While you were sleeping: Stocks drop on chipmaker downgrades; dollar gains

Friday 20th November 2009

Stocks dropped on Wall Street and in Europe after Bank of America downgraded computer chipmakers and a rising U.S. dollar weighed on commodity prices.

Analysts at Bank of America Merrill said a correction is likely in chip stocks after they soared this year while inventory levels have climbed. They lowered their growth estimate for semiconductor companies for 2010 to 18% from 21% and downgraded ratings on companies including Intel Corp. and Texas Instruments.

"While we believe the correction will likely prove short and shallow, we think any hint of a correction in the supply chain could punish (semiconductor) stocks," the firm said in a report.

Intel fell 4.7% to US$19.18, leading the Dow Jones Industrial Average lower. Rival manufacturer AMD declined 3.3% to US$7.08 and Nvidia fell 4% to US$12.98.

The Dow dropped 1.2% to 10303.95 and the Standard & Poor’s 500 declined 1.6% to 1092.43. The tech-laden Nasdaq Composite fell 1.8% to 2152.71.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge,’ surged 9% to 23.58.

Alcoa Inc., the aluminium producer, fell 4.1% to US$13.19 as prices of metals sank. Chevron fell 2.3% to US$77.13 and ConocoPhillips shed 1.8% to US$52.61 as crude oil declined.

In Europe, the Dow Jones Stoxx 600 declined 1.7% to 245.52. Semiconductor company Infineon Technologies shed 7.2%. ASML Holding NV, Europe’s largest maker of semiconductor equipment, fell 6.1% and U.K. chip designer ARM Holdings Plc fell 6.9%.

Groupe Danone fell 4.4% after the dairy company reduced its target for medium-term growth. Xstrata Plc fell 5.1% as metal prices declined.

Among national benchmarks in Europe, the U.K.’s FTSE 100 fell 1.4% to 5267.70, Germany’s DAX 30 declined 1.5% to 5702.18 and France’s CAC 40 dropped 1.8% to 3760.22.

The U.S. dollar and the yen strengthened amid concern high growth, or riskier assets have run up ahead of their earnings potential and stocks shed gains.

The greenback rose to US$1.4914 versus the euro from US$1.4963 and traded at 88.91 yen from 89.32. Japan’s currency strengthened to 132.63 per euro from 133.64.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.3% to 75.32.

U.S. Treasuries rose as stocks sank and investors sought safer investments. The yield on benchmark 10-year notes fell 1 basis point to 3.35% and the yield on 30-year Treasuries fell 2 basis points to 4.29%.

Bonds climbed as the U.S. Treasury announced the sale of US$118 billion of two-year, five-year and seven-year notes next week.

The U.S. Conference Board’s index of leading indicators, which indicates the economic outlook for the next six months, gained 0.3% last month.

Other figures showed the number of Americans filing claims for unemployment benefits last week, held near the lowest since January at 505,000 while manufacturing in the Philadelphia area climbed.

U.S. Treasury Secretary Timothy Geithner said in testimony to the Joint Economic Committee of Congress that economic growth would continue “in the fourth quarter and ahead in 2010.”

He urged the Congress to approve regulations to strengthen the banking and financial systems.

Defaults on prime mortgages and home loans insured by the Federal Housing Administration soared to a 30-year high in the third quarter, reflecting the surge in jobs losses.

The Mortgage Bankers Association said one out of every six FHA mortgages had missed a payment and 3.32% had defaulted, leading to foreclosure.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, sank 1.2% to 274.09.

U.S. copper futures fell as the dollar gained and investors fretted about rising stockpiles. Copper for December delivery fell 2.35 cents to US$3.0870 a pound on the New York Mercantile Exchange.

Crude oil fell amid concern the decline in shares indicates demand for fuel will rise at a slower pace.

Crude oil for December delivery fell 2.3% to US$77.77 a barrel in New York.

Gold futures for December delivery slipped 0.5% to US$1,135.60 an ounce as a stronger greenback reduced demand for the precious metal as an alternative investment.

Businesswire.co.nz

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