&P. 500 Index Reaches 5-Year High After December Jobs Report

The Standard Poor’s 500-stock index closed at its highest level in five years on Friday after a report showed that hiring held up in December, giving stocks an early lift.

The index finished up 7.10 points, at 1,466.47, its highest close since December 2007.

The S. P. 500 began its descent from a record close of 1,565.15 in October 2007, as the early signs of the financial crisis began to emerge. The index bottomed out at 676.53 in March 2009 before staging a recovery during which it has doubled in value and moved within 99 points of its peak.

Despite a halting recovery in the United States economy, the index has climbed steadily as the Federal Reserve has provided huge support to the financial system, buying hundreds of billions of dollars of bonds and holding benchmark interest rates near zero. Last month, the Fed said it would keep rates low until the unemployment rate improved significantly.

“Without the Federal Reserve doing what they did for the last few years, there would be no way you’d be near any of these levels in the index,” said Joseph Saluzzi, co-head of equity trading at Themis Trading. “I would call this the Fed-levitating market.”

The Dow Jones industrial average rose 43.85 points, to 13,435.21. It gained 3.8 percent for the week, its biggest weekly advance since June. The Nasdaq closed at 3,101.66, up 1.09 points.

Stocks surged this week after Congress passed a bill to avoid a combination of government spending cuts and tax increases that had come to be known as the fiscal cliff. The law, passed late Tuesday, averted that outcome, which could have pushed the economy back into recession.

The Labor Department said on Friday that employers added 155,000 jobs in December, showing that hiring held up during the tense fiscal negotiations in Washington. It also said hiring was stronger in November than first thought. The unemployment rate was steady at 7.8 percent.

The report did not give stocks more of a boost because the number of jobs created matched analysts’ forecasts, said J. J. Kinahan, chief derivatives strategist for TD Ameritrade.

“The jobs report couldn’t have been more in line,” Mr. Kinahan said. “The market had more to lose than to gain from it.”

Among stocks making big moves, Eli Lilly Company shares jumped $1.84, or 3.7 percent, to $51.56 after the company said its earnings would beat Wall Street forecasts, even though it will lose United States patent protection for two more product types this year.

Stock in Walgreen, the nation’s largest drugstore chain, fell 61 cents, or 1.6 percent, to $37.18 after the company said that a measure of revenue fell more than analysts had expected in December, even as prescription counts continued to recover.

Share prices may also be benefiting as investors adjust their portfolios to favor stocks over bonds, Mr. Kinahan said. A multiyear rally in bonds has pushed up prices for the securities and reduced the yields that they offer, in many cases to levels below company dividends.

Goldman Sachs reaffirmed its view that stocks “can be an attractive source of income,” and warned that there was a risk that bonds might fall. In a note to clients, the bank said that an index of AAA-rated corporate bonds offered a yield of just 1.6 percent, less than the S. P. 500’s dividend yield of 2.1 percent.

The Treasury’s benchmark 10-year note fell 1/32, to 97 17/32, and the yield fell to 1.90 percent, from 1.91 percent late Thursday.

Article source:

Unemployment Claims Drop, but Economic Growth Is Slower

Initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 364,000, the Labor Department said on Thursday. That was the lowest number since April 2008.

In other economic news, a survey released on Thursday showed that consumer sentiment rose in December to its highest level in six months. And a gauge of future economic activity increased more than expected in November because of a sharp pickup in new permits to build homes.

But revised data showed that the nation’s economic growth was slower than previously estimated in the third quarter because of a sharp drop in health care spending. Stronger business investment and a fall in inventories pointed to a pickup in output in the current period.

The United States economy has shown signs it is gaining steam as the year ends, although the recovery still could be derailed by any big flare-up in Europe’s debt crisis.

JOBLESS CLAIMS The decline in jobless claims last week was a more positive development than expected. Economists polled by Reuters had forecast claims rising to 375,000 last week.

The previous week’s jobless claims data was revised up to 368,000 from the previously reported 366,000.

The level of unemployment claims has fallen in recent weeks, and analysts say fewer layoffs means employers are probably more likely to hire.

Economists at Goldman Sachs said earlier in the week that weekly claims below 435,000 pointed to net monthly gains in jobs. Their research was based on figures available through October.

In November, the jobless rate dropped to a two-and-a-half-year low of 8.6 percent. The Federal Reserve last week acknowledged an improvement in the jobs market, but said unemployment remained high and left the door open for further measures to help the economy.

ECONOMIC OUTPUT In a report released on Thursday, the Commerce Department said in its final estimate that gross domestic product grew at a 1.8 percent annual rate in the July-September quarter, down from the previously estimated 2 percent.

Economists had expected growth to be unrevised at 2 percent. Though spending on health care dropped by $2.2 billion, spending on durable goods was stronger than previously estimated, indicating that the household appetite to consume remained healthy.

A previous report said that health care spending increased at a $19.7 billion rate. Health care spending subtracted about 0.1 of a percentage point from the G.D.P. change in the final revision, whereas in the previous estimate, it added 0.61 of a percentage point to growth.

Despite the downward revision, the third-quarter growth is still a step up from the April-June period’s 1.3 percent pace. Part of the pickup in output during the last quarter reflected a reversal of factors that held back growth earlier in the year.

A jump in gasoline prices weighed on consumer spending earlier in the year, and supply disruptions from Japan’s big earthquake and tsunami in March curbed auto production.

The government revised consumer spending to a 1.7 percent growth rate from 2.3 percent because of adjustments to health care services, in particular nonprofit hospitals.

Spending on durable goods was, however, revised up to a 5.7 percent pace from 5.5 percent.

Business inventories dropped by $2 billion, which sliced 1.35 percentage points from G.D.P. growth. Inventories previously were estimated to have declined $8.5 billion.

The drag from inventories was offset by strong business spending, which increased at a 15.7 percent rate, instead of 14.8 percent.

CONSUMER SENTIMENT In a fresh sign of economic hope, a survey released Thursday showed that Thomson Reuters University of Michigan’s final reading on the overall index on consumer sentiment rose to 69.9 points in December from 64.1 the previous month.

It topped the median forecast of 68 points among economists polled by Reuters and beat December’s preliminary figure of 67.7.

Over all, real spending is expected to increase by 1.8 percent in 2012 as long as action is taken on extending the payroll tax cut, the survey said.

The survey’s barometer of current economic conditions rose to 79.6 points from 77.6, while the survey’s gauge of consumer expectations gained to 63.6 points, from 55.4. All three indexes were at their highest level since June.

“I think it’s a reflection of improving job statistics, we’re seeing an increase in retail sales and even housing seems to be going up,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “A lot of the key bookends of our economy appear to be really strengthening and that’s supporting confidence.”

LEADING INDICATORS A report released Thursday by the Conference Board suggested that economic momentum could increase by spring.

The private firm’s Leading Economic Index rose 0.5 percent in November to 118 points, following a 0.9 percent increase in October. It was the seventh consecutive monthly gain in the index.

“The risk of an economic downturn in the near term has receded,” said Ataman Ozyildirim, an economist at the Conference Board.

Ken Goldstein, another Conference Board economist, said the index suggested the economy could pick up steam by spring.

Analysts polled by Reuters had expected the index to rise 0.3 percent in November.

Article source:

Economix Blog: Simon Johnson: Where Is the Volcker Rule?


Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Three years ago, a financial crisis threatened to bring down the United States economy and to spread economic disaster around the world. How far have we come in preventing any kind of recurrence? And will the much-discussed Volcker Rule – attempting to limit the risks that big banks can take – play a positive role as we move forward?

Today’s Economist

Perspectives from expert contributors.

Bad loans were the primary cause of the 2007-8 financial debacle. When the full extent of the problems with those loans became apparent, there was a sharp fall in the values of all securities that had been constructed based on the underlying mortgages – and a collapse in the value of related bets that had been made using derivatives.

The damage to the economy became huge because these losses were not dispersed throughout the economy or around the world. Rather, many of the so-called toxic assets were held by the country’s largest banks. Financial institutions that used to lend to consumers and businesses had instead become drawn into various forms of gambling on the booming mortgage market (as well as on commodities, equities and all kinds of derivatives). “Wall Street gets the upside and society gets the downside” was the operating principle.

And what a downside that proved to be.

Henry M. Paulson Jr., Treasury secretary at the time, said the Troubled Asset Relief Program, or TARP, was needed to buy those troubled assets from the banks. But this quickly proved unwieldy, so TARP pumped roughly half a trillion dollars into bank equity. The Federal Reserve backed this up with an enormous amount of liquidity through more than 21,000 transactions.

The additional government debt as a direct result of this finance-induced deep recession is estimated by the Congressional Budget Office at around 50 percent of gross domestic product, roughly $7 trillion.

These are staggering numbers. And this system of big banks taking outsize risks, failing and imposing huge damage on the rest of us has to stop. This ball is now firmly in the regulators’ court.

Whatever your broader issues with the Dodd-Frank Act of 2010, one point about legislative intent in this law is clear: The regulators have the authority to cut banks down to size and return them to their historical role of intermediary between savers and borrowers.

As for size, the regulators have long ignored the existing guidelines and allowed the biggest banks to get bigger. We need to go in the opposite direction, and that includes cutting down to size the private megabanks, as well as Fannie Mae and Freddie Mac. It also means taking advantage of the resolution authority and all associated provisions that Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corporation, worked so hard to put into the Dodd-Frank Act.

As Jon Huntsman is arguing on the Republican campaign trail, too-big-to-fail banks simply need to be forced to break themselves up.

But we also need to make the megabanks less likely to fail. The easiest way to do that would be to require banks to have enough common equity to absorb losses.

But the bankers have pushed back hard, with Jamie Dimon, head of JPMorgan Chase, leading the way with statements like this on capital requirements, which are known loosely as the Basel Accords: “I’m very close to thinking the United States shouldn’t be in Basel any more. I would not have agreed to rules that are blatantly anti-American.”

Dan Tarullo, responsible for this issue on the Federal Reserve Board, seems to support the idea of requiring significantly more equity in big banks, perhaps moving in the direction recommended by Anat Admati and her colleagues. But Mr. Tarullo appears to have lost that battle for now.

If we are not breaking up banks and if we are not requiring them to have reasonable levels of capital (thus limiting how much they can borrow relative to their equity), we must use all other available tools to stop the too-big-to-fail banks from taking excessive and ill-conceived risks.

This is where the Volcker Rule becomes so important. Named for Paul A. Volcker, former chairman of the Federal Reserve, and adopted as part of Dodd-Frank at the insistence of Senators Jeff Merkley, Democrat of Oregon, and Carl Levin, Democrat of Michigan, the Volcker Rule directs the regulators to get banks out of the business of betting on the markets.

The regulators are now determining how they plan to carry it out. Draft proposals are currently open for comment.

But the latest news on this front is not encouraging, as crucial regulators seem stuck in a “bigger is better, and anything goes for the biggest” mind set.

The Volcker Rule has some good points, including a requirement that trader compensation not be tied to speculative risk-taking, and that firms collect and report some essential data to regulators. But the current draft does too little to actually stop the banks’ risky practices.

The main problem is that the rule as drawn does not set out the clear, bright lines that banks and regulators need, nor does it provide for meaningful enforcement. Instead of drawing the lines, the proposed rule mandates that firms write many of the rules themselves.

There is some good news. At this point, it is only a proposed rule, and the public is able to comment. Organizations like Better Markets that promote the public interest within the regulatory process will be in there fighting to strengthen the proposed rule and make the final rule better.

Everyone who cares about real financial reform should do the same, but the regulators’ draft rule has made it harder to uphold the public interest than should have been the case. For example, the regulators ignored the breadth of the Volcker statute and focused instead on only a narrow slice of the bank’s balance sheet – just what the bank says is for “trading” purposes. Much else of what big banks do seems likely to escape scrutiny.

The regulators also have given very little guidance on conflicts of interest, on what should be considered high-risk assets or on what high-risk trading strategies should be permitted.

During a Senate hearing at which I testified last week, Senator Bob Corker, Republican of Tennessee, focused on another important problem – the lack of any restrictions on trading in the enormous Treasury securities market. The regulators will create a lot more paperwork for the banks, but if the current draft is adopted, the too-big-to-fail banks are not likely to be forced to stop doing much.

Last year Senator Levin said:

We hope that our regulators have learned with Congress that tearing down regulatory walls without erecting new ones undermines our financial stability and threatens our economic growth. We have legislated to the best of our ability. It is now up to our regulators to fully and faithfully implement these strong provisions.

From what we’ve seen so far, our regulators have not yet understood this message. They seem instead more in tune with Mr. Dimon, who insisted this year that regulators should back away from any effective implementation of the Volcker Rule:

The United States has the best, deepest, widest, most transparent capital markets in the world, which give you, the investor, the ability to buy and sell large amounts at very cheap prices. I wish Paul Volcker understood that.

Mr. Dimon — who is on the board of the Federal Reserve Bank of New York — seems to have forgotten the financial crisis, its impact on ordinary Americans and the utter fiscal disaster that ensued. Or perhaps he never noticed.

Article source:

After Huge Gains in Gold, Hedge Funds Sell

For the better part of the last two years, some of the world’s biggest hedge funds have been piling into gold, betting the precious metal would provide an effective hedge against inflation or be a safer place to park cash as equity markets around the world stumbled.

But to the surprise of many investors, when equity markets across the globe tumbled once again on Thursday, gold moved sharply lower as well.

Gold futures for September delivery fell $66.30, or 3.7 percent, to $1,739.20 an ounce in New York. It was quite a turnabout for the metal, which has been soaring in recent months amid the turbulent stock markets.

Hedge funds, which have been ratcheting down their positions in gold futures since early August, were quickly named as the culprits in the latest sell-off.

Some traders said that hedge funds were beginning to unwind, or close out, what has been a very popular and profitable trade for the last 18 months as they bet the dollar would fall and that gold would rise. In the last month alone, the euro has fallen nearly 4 percent against the dollar amid worries about the European debt crisis.

The sell-off in gold was part of a broader move in the markets that had investors shifting away from perceived riskier assets, like commodities, and into the dollar in reaction to the Federal Reserve’s announcement on Wednesday of its new stimulus program.

In addition, the Fed said that there were “significant downside risks” to the United States economy, which sent several commodities, including crude oil and copper, tumbling on Thursday on fears of a global slowdown in demand.

Other market participants said hedge funds were selling their positions in gold to raise cash to meet increased capital demands for their borrowings from Wall Street banks as the assets they have put up as collateral, like other commodities or stocks, have declined sharply in value.

“On the one hand you have a lot of strength in the U.S. dollar, historically gold and the dollar do trade inversely,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “The hedge funds are long gold and they need to raise cash and it looks like they are definitely selling some gold.”

Others say some hedge funds may be selling to meet redemption requests from investors who have been spooked by the recent market volatility and fear a repeat of the problems of late 2008.

“A lot of investors are waking up to the realization that something is off. We’ve seen Goldman Sachs close its flagship fund, legendary hedge funds are down sharply, and I suspect we’re going to see significant withdrawals from some hedge funds this year,” said Michael A. Gayed, the chief investment strategist of the investment advisory firm Pension Partners.

“The tendency for individual hedge funds or anybody is to sell winners before they sell losers. What’s been one of the few winners this year? It’s been gold,” Mr. Gayed added.

Still, some are not yet ready to call the end of the gold rush. Even with the pullback, gold remains one of the most profitable investments this year with a gain of 22 percent.

Some strategists have even predicted that gold will reach a record of above $2,300, which it hit during the early 1980s when adjusted for inflation and translated into current dollars. Likewise, the world’s largest exchange-traded gold fund, the SPDR Gold Shares, fell 2.6 percent on Thursday, but remains up 22 percent for the year.

Gold, whether through futures contracts or via exchange-traded funds, has been a popular investment among some of the world’s largest hedge funds. One of the best known “gold bugs” is John A. Paulson, whose firm, Paulson Company, is the biggest shareholder in the SPDR Gold Shares ETF. But many other hedge funds have embraced the metal as well.

After peaking in early August, hedge funds have been reducing their exposure in the gold futures market, according to Mary Ann Bartels, the head of United States technical analysis for Bank of America Merrill Lynch.

“A lot of speculators were very long in July,” Ms. Bartels said. “But they’ve been taking it down ever since.”

Article source:

Stocks & Bonds: Stocks Trim the Day’s Deepest Losses

Analysts said that Wall Street’s drop was also a carryover from last week’s disappointing report on United States unemployment and from news that major American banks were facing a federal lawsuit related to their handling of mortgage securities.

While stocks slumped in early trading by about 3 percent, they curbed losses toward the end of the day. The Dow Jones industrial average of 30 stocks was down 0.9 percent, or 100.96 points, to 11,139.30. The Standard Poor’s 500-stock index lost 0.7 percent, or 8.73 points, to 1,165.24, The Nasdaq composite fell 0.3 percent, or 6.50 points, to 2,473.83.

Investors stayed with the security of fixed-income instruments. The Treasury’s benchmark 10-year note rose 3/32, to 101 9/32. The yield fell to 1.98 percent from 1.99 percent late Friday.

“The whole market is under pressure because of what is going on in Europe,” said Jason Arnold, a financial analyst with RBC Capital Markets.

The equity losses were reminiscent of those on Friday, when the Labor Department reported zero job growth in the United States economy in August. In addition, the market reacted to reports of impending legal action by federal regulators against 17 financial institutions that sold Fannie Mae and Freddie Mac nearly $200 billion in mortgage-backed securities that later soured. Investors fled financial shares, and on Tuesday the sector continued to be hit hard, closing 1.7 percent lower.

Bank of America and JPMorgan Chase each declined more than 3 percent. Bank of America fell to $6.99 and Chase to $33.44. Citigroup fell 2.5 percent to $27.70. Morgan Stanley was down nearly 4 percent at $15.33

Bank stocks, which are particularly sensitive to prospects for lending and housing, are seen as being at additional risk because of regulatory and legal issues after the lawsuits were filed on Friday. “There really has not been particularly good news in the financial space for a while,” Mr. Arnold said. “It is just waning optimism for financials.”

But most of the focus in the markets has been on the lack of progress in solving persistent euro zone debt problems, which “is creating a pocket of selling with no buyers,” said Alan B. Lancz, the president of Alan B. Lancz Associates. In addition, investors are concerned about the impact on global growth of weak economic data.

The market turmoil of recent weeks showed no signs of letting up. On Tuesday, gold rose to another nominal high, and Swiss authorities took action to weaken the franc, which has soared because of its role as a haven.

In the United States, economic data was scrutinized for any sign of strength in the country’s recovery. The Institute for Supply Management said Tuesday that the services sector of the economy expanded in August, the 21st consecutive month it has done so, as reflected in the 53.3 reading of the I.S.M. nonmanufacturing index, although expansion in some sectors, like business activity, was slowing down.

The survey exceeded forecasts assembled by Bloomberg News that pointed to a reading of 51. A reading of 50 is meant to be the dividing line between an expanding economy and a contracting one.

Debt concerns related to the euro zone, particularly over Greece and Italy; the bank lawsuits in the United States; and worries about economic growth were the biggest factors damping prices, Michael A. Mullaney, vice president of the Fiduciary Trust Company, and other analysts said.

“Friday set the tone with the employment report,” Mr. Mullaney said. “We are basically hard struck to find out where the growth engines are going to come from.”

The conditions were worryingly similar to those of the sell-off that followed the collapse of Lehman Brothers in 2008, Deutsche Bank’s chief executive, Josef Ackermann, said Monday.

In Zurich, the Swiss National Bank said it was setting a minimum value of 1.20 francs per euro and was prepared to spend an “unlimited” amount to defend it. The central bank was acting to help the country’s exporters, who fear being priced out of foreign markets by the strong franc.

Asian and European markets were lower. Gold futures eased slightly to $1,869.90 an ounce after rising more than 1 percent to more than $1,900 an ounce in Comex trading.

David Jolly and Bettina Wassener contributed reporting.

Article source:

U.S. Markets Drop as Further Signs of Weakness Sink In

Wall Street took a tumble at the opening of trading Tuesday, taking cues from markets in Europe and Asia. Analysts said that the drop, which hit financial stocks particularly hard, was a carry-over from last week’s disappointing unemployment report in the United States and from news that major American banks were facing a federal lawsuit related to their handling of mortgage securities.

In the United States, economic data was scrutinized for any signs of strength in the country’s recovery. The Institute for Supply Management said Tuesday that the services sector of the nation’s economy expanded in August, the 21st consecutive month it has done so, as reflected in the 53.3 reading on the I.S.M. index, although the expansion in some sectors like business activity were slowing down.

The survey exceeded forecasts assembled by Bloomberg News that pointed to a 51 reading. A reading of 50 is meant to be the dividing line between an expanding and a contracting economy.

Just past noon, the Dow Jones industrial average of 30 stocks was down 1.9 percent, or 214.56 points, to 11,025.70. The Standard Poor’s 500-stock index lost 1.9 percent, and the Nasdaq composite fell 1.7 percent.

The losses were reminiscent of those on Friday, when the Labor Department reported zero job growth in the United States economy in August.

“Friday set the tone with the employment report,” said Michael A. Mullaney, vice president of the Fiduciary Trust Company, and markets in Europe and Asia picked up the pessimistic baton on Monday. Debt concerns related to the euro zone, particularly over Greece and Italy; the bank lawsuits in the United States; and worries about economic growth were the biggest factors damping prices, Mr. Mullaney and other analysts said.

“We are basically hard struck to find out where the growth engines are going to come from,” Mr. Mullaney said.

Bank shares were hammered in the United States. Bank of America and Citigroup were each down more than 3 percent, after being lower by more than 5 percent. The financial, energy and industrial sectors each declined more than 2 percent.

Government bond prices were lower, with the yield on the United States 10-year note at 1.981 percent.

But most of the focus in the markets has been on the impact of global issues, and the market turmoil of recent weeks showed no signs of letting up. On Tuesday, gold rose to another nominal high, and the Swiss authorities took action to weaken the franc, which has soared because of its role as a haven.

A lack of progress in solving persistent euro zone debt problems “is creating a pocket of selling with no buyers,” said Alan B. Lancz, the president of Alan B. Lancz Associates.

Concerns about the outlook for the global economy and the sovereign debt crisis that is haunting the euro zone have created conditions worryingly similar to those of the sell-off that followed the collapse of Lehman Brothers in 2008, Deutsche Bank’s chief executive, Josef Ackermann, said Monday.

On Tuesday, European shares initially posted modest gains after a withering retreat Monday that knocked more than 4.1 percent off the broad market. But the momentum faded in afternoon trading, with the Euro Stoxx 50 index, a barometer of euro zone blue chips, down 1.3 percent and the FTSE 100 index in London just holding onto its gains.

Asian shares lost more ground. Having fallen 1.9 percent on Monday, the Nikkei 225 stock average in Japan sank an additional 2.2 percent on Tuesday, taking it to 8,590.57 points, its lowest close since April 2009.

“Key economic data continues to disappoint as global business sentiment surveys weakened further and the U.S. employment report printed well below market expectations,” analysts at Barclays Capital commented in a research note.

“Increasing concerns over global growth appear to have halted the brief rally in risk assets in the last week of August,” they noted, and investors are likely to remain edgy, and financial markets volatile, over the next few weeks.

Policy makers voiced similar concerns on Tuesday.

“Asia will not be immune to a global slowdown,” said Tharman Shanmugaratnam, the finance minister of Singapore, Reuters reported. “We are already at stall speed in the U.S. and Europe, which means we are now more likely than not to see a recession.”

In Zurich, the Swiss National Bank said it was setting a minimum value of 1.2 francs per euro and was prepared to spend an “unlimited” amount to defend it. The central bank was acting to help the country’s exporters, who fear being priced out of foreign markets by the strong franc.

The euro immediately rallied, rising as high as 1.24 Swiss francs from 1.11 francs late Monday. The euro has traded as low as 1.03 francs this summer.

Currency trading, which had been relatively quiet, was thrown into upheaval as the market sought a new equilibrium. The euro rose against the dollar, then fell back to $1.4083 from $1.4098 late Monday, while the British pound fell to $1.6045 from $1.6118. The dollar rose to 77.45 yen from 76.89 yen and soared to 0.8546 Swiss francs from 0.7872 francs.

Gold futures eased slightly to $1,875.30 after rising more than 1 percent to more than $1,900 an ounce in Comex trading.

David Jolly reported from Paris. Bettina Wassener contributed reporting from Hong Kong.

Article source: