While you were sleeping: Concern about uncertainty

Thursday 22nd July 2010

US equities fell after US Federal Reserve Chairman Ben Bernanke said the economic outlook remains “unusually uncertain”.

In late trading, the Dow Jones industrial average dropped 1.13%, the Standard & Poor's 500 Index fell 1.23% and the Nasdaq Composite Index declined 1.28%.

Among the most active stocks on Wall Street were Bank of America, Hewlett-Packard and JPMorgan Chase & Co.

Bernanke told the Senate Banking Committee that central bankers “remain prepared” to act as required to help growth even as they get ready to eventually raise interest rates from almost zero and shrink a record balance sheet.

“Even as the Federal Reserve continues prudent planning for the ultimate withdrawal of monetary policy accommodation, we also recognise that the economic outlook remains unusually uncertain," Bernanke said, delivering the central bank's semiannual report to Congress on monetary policy.

"We remain prepared to take further policy actions as needed to foster a return to full utilisation of our nation's productive potential in a context of price stability."

Bernanke stopped short of describing what steps the Fed might take if growth were to falter.

"The testimony was not particularly optimistic," Lawrence Glazer, managing partner of Mayflower Advisors in Boston, told Reuters.

"It implied that the Fed had a relatively cloudy view of the future."

Even so, Bernanke said Fed officials believe the US economy is still on a path to recovery.

More positive comments came from Wells Fargo & Co and US Bancorp, two of the largest banks in the United States, which said rising loan demand helped lift their earnings more than analysts had expected. Consumer and corporate credit quality also showed signs of improving during the quarter. Executives at both banks said credit is on an upward trajectory.

Confidence in that improvement wasn’t reflected in the Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, as it jumped 8.65% to 26.00.

The Stoxx Europe 600 Index rose 1.2% to 249.24.

Across Europe, the UK’s FTSE 100 rose 1.46%, France’s CAC 40 gained 0.75% and Germany’s DAX advanced 0.38%.

Among the most active stocks in Europe were ARM Holdings Plc, Fiat SpA, Accor SA and SSL International Plc.

US Treasuries rose, pushing two-year yields to the fourth record low in five days, on Bernanke’s comments about the uncertain economic outlook.

The Treasury prepared to announce tomorrow a round of two-, five- and seven-year note sales next week that’s forecast to be smaller in size for the third straight month.

“An unusual outlook may call for unusual measures, and that means the Fed may take more action as needed, which would lead to lower rates,” Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas, one of the 18 primary dealers that trade with the central bank, told Bloomberg News.

The benchmark 10-year note yield fell 5 basis points, or 0.05 percentage point, to 2.91% at 2.24pm in New York. The two-year Treasury note yield fell as much as 2 basis points to touch a record low 0.5520%.

The Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.65% to 83.32.

The euro fell against the US dollar after a lacklustre Portuguese debt auction fuelled concerns about the financial health of the euro zone banking sector.

"The euro is correcting lower as a result of the Portuguese auction," Michael Hewson, currency strategist at CMC Markets, told Reuters.

"It doesn't take much to sow seeds of doubt in the euro."

The euro was last at US$1.2806, down 0.6%, and at 111.65 yen, down 1%.

The US dollar fell 0.4% to 87.17 yen.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, was barely changed at 261.53, from 261.52 yesterday.

Oil prices declined from a 3 1/2-week high after data showed US crude inventories unexpectedly rose last week.

Commercial US crude inventories rose 360,000 barrels in the week to July 16 to 353.46 million barrels, against a forecast stocks would be down 1.4 million barrels, the US Energy Information Administration reported.

US crude oil for September delivery fell 80 cents to US$76.78 a barrel by 1.47pm EDT.

Heating oil prices fell below US$2 a gallon immediately after the data showed heating oil and total distillate stockpiles rose.

London ICE Brent futures fell 26 cents to US$75.96.

Gold advanced in Europe. Spot gold was bid at US$1,194.15 an ounce at 1331 GMT, against US$1,191.40 late in New York on Tuesday. US gold futures for August delivery rose US$2.70 an ounce to US$1,194.40.

Even so, a 6.1-tonne fall in holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, on Tuesday, their biggest one-day decline since December, indicates waning investor confidence in the metal, analysts said.

Copper rose. Three-month copper on the London Metal Exchange gained 0.5% to US$6,670 a tonne at 0703 GMT.

Limiting gains were data showing China's imports of refined copper declined for a third straight month in June to 211,957 tonnes, the lowest level since January and largely in line with preliminary numbers released earlier this month.

Businesswire.co.nz

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