While you were sleeping: US data shows thaw; stress tests loom

Wednesday 29th April 2009

US consumer confidence climbed by the most in four years, adding to optimism the world’s biggest economy is close to its trough.

The Conference Board’s sentiment index rose to 39.2 this month, exceeding the reading of 29.7 predicted by economists and up from 26 in March. The board’s gauge of expectations for the next six months to 49.5 from 30.2, while the number of consumers expecting more jobs to be on offer rose to a two-year high 13.9.

The decline in house prices slowed in February, with the S&P/Case-Shiller index recording an 18.6% decline from a year earlier. Helping stoke sentiment, the Obama administration announced plans to provide aid to holders of second mortgages, helping them avoid foreclosure, with cash incentives when loan terms are modified.

“Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilising the housing market, which is in turn critical to stabilizing our financial system,” Treasury Secretary Timothy Geithner said.

Banks fell on Wall Street as speculation swirled about the Treasury’s stress testing, which may show some of the largest US lenders need more capital.

Reuters reported that US regulators are in talks with Citigroup about its capital levels while the Wall Street Journal reported Bank of America may need billions of dollars of additional capital.

Bloomberg reported that Bank of America may need as much as US$70 billion of capital, citing Paul Miller, an analyst at Friedman, Billings, Ramsey Group. Chief executive Kenneth Lewis has lost the support of California Public Employees’ Retirement System, the largest US pension fund, which plans to vote against all 18 directors at the bank’s AGM tomorrow.

Citigroup and Bank of America each received US$45 billion in aid via the Troubled Asset Relief, the most received by any lenders. Citigroup may increase capital by adding more trust preferred shares to its planned exchange of up to $52.5 billion of government preferred shares for common stock, Reuters reported this week.

Citigroup slipped 5.9% to US$2.90 and Bank of America dropped 8.7% to US$8.12.

The Dow Jones Industrial Average slipped 0.1% to 8016.95 and the Standard & Poor’s 500 dropped 0.3% to 855.16.

The Nasdaq Composite fell 0.3% to 1673.81. Aluminium producer Alcoa Inc. slipped 3.3% to US$8.15 and Microsoft fell 2.3% to US$19.93.

General Motors fell 11% to US$1.82. Chrysler’s biggest banks reached a tentative agreement with the US government to exchange $6.9 billion in secured debt for $2 billion in cash, Bloomberg said, citing people familiar with the talks. A bankruptcy remains a possibility.

The World Health Organization raised its global pandemic alert status for swine flu, saying the virus is no longer containable as cases are confirmed in New Zealand, Spain, Israel, the UK, Canada, the US and Mexico.

The WHO raised its alert level to 4 from 3, the highest since adopting the warning scale in 2005. Some 152 Mexicans have died since the outbreak emerged and some Asian nations have begun screening passengers at airports. Hog futures tumbled 3.4% to 66.3 US cents a pound on the Chicago Mercantile Exchange, the second daily decline, while pork-belly futures for July delivery fell by the maximum 3 cents to 77.8 cents a pound. Metals and crude oil slipped on concern a worldwide pandemic will add an extra weight to the global economy, trimming demand for raw materials.

The LME Index of six industrial metals fell 3%. Copper for delivery in three months dropped 3.7% to US$4,185 a metric ton. Crude-oil futures for June delivery slipped 0.4% to US$49.92 a barrel on the New York Mercantile Exchange. Gold futures for June delivery fell 1.6% to US$893.60 an ounce in New York.

The US dollar fell against the euro as better US data encouraged risk appetite and reduced demand for the world’s reserve currency. The dollar slipped to $1.3152 per euro from $1.3036, while weakening to 96.37 per yen from 96.77.

The euro strengthened to 126.76 yen from 126.14. Stocks in Europe fell, paced by lenders, as concerns rose that they’ll need more capital while swine flu will damp global economic growth.

The Dow Jones Stoxx 600 Index fell 1.5% to 193.57. Germany’s DAX Index fell 1.9%, and the UK’s FTSE 100 declined 1.7%. France’s CAC 40 fell 1.7%. BNP Paribas fell 3.8% and Credit Suisse Group slid 3.2%. BHP Billiton fell 2.2% and Rio Tinto dropped 6.3%. ArcelorMittal declined 6.1% and Daimler fell 3.7%.

By Jonathan Underhill

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