While you were sleeping: Wall St slides, bond yields climb: Fed's Beige Book

Thursday 11th June 2009

Stocks on Wall Street dropped amid concern tepid interest in the sale of US$19 billion of 10-year Treasuries and a gain in the price of crude oil to more than US$71 a barrel will stoke inflation and undermine a revival in economic growth.

The auction of 10-year notes attracted a yield of 3.99%, the highest in 10 months. percent, the highest since August. The yield on benchmark 10-year notes rose as much as 14 basis points to 3.99%, the highest since Oct. 20, which will tend to lift bond yields worldwide.

The U.S. dollar rose against the euro as the yield premium offered on 10-year Treasuries against German bunds of comparable maturity widened to the most since October 2007, stoking the appeal of the greenback.

Ten-year Treasuries yield 27 basis points more than 10-year bunds. They were yielding less than bunds as recently as June 3, according to Bloomberg.

The yen fell on optimism the global economic slump is easing, spurring demand for higher-yielding or riskier assets in other currencies.

The dollar strengthened to $1.3988 per euro from $1.4065 and climbed to 98.13 yen from 97.38. The yen fell to 137.3 per euro from 136.98.

The Dow Jones Industrial Average fell 0.3% to 8739.02 and the Standard & Poor’s 500 dipped 0.4% to 939.15. The Nasdaq Composite declined 0.4% to 1853.08.JPMorgan Chase fell 1.2% to US$34.84 and Wells Fargo dropped 2.9% to US$24.91. Caterpillar declined 1.6% to US$37.62.

Aluminium producer Alcoa climbed 3.1% to US$11.49 as metals extended their gains. Exxon Mobil rose about 1% to US$73.84 as the price of oil gained.

Citigroup began its US$58 billion stock swap, with the U.S. government exchanging as much as US$25 billion of preferred stocks for ordinary shares, a transaction that may leave the federal government owning one-third of America’s third-largest bank.

The Federal Reserve’s Beige Book business survey shows the U.S. recession may be abating in five of 12 Fed districts while the outlook for companies improves.Still, credit markets are still tight and the jobs market weak, the Fed’s report concluded.

Five Fed districts showed “the downward trend is showing signs of moderating,” according to the report.

The U.S. traded deficit widened in April, underlining weaker demand in America’s biggest markets. Export prices fell to a three-year low.The trade gap widened to US$29.2 billion from a revised US$28.5 billion in March, according to the Commerce Department.

Still, a Bloomberg survey suggested confidence in the global economy is improving. The Bloomberg Professional Global Confidence Index rose to 43.57 in June, the highest since the survey started in November 2007, from 38.72 in May. A reading below 50 means pessimists outnumber optimists.

Russia and Brazil announced plans to buy US$20 billion of bonds from the International Monetary Fund as part of efforts to diversify foreign-currency reserves away from U.S. Treasuries.

Russia, which holds US$140 billion of U.S. government debt, adding to signs that the biggest investors in Treasuries are seeking to lighten their load. Brazil will buy US$10 billion of IMF bonds and China plans to buy US$50 billion of the debt.

The so-called BRIC economies are due to meet in Russia this month, where they will discuss potential options for a new global reserve currency.

Fiat SpA acquired a 20% holding in the new, slimmed down Chrysler Group LLC and has scope to raise the stake to 35% if certain goals are reached at the automaker. Fiat will provide technical expertise in the design and manufacture of smaller vehicles. The United Auto Workers’ union retiree health-care trust fund will be the biggest stakeholder, ending up with about 55%.

Shares of Fiat rallied 4.9%

Meantime, two U.S. auto-parts supplier groups asked the U.S. Treasury for US$10 billion in aid as they attempt to cope with the downturn in the auto industry. The Motor & Equipment Manufacturers Association and the Original Equipment Suppliers Association want the Treasury to expand current loan guarantee programs and incentives for bank lending.

Gold futures for August delivery rose 1.3% to US$966.70 an ounce.

Crude oil rose to a seven-month high after the American Petroleum Institute reported oil supplies fell 5.96 million barrels to 357.9 million last week. Crude oil for July delivery rose 1.7% to US$71.18 a barrel on the New York Mercantile Exchange.

Stocks in Europe climbed, led by energy and commodity companies. The Dow Jones Stoxx 600 rose 1.2% to 212.77.BHP Billiton rose 2.6% as commodity prices gained.

Rio Tinto jumped 6.6%. Saipem SpA, Europe’s biggest oil-field services contractor, jumped 3.6%. Germany’s DAX 30 rose 1.1% to 5051.18 and France’s CAC 40 gained 0.6% to 3315.27.

The U.K.’s FTSE 100 rose 0.7% to 4436.75 after figures showed industrial output unexpectedly rose in April. Production climbed o.3%, according to the Office for National Statistics, the first gain since March 2008.

Royal Philips Electronics NV rose 2.6% after chief executive Gerard Kleisterlee said the consumer-electronics maker is in a “good position” to benefit when economic growth returns.

(BusinessWire)

Businesswire.co.nz

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