While you were sleeping: Wall St falls, GM-UAW accord, Libor drops

Friday 22nd May 2009

Stocks on Wall Street fell for a third day amid as stronger-than-expected jobless claims dimmed optimism for an early recovery from recession.

The Dow Jones Industrial Average slipped 1.5% to 8292.13 and the Standard & Poor’s 500 Index declined 1.7% to 888.33. The Nasdaq Composite slid 1.9% to 1695.25.

Heavy earth-moving equipment manufacturer Caterpillar fell 4.7% to US$35.54, leading the Dow lower, as prices of metals fell. General Electric dropped 3.9% to 13.24. Aluminium producer Alcoa Inc. fell 4.1% to US$35.54.

Initial jobless claims fell by 12,000 to 631,000 last week, down from a revised 643,000 in the previous week, according to the Labor Department. The total number of Americans on benefits rose to a record.

Boeing Co. fell 2.9% to US$43.29 after reiterating its full-year earnings forecast and said its Dreamliner 787 is on track to begin its first flights this quarter. Deliveries of new planes would hurt margins in the short term, it said.

Full-year earnings would be US$4.70 to US$5 a share, Boeing said, reiterating estimates that it cut last month from a previous forecast of US$5.05 to US$5.35.

Former Federal Reserve Chairman Alan Greenspan said the US banking system may face a bigger shortfall in capital than was found from the stress tests.

“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” Greenspan said in a Bloomberg interview. “We still have a very serious potential mortgage crisis.”

Regions Financial, the biggest bank in Alabama, dropped 16% to US$4.10 and Fifth Third Bancorp tumbled 9.9% to US$6.95.

General Motors surged 32% to US$1.92, the biggest gain on the Dow, after reaching a tentative agreement with the United Auto Workers and the U.S. Treasury to amend labour contracts and the structure of US$20 billion in debt for health-care trusts for retirees.

Terms of the agreement weren’t immediately released. The accord means GM has cleared an obstacle to slashing labour costs. The development may help GM through its bankruptcy, expected at the end of this month.

An index of US leading economic indicators rose more than expected. The Conference Board’s leading gauge rose 1% last month, the biggest advance since November 2005. Separate figures showed manufacturing in the Philadelphia area shrank at the slowest pace in eight months in May.

The London interbank offered rate, or Libor, for three-month dollar loans fell 6 basis points to 0.66% and has more-than halved this year. The benchmark rate to set borrowing costs has eased amid optimism the global economy’s plunge is reaching bottom.

The so-called TED spread, which measures the difference between what banks pay to borrow and what the US Treasury pays for three months, narrowed 4 basis points to 51 basis points, the lowest since August 2007.

US Treasuries fell after the Fed bought less-than-expected of the debt in its daily purchased operation.

The yield on 10-year notes jumped 15 basis points to 3.35%. Concern that inflation may revive also drove yields higher.

The spread between the 10-year yield and Treasury Inflation Protected Securities, which reflects traders’ perceptions of the outlook for inflation, widened to 1.73 percentage points, the highest level since September, according to Bloomberg.

The US dollar weakened against the euro and the yen.

The dollar fell to $1.3899 from $1.3780 yesterday. The greenback slipped to 94.28 yen from 94.88. The euro traded at 131.04 yen from 130.77.

US Treasury Secretary Timothy Geithner said he has an obligation to ensure a strong dollar and is committed to maintaining confidence in the world’s reserve currency.

“My basic obligation is to make sure that we put in place policies that sustain confidence in this economy, in our currency, that we sustain a strong dollar, that we retain what is a great strength and asset to this country, which is the most deep and most liquid markets for Treasury securities in the world," he told a congressional panel.

Shares in Europe snapped five days of gains, following on from the release of Fed minutes the previous day which showed US central bank policy makers see a deeper recession in the US and as Standard & Poor’s cut the outlook on the U.K.’s AAA credit rating.

France’s CAC 40 dropped 2.6% to 3217.41 and Germany’s DAX Index slipped 2.7% to 4900.67.

British Land fell 8.2% after posting an annual loss of 3.88 billion pounds on sliding property values. HSBC Holdings dropped 3.7% and Commerzbank shed 4.6%. Vodafone Group fell 4.3%.

ICAP Plc fell 9.1% after chief executive Michael Spencer sold down his holdings. Cable & Wireless Plc fell 9.6% after earnings missed estimates. ThyssenKrupp, Germany’s biggest steelmaker, fell 4.2% on weaker prices of metals.

Copper for July delivery fell 3.7% to US$2.0275 a pound on the New York Mercantile Exchange.

Crude oil fell from a six-month high on concern demand may weaken in the world’s biggest economy. Crude oil for July delivery fell 1.6% to US$61.08 a barrel on the New York Mercantile Exchange.

Gold futures for June delivery rose 1.5% to US$951.20 an ounce in New York.

Businesswire.co.nz

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