Global Markets Overview 06/27/2011
US Markets
U.S. stocks dropped Friday, finishing the week slightly lower, as worries about Italian banks, Greece's austerity measures and disappointing technology earnings overshadowed a bigger-than-expected rebound in durable goods data.
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The Dow Jones Industrial Average finished down 115.42 points, or 0.96%, at 11934.58, led lower by Cisco Systems, which dropped 54 cents, or 3.%, to $14.93. The blue chip index finished the week down 0.6%, its seventh weekly drop out of the last eight since hitting a three year high in late April.
Despite the recent declines, the Dow is still up 3.1% for the year. The Standard & Poor's 500-stock index dropped 15.05 points, or 1.17%, to 1268.45, as energy and tech stocks were the big decliners. Utilities were the only S&P 500 sector that traded in positive territory. The broad measure edged 0.2% lower for the week and has declined in seven out of the last eight weeks.
The Nasdaq Composite fell 33.86 points, or 1.3%, to 2652.89. Technology stocks struggled following disappointing quarterly reports from Oracle and Micron Technology.
Still, the technology heavy index rose 1.4% for the week, snapping a five-week losing streak. Investor jitters manifested Friday after several Italian bank stocks were suspended following a sudden drop in their share prices. A spokeswoman for Borsa Italiana said the suspension was temporary and occurred because of high volatility. Among the possible reasons for those falls was an unconfirmed rumor that those banks undergoing a stress test won't pass it in July.
Moody's also warned that a group of Italian banks face possible ratings downgrades. Worries over Italian banks come as Greece said it secured a second bailout from the European Union and the International Monetary Fund, according to Prime Minister George Papandreou.Greece's Parliament is due to vote on a five-year austerity package in the coming week.
Among stocks in focus, Oracle fell 1.32, or 4.1%, to 31.14, after the business software and hardware maker late Thursday reported that fiscal fourth-quarter earnings climbed, although hardware systems demand was flat. Micron Technology slid 1.22, or 14%, to 7.21, after the memory chip maker's fiscal third-quarter profit and margins continued to slide amid lower selling prices.
Euro-zone debt fears continued with no apparent end--and continued to push the yields of safe-haven Treasurys to fresh lows for the year. The benchmark 10-year yield fell to 2.846% Friday, the lowest mark since Dec. 1. The two-year note's yield hit 0.321%, the lowest point since an all-time low of 0.316% Nov. 4. This is the 11th consecutive week that yields have dropped, the longest streak since 1986 according to some bond strategists.
New signs of Greek debt contagion came Friday after Moody's warned that it could cut credit ratings on Italian banks, a move that followed the firm's threat last week to downgrade Italy's sovereign rating. Shares in many major Italian banks sold off. Also in reaction, the spread between the 10-year Italian government bond and the German bund widened to a record of more than two percentage points.
The Greek government needs to convince parliament to approve a five-year austerity package in the coming week to secure fresh bailout funding from the European Union and International Monetary Fund. The nation could be forced to default without the funding, a scenario many investors fear could roil the euro-zone's banking system and the global financial markets.
In late Friday afternoon trade, the 10-year note was 10/32 higher in price to yield 2.871%. The two-year note was 1/32 higher to yield 0.337%. Bond prices move inversely to yields.
European Markets
European stock markets ended mostly lower Friday as bank stocks came under pressure following the temporary suspension of trade in a pair of Italian lenders. The Stoxx Europe 600 index fell 0.1% to close at 263.98, having risen as much as 1.1% before the downturn in bank stocks hit the index. Shares of UniCredit slumped as much as 8.9% and Intesa Sanpaolo SpA dropped 7.2% before trading was halted in several banks.
Late Thursday, Moody's Investors Service also warned that many Italian banks could face downgrades, but stocks had initially taken that warning in their stride. The losses pulled Italy's FTSE MIB index down 1.6% to 19,154.3 and also dragged other bank stocks lower, including a 3.7% drop for Natixis in Paris and a 2.5% drop for Barclays PLC in London. Early support was seen after Greece secured the approval of the EU, the IMF and the European Central Bank on plans for another round of spending cuts and tax hikes. The agreement paves the way for Greece to receive a further bailout package.
But the biggest hurdle is yet to come: Prime Minister George Papandreou must still persuade the country's lawmakers to approve the package. In Athens, the ASE Composite gave up early gains to fall 0.7% to 1,232.60.
Shares of Alpha Bank rose 1.3%. Germany's DAX 30 index ended 0.4% lower at 7,121.38. The French CAC 40 index slipped 0.1% to end at 3,784.80, while the U.K. FTSE 100 index bucked the losing trend to close 0.4% higher at 5,697.72.
Asian Markets
Asian shares rallied into the end of the week as regional airlines, Chinese banks and Japanese exporters helped lead the broad advance Friday. Hong Kong's Hang Seng Index rose 1.9% to 22171.95, the Shanghai Composite Index climbed 2.2% to 2746.21, and South Korea's Kospi rose 1.7% to 2090.81.
Japan's Nikkei Stock Average ended 0.9% higher at 9678.71. Chinese banks, which have been expecting more monetary policy tightening to control prices traded notably higher in Hong Kong, with Bank of China up 2.9%, Agricultural Bank of China leaping 6.4%, China Citic Bank adding 3.5% and China Construction Bank up 3.7%. Airlines in the region advanced after a selloff in oil Thursday in the U.S., with Cathay Pacific Airlines up 5.2% and Air China soaring 7.8% in Hong Kong.
Energy companies, by contrast, felt a little pain: Cnooc lost 0.9% in Hong Kong and Japan Petroleum Exploration dropped 0.7% in Tokyo.
News that Greece's government had agreed with the European Union and International Monetary Fund on its latest five-year austerity plan fueled hopes for progress on the country's sovereign-debt crisis. This helped some exporters gain in Tokyo, with Sony rising 2.4%, Toyota Motor closing 1.1% higher and Toshiba adding 4.9%.
In Seoul, Samsung Electronics rose 2.5% and LG Display gained 5.2%.
Base Metals
Copper closed solidly higher on the London Metal Exchange Friday, though performance elsewhere in the complex was mixed as a series of positive economic indicators clashed with troubling developments in Italy's financial markets. LME three month copper traded at $9,040 a metric ton, up 0.9% on the day.
However, while nickel and lead also closed higher on the day, aluminum, zinc and tin lost ground to end the session in negative territory.
Base metals pushed higher once more on the back of the results, though gains were not sustained by most metals, which fell back into negative territory along with the broader markets as the focus shifted back to worries about weakness in the euro-zone banking system. U.S. oil futures finished almost unchanged Friday, a day after major energy consumers said they would dip into strategic oil reserves.
But Brent crude, the European benchmark, tumbled to its lowest level since February, amid expectations that the decision to tap emergency stockpiles would ease the supply shortage in Europe caused by the loss of Libyan exports. Light, sweet crude for August delivery settled up 14 cents, or 0.2%, at $91.16 a barrel on the New York Mercantile Exchange.
Brent crude on the ICE futures exchange settled down $2.14, or 2%, to $105.12, its lowest settlement since Feb. 18. Gold futures settled a breath above $1,500 as fresh concerns about Europe triggered steep declines in equities and commodities and forced some traders to sell the safe-haven asset to meet margin calls.
The most actively traded contract, for August delivery, settled down $19.60, or 1.3%, at $1,500.90 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract touched a low of $1,498.50 during the session and ended at the lowest settlement price in over a month.
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