While you were sleeping: Boeing delays, Treasuries gain, greenback falls

Wednesday 24th June 2009

Boeing Co. delayed the test flight of its 787 Dreamliner for a fifth time citing structural issues, while omitting to give a new delivery timetable on the aircraft that is two years behind schedule.

Shares of Boeing dropped 6.5% to US$43.87, leading the Dow Jones Industrial Average lower, after executive Scott Carson announced the delay for the carbon-composite aircraft, denting the credibility of the US planemaker. Rival Airbus isn’t due to launch its equivalent to the Dreamliner until the middle of next decade.

US Treasuries rose for a third day after stronger-than-expected demand at an auction of US$40 billion of two-year notes. The sale was the first of a record US$104 billion of Treasuries to be offered this week.

Bonds advanced as the Federal Reserve began a two-day policy meeting, amid speculation the central bank will keep its interest rate target at close to zero this year. Indirect bidders, a group that includes foreign central banks, bought about 69% of the bonds at the auction, easing concern other nations will eschew US debt in the face of record borrowing and soaring US budget deficits.

The yield on two-year notes fell 4 basis points to 1.1% after the auction drew a yield of 1.151%, less than the 1.202% estimate in a Bloomberg survey. The yield on 10-year Treasuries fell 4 basis points to 3.65 percent.

The auction’s bid-to-cover ratio, which compares total bids with the amount of securities offered, was 3.19, up from 2.94 in the May 26 sale.

The US dollar weakened against the euro on rumours the Fed will hose down speculation interest rates could rise this year.

The greenback fell to $1.4077 per euro from $1.3865 yesterday and slipped 0.7% to 95.20 yen. The yen fell 0.8% to 134.02 per euro.

Crude oil rose for the first time in three days as the dollar weakened and amid ongoing disruptions to production in Nigeria.

Italian oil producer ENI declared force majeure on shipments of Brass River crude oil from Nigeria, where military attacks have reduced output for the world’s eighth-largest oil exporter to below 66% of capacity.

Crude oil for August delivery rose 1.3% to US$68.40 a barrel on the New York Mercantile Exchange.

Copper for September delivery rose 3.2% to US$2.212 a pound in New York while gold for August delivery rose 0.4% to US$924.30 an ounce.

The Dow fell 0.2% to 8322.91 and the Standard & Poor’s 500 rose 0.2% to 895.10. The Nasdaq Composite declined 0.1% to 1764.92.

United Airlines parent UAL Corp. slumped 10% to US$3.20 as the gain in crude oil stoked concern about rising fuel costs.

Meritage Homes Corp. rose 3.4% to US$17.74, leading gains in homebuilders amid signs a glut of unsold properties in the U.S. may start to shrink.

The Chicago Board Options Exchange Volatility Index, or VIX, slipped 2.2% to 30.58.

Bank of America Corp. was the biggest gainer on the Dow, climbing 2.4% to US$12.23 after setting the price for a swap aimed at lifting capital.

Rambus Inc. tumbled 17% to US$14.85 after the designer of computer memory chips lowered its second-quarter sales forecast, citing weaker demand for consumer electronics.

President Barack Obama said the jobless rate in the US may exceed 10% this year though a decision on whether a second stimulus package is needed won’t be made until there’s more evidence of how the world’s biggest economy is tracking.

“It’s important to see how the economy evolves and how effective the first stimulus is,” Obama told reporters at the White House.

The first stimulus package, of US$787 billion, was approved in February, amid assurances it would help keep the jobless rate in check below 8% by creating or saving 3.5 million jobs.

Sales of previously owned homes rose less than expected in May, stoking concern any economic recovery will be more tepid and slower than hoped.

The National Association of Realtors said sales climbed 2.4% last month to an annual rate of 4.77 million homes, the second monthly gain. The median national home price fell 16.8% from a year earlier.

Distressed sales made up 33% of the total in May, having improved from as high as 50% this year. The supply of unsold homes fell 3.5% to 3.80 million.

The Federal Reserve Bank of Richmond’s monthly survey of manufacturers showed factory activity increased this month though the outlook for the next six months dimmed.

US chief executives were less pessimistic about the economy in the second quarter, according to a Business Roundtable survey.

In Europe, indicators suggested a return to growth will be a slow process. The Markit Eurozone Flash Services Purchasing Managers Index fell to 44.5 this month from 44.8 in May. A reading below 50 indicates a contraction.

Shares fell in Europe, with the Dow Jones Stoxx 600 Index sliding 0.5% to 201.49, with financials among the leading decliners. The UK’s FTSE 100 fell 0.1% to 4230.02 and France’s CAC 40 slipped 0.2% to 3116.82. Germany’s DAX 30 climbed 0.3% to 4707.15.

Businesswire.co.nz

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