US Stocks Closed Lower As Economic Data Weigh

Market Update

Thursday, August 12, 2010

U.S. Stocks closed lower Thursday as a disappointing round of data highlighting weakness in the U.S. job market and euro-zone industrial production added to investors' concerns about the global economy, as well as on jitters ahead of Friday's jobs data.

The Dow Jones Industrial Average fell 82 points before it recovered a little to 58 points, or 0.57%, to 10319, in late trading, putting the market on pace to extend a two-day slump. The drop also pushes stocks deeper into the red for the year as economic data pointing to slower economic growth have refueled fears of a double-dip recession.

Dow Jones 10,319.95 -58.88 (-0.57%)
S&P 500 1,083.61 - 5.86 (-0.54%)
Nasdaq 2,190.27 -18.36 (-0.83%)

The number of U.S. workers making new claims for jobless benefits unexpectedly climbs by 2,000 to 484,000 in the week ended Aug. 7, adding to concerns about the economy's weakness.

U.S. import prices bounce back slightly after dropping in June, driven by a 2.1% rise in fuel import prices and higher food prices, a move that could help ease deflation concerns. The increase is less than the 0.4% increase economists were expecting.

Mortgage rates fell again the past week, with the average rate on 30-year fixed-rate mortgages sliding to 4.44%, furthering the lowest point since Freddie Mac (FMCC) started keeping track, according to its latest survey.

Rates have dropped in recent months as the Treasury market has seen a continued rally, prompted by stock-market volatility. Higher Treasury prices mean lower yields on the debt, and mortgage rates usually track those yields.

The 30-year fixed-rate mortgage averaged 4.44% for the week ended Thursday, down from the prior week's 4.49% average and 5.29% a year ago. Rates on 15-year fixed-rate mortgages were 3.92%, down from 3.95% and 4.68%, respectively.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.56%, down from 3.63% a week earlier and 4.75% a year ago. One-year Treasury-indexed ARMs were 3.53%, down from 3.55% and 4.72%, respectively.

The U.S. Dollar Index, reflecting the U.S. currency against a basket of six others, climbed 0.2%. Gold rose and crude-oil futures fell below $75 a barrel.

Crude futures fell for the third-consecutive session Thursday, settling below $76 as a weakening outlook on the economic recovery continues to stoke fears of dropping oil demand.

Light, sweet crude for September delivery settled $2.28, or 2.9%, lower at $75.74 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled down $2.12 at $75.52 a barrel.

U.S. gold and silver prices moved up today, as economic data fuels a safe haven. Engelhard Corp's base price for industrial gold bullion was $1215.71 per troy ounce, up $7.51 from previous.

The most actively traded gold contract, for December delivery, rose $17.50, or 1.5%, to settle at $1,216.70 an ounce on the Comex division of the New York Mercantile Exchange. The intraday high of $1,218.50 was the contract's loftiest point since July 15.

It's selling price for gold in fabricated form was $1306.89, up $8.08. Handy & Harman's base price for gold was $1213.00 per troy ounce, up $7.50. The fabricated form price was $1310.04, up $8.10.

Silver futures rose along with gold prices, with September metal gaining 16.3 cents, or 0.9%, to settle at $18.065 an ounce.

Dec gold $1,216.70, up $17.50; Range $1,199.50-$1,218.50
Sep silver $18.065, up 16.3 cents; Range $17.850-$18.105
Oct platinum $1,531.60, up $11.00; Range $1,507.00-$1,534.00
Sep palladium $471.05, up $6.35; Range $459.05-$474.75

Wheat has fetched ever increasing prices as top wheat exporter Russia, along with Central Asian producing countries, have suffered from a drought this summer that has decimated their wheat crop.

Wheat for September delivery added 27 cents, or 3.9%, to $7.22 a bushel on the Chicago Board of Trade. Most-active December contract rose 27 cents, or 3.6%, to $7.51 a bushel.

Prices have rallied 69% since hitting a three-year low June 9. Russia last week imposed a temporary ban on wheat exports, sending prices to their highest levels in nearly two years. Wheat futures rose nearly 40% in July as conditions in Russia and other neighboring wheat producing countries deteriorated. Ukraine is said to be mulling over a similar ban on wheat exports, which would be even more pressure on the commodity.

The USDA's monthly report on agricultural supply and demand estimates on Thursday estimated world wheat production at 645.7 million metric tons, down 2.3% from its July estimate.

The agency forecast wheat stocks at the end of the 2010-11 crop year would total 174.8 million metric tons, down 6.6% from its July forecast. World wheat production last year was estimated at 680.3 million metric tons, with 2009-10 ending stocks of 194 million metric tons

U.S. production was forecast to be 49 million bushels higher, reflecting better yields for spring wheat. Winter wheat production was also raised slightly due to better yields in parts of the U.S.

Exports are projected to be 200 million bushels higher, to 1.2 billion bushels, "with declines in foreign production, particularly in (former Soviet republics), reducing global supplies and making U.S. wheat competitive in key Middle East and North Africa markets," the USDA said.

Grains exchange-traded ETF (GRU 5.97, +0.15, +2.58%) and the iPath Dow Jones UBS Grains Subindex Total Return ETN (JJA 46.23, +1.14, +2.53%) rose more than 2% in early trading. DBA rose to $25.95.

The Euro fell to $1.2840, from $1.2883 late Wednesday in New York, as data showed that industrial production in the euro zone fell unexpectedly in June, with drops in French and German output suggesting the currency area's economic recovery slowed at the end of the second quarter.

Toronto stocks only slightly lower at midday. At 11:45 a.m. EDT (1545 GMT), the S&P/TSX Composite Index was down 24.28 points, or 0.21%, at 11557.93. Declines led advances 683 to 572. Trading volume was 202.60 million shares. The S&P/TSX 60 Index was down 2.87 points, or 0.42%, at 673.53.

The financial services group was down 1.10%, with Royal Bank of Canada down 43 Canadian cents to C$51.63 and Canadian Imperial Bank of Commerce off 0.99 to 68.46. The energy group had fallen 0.87%, with EnCana dipping 0.24 to 30.25 and Canadian Natural Resources giving up 0.64 to 34.07.

European stocks ended a bumpy session mixed Thursday, with gains in the food and beverage sector helping to limit losses following a run of disappointing economic news. The euro fell against the dollar and oil prices slipped, but gold gained as investors continued to thirst for safety.

The Stoxx Europe 600 index closed up 0.1% at 254.94. The U.K.'s FTSE 100 index rose 0.4% to 5266.06, France's CAC-40 index ended down 0.2% at 3621.07 and Germany's DAX fell 0.3% to6135.17.

At the time of the European stock markets close, the euro was at $1.2855, down from $1.2882 late Wednesday in New York, and sterling last traded at $1.5577, down from $1.5683.

Thursday gave investors more reasons to be wary about the economic backdrop, as data showed that euro-zone industrial production dropped 0.1% in June and Greece's economy contracted 1.5% in second quarter.

Banks were broadly lower, with Bank of Ireland shares falling 1.8% and Allied Irish Banks down 1.3% after a media report that the European Central Bank stepped in and purchased short-dated Irish government bonds.

The Irish Iseq 20 index lost 0.3% to 466.74. The European Central Bank has bought short-dated Irish government bonds over the past 24 hours in a bid to calm rising market volatility stemming from concerns over the creditworthiness of Irish banks, two people familiar with the matter say.

The German DAX index declined 0.3% to close at 6,135.17, the French CAC-40 index lost 0.2% to end at 3,621.07 and the U.K. FTSE 100 index settled 0.4% higher at 5,266.06.

The Greek economy contracts sharply in the 2Q as government austerity measures bite deeper into incomes, according to government data.

The Greek economy shrank by a further 1.5% in the second quarter of the year, Greece's statistics agency has said. Greece's GDP has fallen 3.5% since this time last year. Economists said they were not surprised by figures, and blamed the "uncertainty" surrounding the government's austerity measures for the falls in GDP.

The euro-zone debt crisis is back on the agenda in the foreign-exchange markets as the euro takes a beating against the dollar and other major currencies, weighed down by strains in the region's bond markets and banks.

Banks in Greece and Portugal increased their borrowings from the European Central Bank in July, bucking the wider trend across the euro zone, according to data from national central banks.

Analysts said the figures suggest the publication of the results of stress tests on Europe's banks--intended to restore confidence in the region's financial sector-- may not have succeeded, or at least, not immediately.

The Central Bank of Greece said that the amount of credit outstanding to Greek banks end July rose to EUR96.21 billion, up 2.5% from EUR93.82 billion end June.

Portuguese banks increased their borrowings by over 20% to EUR50.09 billion, from EUR41.51 billion.

By comparison, the overall amount of ECB credit outstanding fell by nearly EUR240 billion, as EUR442 billion in 12-month funds was repaid to the ECB at the start of the month, only part of which rolled over into shorter-term credits.

Banks from the perceived weaker periphery of the euro zone had struggled to finance themselves in the market in the weeks leading up to the publication of the stress test results. Market participants from outside the euro zone, in particular, had been unwilling to risk money in countries with well-documented public debt problems.

Anecdotal reports have suggested that such fears have receded, but only gradually and not immediately after the publication of the results on July 23.

"The evidence this week seems to indicate that the stress tests might have failed to ring-fence the periphery," RBS analyst Nick Matthews said in a research note. "The next few weeks will be very important for us to assess whether further policy support will be needed, should confidence fail to be restored for good."

Japan is extremely unlikely to try and weaken the super-strong yen any time soon, despite its clear unease with the currency's recent climb, Katie Martin writes.

6.9 Earthquake hits Ecuador.

Brazil continues to grow and issues debt to fuel growth. Overseas bonds issued by Brazilian companies and government agencies totaled $19.71 billion in the first seven months of 2010, more than double the $8.4 billion issued in the same period of 2009, the Brazilian Association of Financial and Capital Market Institutions, or Anbima, said Thursday.

From January to July, local banks issued a total of $8.8 billion in the global debt market, compared with only $210 million a year ago.

Local banks were accessing the debt market to finance the expansion of credit portfolios here and to reinforce their Basel solvency ratios, or the system of maintaining minimum reserves to protect solvency.

Peru's Finance Minister, Mercedes Araoz, said Thursday Peru's gross domestic product growth in 2010 should rise to about 6%.

In an interview with RPP radio, Araoz said her ministry was in the process of revising the GDP growth forecast and it could probably be "about or slightly above 6%." The current official ministry of finance forecast for Peru's 2010 GDP growth is 5.5%.

Commodities
Crude Oil	76.73	- 1.65%
Natural Gas	4.32	-
Gasoline	1.97	- 1.55%
Heating Oil	2.03	- 2.16%
Gold	1214.72	+ 1.40%
Silver	18.06	+ 0.89%
Copper	3.26	+ 0.15%

Thursday's Calendar

8:30 a.m.
Aug 7 Unemployment Insurance Claims Report - Initial Claims Weekly Jobless Claims (expected 465K), Net Change (expected -14K), Cont Jobless Claims (prior week) (previous 4537000), Net Chg (prior week) (previous -34K)

8:30 a.m.
Jul Import & Export Price Indexes Import Prices (expected +0.4%), Non-Petroleum Prices (previous -0.5%), Petroleum Prices (previous -4.4%)

10:00 a.m.
Jul 31 DJ-BTMU Business Barometer (previous +0.1%), (52 Wk) (previous +5.7%)

10:00 a.m.
Fed Gov Duke gives opening remarks at public hearing on Community Reinvestment Act in Chicago

10:30 a.m.
Aug 6 EIA Natural Gas Storage Report Total Working Gas in Storage (previous 2948B), (Net Change) (previous +29B)

4:30 p.m.
Aug 11 Foreign Central Bank Holdings Foreign US Debt Holdings (previous 3.16T), US Foreign Agency Holdings (previous 829.64B), Foreign Treasury Holdings (previous 2.33T)

4:30 p.m.
Aug 11 Federal Discount Window Borrowings Primary Credit Borrowings (previous 62M), W/E Daily Avg (previous 36M), Discount Window Borrowings (previous 63.77B), W/E Daily Avg (previous 63.89B)

4:30 p.m.
Aug 2 Money Stock Measures