While you were sleeping: Stocks tumble on recovery doubts, dollar gains

Tuesday 18th August 2009

Stocks tumbled in the US and Europe, extending the slide in Asia yesterday on concern a recovery in global economic growth may falter after Japan’s growth missed estimates and investment in China fell.

The Dow Jones Industrial Average dropped 2% to 9135.34 and the Standard & Poor’s 500 declined 2.4% to 979.73. The Nasdaq Composite fell 2.8% to 1930.84.

In Europe, the Dow Jones Stoxx 600 fell about 2% to 224.23 and regional benchmarks dropped, with the UK’s FTSE 100 down 1.5% to 4645.01, Germany’s DAX 30 down 2% to 5201.61 and France’s CAC 40 falling 2.2% to 3419.69.

China’s Shanghai Composite Index tumbled 5.8% yesterday after government figures showed foreign direct investment tumbled 35.7% in July from a year earlier.

The Chicago Board Options Exchange Volatility Index, or VIX, known as Wall Street’s fear gauge because it measures the cost of using options as insurance against declines in the S&P 500 Index, surged 14% to 27.68.

Stocks fell on Wall Street even as reports suggested more so-called green shoots, with the National Association of Home Builders/Wells Fargo confidence index climbing to a 12-month high of 18. Still, that’s on a scale where a reading below 50 signals those polled see poor conditions for housing.

Manufacturing in the New York region expanded this month, adding to signs the US economy is climbing out of recession. The Federal Reserve Bank of New York’s general economic index rose to 12.1, the first growth since April last year.

Bank of America data showed the rate of US credit card defaults stabilised in July, suggesting consumers are managing to resume control of their finances. The so-called charge-off rate at the lender with the highest rate of defaults among credit card issuers eased to 13.81% in July from 13.86 in June.

US banks tightened criteria on most types of loans in the second quarter and said stricter credit rules would continue through until the second half of next year, according to the Federal Reserve’s quarterly Senior Loan Officer survey.

The Federal Reserve extended measures to revive credit for commercial real estate and loans to consumers and small businesses.

The Term Asset-Backed Securities Loan Facility (TALF) for newly issued commercial mortgage-backed securities was extended to June 30, 2010, from December 31 this year, while TALF programmes that reduce borrowing costs on securities backed by small business, consumer, credit card and auto loans were extended through March 31.

Shares of Lowe’s Cos., the second-biggest US home improvement chain, dropped 10% to US$20.47 after reporting earnings that missed estimates. Net profit tumbled 19% to US$759 million.

Government bonds rallied in the US and Europe as stocks weakened. The yield on 10-year Treasury notes dropped nine basis points to 3.48% while the 30-year yield fell nine basis points to 4.33%.

The US dollar and the yen rose against the euro as investors eschewed riskier assets for the relative safety of the two biggest currencies. The British pound dropped against the greenback after a report showed home sellers in the UK lowered prices to try to make sales.

The euro weakened to $1.4083 in New York from $1.4203. The yen gained to 133.02 per euro from 134.84. The Japanese currency strengthened to 94.45 against the dollar from 94.94.

The Dollar Index, which measures the greenback against a basket of six currencies, rose 0.5% to 79.29.

Commodities fell as doubts about the pace of global recovery stoked concern demand for raw materials and fuel will falter.

Crude oil sank to a two-week low as the US dollar gained and stock markets worldwide fell.

Crude oil for September delivery dropped 1.4% to US$66.60 a barrel on the New York Mercantile Exchange.

Copper fell for a second day on concern its rally this year has pushed the price beyond levels justified by global demand and figures showed a drop in foreign investment in China, the world’s biggest consumer of the metal.

Stockpiles of the metal climbed 11% in the past month, according to the London Metals Exchange. Copper for delivery in three months fell 3.1% to US$6,050 a metric ton on the LME, leading a slide in metals.

Copper futures for December delivery fell 2.3% to US$2.7855 a pound on the New York Mercantile Exchange.

The stronger greenback also weighed on the price of gold, reducing demand for the precious metal as an alternative investment.

Gold futures for December delivery fell 1.8% to US$931.30 an ounce on the New York Mercantile Exchange.

Businesswire.co.nz

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