While you were sleeping: Uncertainty for Wall Street

Wednesday 7th July 2010

Stocks in the US fell, erasing an early rally, on evidence of a slowdown in growth in the US services sector.

In late trading, the Dow Jones industrial average fell 0.10%, the Standard & Poor's 500 Index lost 0.23% and the Nasdaq Composite Index declined 0.51%.

Service industries in the US grew in June at a slower pace than forecast, indicating the economy was beginning to cool entering the second half, according to the Institute for Supply Management.

The ISM index fell to a four-month low of 53.8, trailing the median forecast in a Bloomberg survey of economists. The report follows data last week showing a slowdown in manufacturing growth and smaller-than-forecast increase in jobs.

Among the most active stocks on Wall Street were Home Depot Inc, Lowe’s Cos and Macy’s Inc.

KKR & Co. revealed that its founders Henry Kravis and George Roberts will own 25% of the company, clearing the last major hurdle for a New York Stock Exchange listing.

Agricultural Bank of China’s initial public offering is raising US$19.2 billion in what may turn out to be the world’s biggest IPO, according to people with knowledge of the pricing for Hong Kong and Shanghai.

Longtime technical analyst Robert Prechter told Reuters he expected that as the US economy sinks into a deflationary depression, stocks would plunge.

The Dow Jones could fall to between about 1,000 and 3,000 points over the next five to seven years, Prechter said. The Dow was trading at 9,754 in early afternoon.

"It is very clear there is substantial stock market risk," said Prechter, who urges investors put their money in cash proxies such as safe-haven US Treasury bills instead.

Prechter is known for his very bearish views on the economy and also for forecasting a big bull market in stocks in 1982 and for getting out before the 1987 market crash.

Over the near term, the US dollar would remain under pressure against the euro and against the safe-haven Swiss franc, he said.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’, rose 2.49% to 30.87.

The Stoxx Europe 600 Index advanced 2.6%.

Across Europe, the UK’s FTSE 100 climbed 2.93%, Germany’s DAX rose 2.15 % and France’s CAC 40 gained 2.73%.

Among the most active stocks in Europe were Banco Santander SA, BHP Billiton, Rio Tinto and Balfour Beatty Plc.

US Treasuries rose, pushing 10-year note yields toward their lowest level this year.

Ten-year note yields fell 3 basis points, or 0.03 percentage point, to 2.94% at 2.37pm in New York, according to BGCantor Market Data. Thirty-year yields decreased 4 basis points to 3.90%, while two-year note yields traded at 0.62%.

US government bond yields are signalling almost no chance of the economy slipping into another recession even as stocks and commodities tumble, Bloomberg News reported, citing research from the Federal Reserve Bank of Cleveland.

The 2.34 percentage gap between yields on two-year and 10-year Treasuries is more than double the 20-year average and about the same as in 2003, just before gross domestic product rose 3.6%.

The so-called yield curve suggests growth won’t slow to less than 1% and about a 12% chance of a recession in the next year, Joseph Haubrich, head of the banking and financial institutions group at the Cleveland Fed, and Kent Cherny, a researcher, wrote in a July 1 report.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.55% to 84.08.

In mid-afternoon in New York, the euro rose 0.8% to US$1.2643, breaking through option barriers at US$1.26. The euro also briefly hit a two-week high against sterling, rising to as much as 83.41 pence.

The US dollar fell against the yen and the euro after the ISM report. The greenback was last down 0.3% at 87.48 yen.

The greenback also fell against the Australia dollar after the Reserve Bank of Australia spurred traders' appetite for high-yielding currencies such as the Australian dollar and the euro.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.28% to 253.76.

Gold erased early gains to tumble to a six-week low.

Spot gold was bid at US$1,192.00 an ounce at 10.09am EDT (1409 GMT), against US$1,206.95 late in New York on Monday. US gold futures for August delivery fell US$14.80 an ounce to US$1,192.90.

The US$1,200 mark is providing good support to gold, with physical demand emerging as prices slip further from June's record US$1,264.90. But its swift retreat from that level has hurt some investors' confidence in the metal, traders told Reuters.

US copper futures rose to a one-week high.

Copper for September delivery rose 5.50 cents, or 1.9%, to settle at $2.9710 per pound on the COMEX metals division of the New York Mercantile Exchange.

Businesswire.co.nz

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