While you were sleeping: US ISM slump slows, yen strengthens, oil tumbles

Tuesday 7th July 2009

US services industries slowed their decline last month, suggesting the worst economic decline since WWII is abating, though economists said there’s yet to be signs of a return to growth.

The Institute for Supply Management’s index of non-manufacturing businesses rose to a higher-than-expected 47 in June, the third straight monthly pick up, from 44 in May. A reading below 50 signals a contraction.

The ISM non-manufacturing industries index of employment climbed to 43.4 from 39, the measure of new orders rose to 48.6 from 44.4 and the gauge of export orders advanced to 54.5 from 47. Prices paid climbed into positive territory at 53.7 from 46.9.

Shorter-date Treasury bonds gained after strong demand at an auction of inflation linked bonds and as the Federal Reserve bought US$7 billion of government debt.

The sale of US$8 billion of 10-year inflation linked bonds drew the biggest demand in almost 10 years. The yield on two-year Treasuries fell 5 basis points to 0.94%. The 10-year bond was unchanged at 3.5% and the yield on 30-year Treasuries edged up2 basis points to 4.35%.

The difference in yield, or spread, between two and 10-year Treasuries widened to as much as 2.61 percentage points, the biggest gap since June 19.

The US dollar and the yen gained against the euro as doubts about the global economy’s recovery sapped demand for riskier assets and encouraged investors to seek the largest currencies as a refuge.

The yen rose to 133.17 per euro in New York from 134.26 while the dollar traded at $1.3972, compared with $1.3980. The yen gained to 95.31 against the dollar from 96.04.

Crude oil tumbled to a five-week low on concern the global economy will remain weak for longer, curbing demand for fuel.

Crude oil for August delivery fell 4.1% to US$64.03 a barrel on the New York Mercantile Exchange. The price of crude has surged more than 40% this year.

Rio Tinto bolstered its cash reserves by agreeing to sell its part of its food packaging business to Bemis Co. for US$1.2 billion in cash and shares, turning Bemis into the largest such packaging company in North America. The sale proceeds add to the US$15.2 billion Rio raised in its rights issue as it repays debt.

Rio gained the food packaging assets with its 2007 acquisition of aluminium and packaging conglomerate Alcan, a transaction that saddled Rio with US$38 billion of debt.

Metals declined on the London Metal Exchange. Copper for delivery in three months fell 1.7% to US$4,896.50 a ton and nickel dropped 3.9% to US$15,570 a ton.

Gold for immediate delivery fell 1% to $922.86 an ounce in London.

The Dow Jones Industrial Average rose 0.5% to 8324.87 and the Standard & Poor’s 500 Index climbed 0.3% to 898.72. The Nasdaq Composite fell 0.5% to 1787.40. Defensive stocks led gainers on the Dow, while commodity related companies weakened.

Drugmaker Merck & Co, gained 3.3% to US$27.89 and consumer products group Procter & Gamble climbed 2.1% to US$52.17.

Exxon Mobile fell 0.6% to US$68.10 as crude oil declined. Chevron fell 0.4% to US$64.14. Alcoa Inc., the aluminium producer, dropped 6.1% to US$9.26, leading the Dow lower.

Stocks in Europe weakened amid doubts about a global economic recovery and as commodity prices weakened.

The Dow Jones Stoxx 600 Index fell 1.1% to 201.7.

BHP Billiton, the world’s biggest mining company, fell 4.3% as prices of metals declined. German steelmaker ThyssenKrupp AG fell 2.8% after Bloomberg reported the company had scrapped plans to sell its industrial services unit after buyers withdrew.

Rio Tinto tumbled 7%. Automaker Porsche SE fell 3.1% after UBS AG cut the company to ‘sell’ because of rising debt and the prospect of a sale of its stake in Volkswagen AG.

The DAX 30 fell 1.2% to 4651.82, the UK’s FTSE 100 declined about 1% to 4194.91 and France’s CAC 40 shed 1.2% to 3082.16.

Businesswire.co.nz

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