While you were sleeping: Wall St falls on earnings outlook

Wednesday 8th April 2009

Shares fell on Wall Street amid concern the first-quarter earnings season will show no respite from the downturn. Aluminium producer Alcoa, one of the first major companies to report, posted a quarterly loss of US$497 million as prices tumbled.

First-quarter earnings for companies on the Standard & Poor's 500 are expected to drop about 37%, according to Thomson Reuters data. US chief executives' confidence fell to the lowest in seven years in the first quarter, according to the Business Roundtable's economic outlook index. The measure, which began in 2002, fell to -5 from 16.5 in the fourth quarter. A reading below 50 indicates pessimism.

US consumer credit fell 3.5% to $2.56 trillion in February, according to the Federal Reserve. Credit demand is expected to have declined further in March amid job losses that are racing at more than 650,000 a month.

Alcoa, America's biggest aluminium smelter, has been hurt by the downturn in demand for the metal amid a slump by automakers and a drop in sales of appliances. Alcoa is the first company on the Dow Jones Industrial Average to post earnings.

The Dow slid 2.3% to 7789.56 and the S&P 500 declined 2.4% to 815.55. The Nasdaq Composite fell 2.8% to 1561.61.

General Motors fell 12% to US$2, leading the Dow lower, amid reports the automaker, once the world's biggest, is preparing for a bankruptcy filing.

Under the arrangements being considered, GM would be split into two, with one half housing the most successful units and the other holding the ailing businesses, Reuters reported, citing people familiar with the plans. Bondholders would lose extensive value in the process.

The automaker has until June 1 to complete a reorganisation under terms of US$13.4 billion of federal aid.

Chrysler, owned by buyout firm Cerberus Capital Management, is also working to a deadline with the looming threat of bankruptcy. It has until April 30 to forge an alliance with Italy's Fiat.

Manufacturers were among decliners on the Dow. DuPont fell 4.4% to US$24.32, General Electric slid 4.8% to US$10.65 and Caterpillar declined 5.9% to US$29.45.

US Treasuries rose as stocks fell as the prospect of weakening earnings and lower dividends drew investors to the certainty of debt's fixed payments.

The yield on two-year Treasuries fell 2 basis points to 0.92% and the yield on benchmark 10-year bonds slipped two basis points to 2.9%.

The US dollar surged to $1.3264 per euro from $1.3416 and may strengthen further as dwindling corporate earnings spur demand for the safest currency. The yen rose from a five-month low against the dollar and euro. The yen strengthened to 133.31 per euro from 135.49. Japan's currency gained to 100.45 per dollar from 100.99.

Crude oil fell for a third day amid expectations demand for fuel remains weak, bolstering stockpiles. US Energy Department figures tomorrow may show inventories rose 1.5 million barrels last week, according to a Bloomberg survey.

Crude oil for May delivery fell 3.7% to US$49.15 a barrel on the New York Mercantile Exchange.

Copper for three-month delivery rose 2.3% to US$4,366 a metric ton on the London Metal Exchange.

Gold rose as weakening stocks boosted the appeal of the precious metal as a haven. Gold futures for June delivery rose 1.2% to US$883.30 an ounce in New York.

Royal Bank of Scotland tumbled 10% after the lender controlled by the UK Treasury announced plans to slash as many as 9,000 jobs to cut costs as it prepares to repay government funds. The bank is aiming to cut costs by 14%, or 2.5 billion pounds over three years, by which time it hopes to have resumed control of its own business.

The FTSE 100 fell 1.6% to 3930.52, with lenders leading the decline. Barclays fell 8.6%, Lloyds Banking Group dropped 8.5% and Standard Chartered declined 6.3%.

Germany's DAX 30 fell 0.6% to 4322.50 and France's CAC 40 declined 0.9% to 2902.31.

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