Stock Market Update - Monday, August 30, 2010

Stock Market Update
Monday, August 30, 2010

Latest News Headlines:

US Consumer Spending in US Rises More Than Forecast, Incomes Lag Stocks Slide Lower

U.S. stocks fell Monday following sluggish personal income data while investors mulled over the latest efforts of central banks and whether they will be enough to prevent a double dip.

DJIA down -140.92 points to 10009.72
NASDAQ down -33.67 points to 2119.96
S&P 500 down - 15.67 points to 1048.92
10-year T-note 100 21/32 at 2.5468 yield
Dollar/Euro down 0.0089 at 1.2674
OIL FUTURES: Nymex Crude Settles Down -47c At $74.50/Bbl
US GAS: Futures Settle 2.9% Higher At $3.812/MMBtu

Stock Trading Activity 4:00 p.m. ET
..................Advancing.............Declining
NYSE........57,552,004..........753,464,352
AMEX..........3,494,373..............6,510,913
NASDAQ....256,822,058....1,322,628,952

The drop came in thin trading. NYSE Composite volume on Monday totaled about three billion shares, making it the lowest-volume day this year. The Dow Jones Industrial Average declined 140 points, or 0.98%, to 10009, in early trading. The Nasdaq Composite slipped to 2119, and the Standard & Poor's 500 index declined to 1048.

U.S. stocks fell Monday after data showed personal income remains sluggish while business activity in the Dallas area remains weak, adding to investors' worries over the health of the economy. Investors have grown increasingly worried over weak economic data despite strong corporate earnings and an uptick in deal activity.The future also looked cloudy.

The jobs expectations index that looks out six months slipped to 1.0 from 2.0.

The expectations index covering the outlook for each respondent's company six months ahead dropped to 9.3 from 15.8, and the expectations about general business activity worsened to -4.3 from 5.0 in July.

Manufacturing surveys from other Fed regional banks have been mixed. Reports from the Richmond and New York Feds have shown area factories still expanding in August, while the Philadelphia Fed index showed an unexpected contraction this month.

Disposable incomes dropped for the first time since January after adjusting for inflation. U.S. consumers accelerated their spending in July but income growth was sluggish, a sign the economic recovery will remain fragile.

Consumer spending rose 0.4% last month after staying flat in June, the Commerce Department said in a report Monday. Americans' incomes increased less than expected, up 0.2% after remaining unchanged in June.

The government data indicated the economy is growing but that high U.S. joblessness is slowing its recuperation. "The labor market recovery will continue to be a very grudging one. Consumers will enjoy only modest gains in wages and salaries for some time, and consumer spending growth will therefore be moderate at best," MFR Inc. analyst Joshua Shapiro said.

Economists surveyed by Dow Jones Newswires expected the data to show income climbed 0.3% in July and spending rose 0.4%.

Consumer spending is a big part of the economy. As spending accelerated, the national savings rate fell a bit last month, to 5.9% from 6.2% in June, but remained elevated compared to rates before the recession. Many Americans have been putting money away because of unemployment and weak household balance sheets.

The economy's softness kept a lid on prices in July, Monday's data showed. The core price index for personal consumption expenditures, which excludes food and energy prices because of their volatility, rose 0.1% in July from June.

Year over year, the gauge increased 1.4%. That index is closely watched by the U.S. Federal Reserve. Low price pressures will support record-low central bank interest rates that are intended to reduce joblessness and spur the economy.

The overall PCE price index, which includes food and energy prices, rose 0.2% last month compared to June and increased 1.5% on a year-over-year basis. A senior Federal Reserve policymaker said Monday it may be impossible to test new measures to limit systemic risk in the banking system before the next financial crisis.

St. Louis Fed President James Bullard said the credibility of too-big-to-fail elements in the sweeping financial reform bill rested on them being tested in practice.

Bullard said it is unclear, but he doesn't believe such a challenge may happen before another crisis arrives to test efforts to prevent problems at large financial institutions spreading through the broader economy. He also said uncertainty surrounding the rule-making associated with the reform bill was affecting economic decisions.

The dollar rose against the euro and the U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, edged up 0.1%. Treasurys advanced, pushing the yield on the 10-year note down to 2.59%. Crude-oil futures slipped while gold futures rose.

Treasury prices pushed up Monday as market participants, on edge about the shaky global economic recovery, sought refuge in the low-risk U.S. government bond market. Bond markets staged a comeback Monday as the first round of economic data indicated a still-fragile economy.

The week started with fears about the health of the global economy as the Bank of Japan moved to further ease monetary policy.


Bernanke Faces Skepticism on Policy

In the US Bernanke faces skepticism on policy tools, may need fiscal aid economic reports could push Fed to take further action. The American economy is once again tilting toward danger.

Despite an aggressive regimen of treatments from the conventional to the exotic — more than $800 billion in federal spending, and trillions of dollars worth of credit from the Federal Reserve — fears of a second recession are growing, along with worries that the country may face several more years of lean prospects.

The US is $15 Trillion dollars in debt. The US has 45 Trillion in unfunded liability, and the US consumer is $42 trillion dollars in debt.

The chief problem is that the Fed's traditional remedy for a slowdown - reducing short-term interest rates - is unavailable because rates have been close to zero for 20 months.

This leaves the Fed only unconventional policy tools, which bring with them more debate about their relative value because they've never been tried.

The Fed has already purchased $1.4 trillion of mortgage securities and $300 billion of Treasury securities in an effort to lower market interest rates. Earlier this month, in response to a slew of weak economic data, the policy-making Federal Open Market Committee took a symbolic decision to buy more Treasurys using funds received from principal repayments of its mortgage
securities to hold the size of its balance sheet constant.

In essence, analysts said the FOMC flipped to an easing bias from its prior stance that leaned toward slow tightening. Federal Reserve Board Chairman Ben Bernanke spelled out in great detail Friday the easing options under consideration. These include buying more assets, most
likely Treasurys, to lower market interest rates; promising to keep ultra-low rates for longer than expected; or cutting the interest paid to banks for their excess reserves to push them to lend.

But will any of these steps be necessary? How much would the economy have to weaken or inflation to decline before the Fed decides to act? The U.S. economy is looking sick and the doctors are bickering about what, if anything, to do. That is the bottom-line conclusion from conversations at the Federal Reserve's annual policy retreat in Jackson Hole.


Canadian Market:

Canada 2Q Current Account Gap Widens To C$11.02Billion

Canada's current account deficit widened in the second quarter by C$2.6 billion to C$11.02 billion (US$10.47 billion), the seventh consecutive quarterly deficit, as slowing exports of goods were outweighed by continued growth in imports, Statistics Canada said Monday.

The shortfall in the previous quarter was revised down to C$8.46 billion from the originally estimated C$7.82 billion. The market had expected the second-quarter gap to grow to C$10.7 billion.

Foreign direct investment into Canada slowed to C$9.66 billion from C$13.44 billion, while Canadian direct investment abroad swung to a C$9.44 billion deficit from a surplus of C$C$2.7 billion in the previous quarter. Canadians invested C$4.7 billion in foreign equities between April and June, driven by stronger demand from Canadian pension plans for U.S. market securities.

Exports of energy products and industrial goods both declined following gains in the previous three quarters. Exports of energy products fell C$1.9 billion on lower prices for all components except coal.

Canada C$3.0B Of 16-Day T-Bills Yield Average 0.606%
The Canadian government reported an average yield of 0.606% at an auction of C$3.0 billion (US$2.9 billion) of 16-day treasury bills.

The issue will be dated and issued Aug. 31 and will mature Sept. 16. The high accepted yield bid at the sale was 0.630% and the low accepted bid was 0.580%. The allotment ratio at the high accepted yield was 3.38462%.

The Bank of Canada didn't purchase any of the new bills. The equivalent prices of the yields were as follows: -average, 99.97344; -low, 99.97458; -high, 99.97239.


Toronto Stocks Higher: Composite Index Up 0.4%
Share prices are higher in early trading Monday. Toronto's composite index is up 49 points, or 0.4%, to 11928, with advances ahead of decline by 4 to 3. Volume of 25.4 million shares after the first 15 minutes of the session is below Friday's early volume of 32.6 million shares.


South America Markets:

Mexico:
Mexico's Stocks Open Lower With US, Peso Weakens Against Dollar

Mexico's Stocks Extend Losses On US Data; Peso Weakens. Mexican stocks opened lower Monday, tracking negative moves in the U.S. where investors remain concerned about the strength of the economic recovery.

The stock market's IPC index of leading issues was down 1.1% at 31414 points recently. Volume was 74.3 million shares valued at 1.92 billion pesos ($146 million).

The market's IPC index of leading issues was down 0.1% around 10:25 a.m. EDT. Volume was 12.4 million shares worth 320.9 million pesos ($25.4 million). Mexican market bellwether America Movil's L shares were off 0.9% to MXN30.53, cement maker Cemex's CPO shares were down 0.9% to MXN10.31, and retailer Wal-Mart de Mexico's V shares were off 1.4% to MXN28.60.

The drop in stocks was pressuring the peso, which was quoted in Mexico City at MXN13.0835, compared with MXN13.0325 at the close Friday. BBVA Bancomer said risks for the peso remain amid the possibility of negative economic data, although it considers there has been some overbuying of dollars.

The chief executive of Mexico's state oil firm, Petroleos Mexicanos, Juan Jose Suarez Coppel, said Monday the company has increased its crude production target for this year to 2.6 million barrels per day from 2.5 million barrels previously.

Suarez Coppel said Pemex, as the company is commonly known, is currently averaging 2.585 million barrels per day and that new wells coming online for the rest of the year make the new production goal feasible.


Brazil:

Brazil Stocks Open Lower As Caution Kicks Off Busy Week
Brazilian blue-chip shares opened lower Monday as investors turned cautious ahead of a plethora of economic data releases that should give a better view of the global economy's struggling recovery.

The Ibovespa opened 0.5% lower at 65,272 points on the Sao Paulo Stock Exchange, or Bovespa, down from Friday's close at 65,585 points.

The Brazilian real opened weaker against the U.S. dollar Monday as global market caution offset local expectations for improving inflows.

The real opened at BRL1.7540 to the dollar on the BM&FBovespa exchange, weaker from Friday's close at BRL1.7519.

Peru:

Chili:

Chile Industrial Output Gains 3.3% In July From Year Ago

Chile's industrial output rose 3.3% in July from the same month a year ago as the country continues to recover from the global financial crisis and February's devastating earthquake, the government statistics agency said Monday.

The gain was in line with expectations as analysts were expecting a year-on-year increase of around 3% for the month.

The 8.8-magnitude earthquake, and the tsunami it spawned, hit Feb. 27, destroying roads and bridges, cutting off power and communications, and halting industries throughout central-southern Chile. Total damage was estimated around $30 billion. On a seasonally adjusted basis, July industrial output grew 1.1% from the previous month.

The Chilean peso ended mildly weaker Monday on concerns about the pace of the global recovery, which hurt U.S. stocks and pulled the euro lower versus the dollar.
CLP500.40 to the dollar, versus Friday's close of CLP499.60. Chile's currency traded in a range of CLP497.60 to CLP501.20.

Europe is one of Chile's main trading partners, the peso often moves in the same direction as the euro against the dollar. The euro slipped against the dollar as investors shifted into traditional safe harbors. Resistance for the peso is now seen at CLP497-CLP498, while support is located at CLP502.

yields on inflation-indexed Chilean central bank bonds, or BCUs, ended mixed as expectations for short-term inflation remain low. The shorter five-year bonds move on near-term inflation expectations, while the longer 10-year bonds keep an eye on forecasts for interest rates in the long term. The yield on five-year BCU bonds remained unchanged at 2.38%, while the yield on 10-year BCUs ended at 2.60%, down from 2.64% the previous session.


European Markets:
European shares edged higher by midday on Monday to extend gains to a third straight session, helped by better-than-expected euro zone economic sentiment data and on more merger and acquisition news. Trading was subdued because of a holiday in Britain. Volumes on the FTSEurofirst 300 index .FTEU3 of top European shares were 37 percent of its 90-day daily average. The market remained vulnerable to declines in the coming weeks on concerns economic data from the United States, the world's largest economy, will continue to be grim.

At 1141 GMT, the index was up 0.1 percent at 1,027.36 points after touching 1,031.17, the highest since Aug. 24, earlier.

Euro zone economic sentiment increased slightly more than expected in August while inflation expectations were muted, auguring well for continued economic recovery in the third quarter. [ID:nBRLUJE64R]

Asian Pacific Markets:

Nikkei pares gains after BOJ decision disappoints, but no major impact from the policy measure seen ahead. BOJ eases policy to fight yen rise.Japan's Nikkei average pared gains on Monday after rising more than 3 percent at one point, with investors disappointed by a Bank of Japan's decision that contained no surprises and was seen as lacklustre at best.

At an emergency meeting, the BOJ expanded its fund supply tool, saving more aggressive steps for when there is clearer evidence of a slowdown in a fragile economy hit by a strong yen. The Nikkei 225 is up 1.95% percent, at 9,165.73 12:26AM EDT, August 30, 2010.

The Bank of Japan extended its emergency-lending program in an effort to stem the rise of the yen and support the sluggish economic recovery. However, without any substantial nod to the possibility of direct market intervention against the yen, the measures wasn't enough to curtail renewed strength in the currency against the dollar.

Hong Kong stocks rose, halting six days of declines by the benchmark index, as the Federal Reserve pledged top safeguard the U.S. economic recovery, and companies including China Resources Land Ltd. reported higher earnings.

HSBC Holdings Plc, which got 20 percent of its fiscal 2009 revenue from North America, gained 1.6 percent. China Resources Land Ltd., a state-controlled developer, jumped 3.1 percent. China Shenhua Energy Co. climbed 1.2 percent after the nation’s largest coal producer reported better-than-estimated earnings. Aluminum Corp. of China Ltd., the country’s No. 1 producer of the metal, advanced 2.1 percent after metal prices increased.

The Hang Seng Index climbed 0.6 percent to 20,711.79 as of 12:04 p.m. local time, halting a six-day, 2.3 percent decline. Concern economic growth may slow in the U.S., Europe and China has dragged down the gauge by 5 percent from a four-month high on Aug. 9. Shares on the measure trade at an average of 13.4 times estimated earnings.

“For the stock market as a whole, in the third quarter, especially in September, there may still be a round of adjustment because, after interim results’ impact, the market has come down to economic fundamentals,” Ronald Wan, managing director of China Merchants Securities, said in a Bloomberg Television interview.

The Hang Seng China Enterprises Index of so-called H shares of Chinese companies advanced 1 percent to 11,511.

China Mobile Ltd., the world’s biggest phone carrier by subscribers, dropped 1.1 percent to HK$80.70. Vodafone Group Plc is preparing to sell its stake in China Mobile to raise more than 4 billion pounds ($6.2 billion), the Sunday Times reported, citing investors it didn’t name. Bobby Leach, a spokesman for Vodafone, declined to comment.

World markets:

Shanghai	2,652.66	+41.92 (1.61%)
Nikkei 225	9,149.26	+158.20 (1.76%)
Hang Seng Index	20,737.22	+139.87 (0.68%)
TSEC	7,741.20	+18.29 (0.24%)
FTSE 100	5,201.56	+45.72 (0.89%)
DJ EURO STOXX 50	2,620.24	+13.35 (0.51%)
CAC 40	3,490.26	-17.18 (-0.49%)
S&P TSX	11,879.72	0.00 (0.00%)
S&P/ASX 200	4,452.70	+82.60 (1.89%)
BSE Sensex	18,032.11	+33.70 (0.19%)

Market Summary:

Stocks:

Markets will revolve around Friday's unemployment report, Wednesday's auto-sales report and statements from a meeting of the world's central bankers in Wyoming. The jobless rate for August, which will be released next Friday, is likely to rise to 9.6% from 9.5% a month earlier, according to economists surveyed by Briefing.com. The country lost 131,000 and 221,000 jobs in July and June, respectively. August U.S. new-vehicle sales, out Wednesday, are expected to decline.

Central bankers and academic experts are meeting in Jackson Hole, Wyo., through Saturday to discuss what can be done to help a global economic recovery that's quickly losing steam.

U.S. stocks moved up Friday on light volume as investors searching for confidence were reassured by Federal Reserve Chairman Ben Bernanke's vow to do whatever it takes to revive the shaky economy.

The U.S. economy grew a sluggish 1.6% in the second quarter and corporate profits nearly dried up, though the downward revision released by the Commerce Department Friday wasn't as bad as many had feared. The 1.6% GDP growth stands in stark contrast to the government's stated initial growth estimate from just a month ago.

Contributions to the GDP

• Nonresidential fixed investment increased 17.6 percent
• Personal consumption expenditures increased 2.0 percent
• Real residential fixed investment increased 27.2 percent
• Equipment and software increased 24.9 percent
• Real private inventories added 0.63 percentage point to the second-quarter change in real GDP

The monthly GDP data have actually shown declines for two months running and there is a negative “build in” so far for Q3. There is practically no growth in real consumer spending heading into the current quarter. An upturn in state, local and federal government spending contributed a temporary boost to the GDP number. Analysts, and economists are now in the process of cutting their GDP forecasts for the fourth quarter.

US Consumer Sentiment Drops To 68.9. The Reuters/University of Michigan consumer sentiment index's final reading for August ticked down to 68.9 from a preliminary reading of 69.6.

With the U.S. economic recovery losing steam, the chances of a second phase of a slowdown are increasing, according to a leading economist. Speaking in The Wall Street Journal's The Big Interview show, Robert Shiller, professor of economics at Yale University, said he thought the second dip down of a so-called double-dip recession "may be imminent."

Europe's sovereign debt crisis lingers, according to European Central Bank Governing Council member and Bundesbank President Axel Weber. "Fiscal consolidation is a long-term project...it's going to be with us for a long time" he said in a interview at a central bankers' convention in Jackson Hole, U.S.

Treasurys:

Treasurys tumbled as Federal Reserve Chairman Ben Bernanke reiterated his firm commitment to support a slowing economy, cutting demand for safe assets. Selling also emerged as Bernanke stopped short of announcing larger-scale purchases of Treasurys. "We have seen real money sellers all week as rates moved to unsustainable levels," said Tom Tucci, head of U.S. government bond trading at RBC Capital Markets.

Treasury investors searching for clues about whether policymakers may redouble their efforts to help the economy will zero in on next week's jobs report, a possible turning point for the bond market and a potential catalyst for much lower yields.

Renewed large-scale bond buying by the Fed could drive down the yield on 10-year Treasurys, for the first time ever, to 2% or even a bit lower. The 10-year yield, currently 2.620%, hit a record low of 2.037% in December 2008.

David Rosenberg, chief economist and market strategist for Gluskin Sheff & Associates Inc. and former chief North American economist for Merrill Lynch, said this week that the 10-year yield will fall below 2% over the next 12 months as U.S. growth loses traction.

Forex:

The dollar gained against the yen and Swiss franc but slipped against some higher-yielding currencies after Fed's Bernanke pledged to provide more stimulus to the U.S. economy if needed. In prepared comments at an annual meeting of top central bankers held in Jackson Hole, Wyo., Bernanke stopped short of saying it will act. The US Dollar Index DXY continues to encounter resistance around 83.5. It closed down Friday at 82.95 and further declined after hours to $82.72.

Petroleum and Oil:

Crude oil moved up Friday from its recent lows to close at $75.12 a barrel.

Gold and Silver:

Spot Gold is advancing towards $1260. Friday's close was $1238 per ounce. Any breakout above $1260 would offer a near term target of the $1360 range. Silver is now trading over $19 an ounce, and closed Friday at $19.11 an ounce.

Commodities
Crude Oil	74.66	- 0.68%
Natural Gas	3.73	+ 0.78%
Gasoline	1.94	-
Heating Oil	2.03	- 0.51%
Gold	1235.84	- 0.19%
Silver	19.11	+ 0.10%
Copper	3.41	+ 1.25%
Quotes delayed 15 min.		» Add to your site

Monday's US Economic Calendar:

8:30 a.m.
July Personal Income & Outlays Personal Income (previous 0%), Personal Spending (previous 0%), PCE Price Index Monthly (previous -0.1%), Yearly (previous +1.4%), PCE Core Price Index Monthly (previous 0%), PCE Core Price Index Yearly (previous +1.4%)

10:30 a.m.
August Texas Manufacturing Outlook Survey Business Activity Index (previous -21), Manufacturing Production Index (previous 4.9)

N/A
St. Louis Fed Pres Bullard speaks in St. Louis