World Market Overview 07/13/2011
US Markets
U.S. stocks closed lower Tuesday as continued sovereign-debt worries, fueled by a rating agency's downgrade of Ireland, overshadowed hints that the Federal Reserve may consider additional stimulus. The Dow Jones Industrial Average closed down 58.88 points, or 0.47%, at 12446.88, led lower by Boeing, which fell $1.42, or 1.9%, to 71.93. Investors pushed stocks lower in the final hour of trading after Moody's Investor Services downgraded Ireland's credit rating to junk territory.
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The Standard & Poor's 500-stock index dropped 5.85 points, or 0.44%, to 1313.64, as industrial and technology stocks lagged. The technology-oriented Nasdaq Composite fell 20.71 points, or 0.74%, to 2781.91. Traders said the reaction to the Moody's downgrade of Ireland was another reminder that this continues to be a headline-driven market. The Moody's downgrade erased the fleeting optimism that emerged after the minutes of the Federal Open Market Committee meeting were released.
Dow industrials wavered between positive and negative territory for much of Tuesday's session. The trading was more volatile in the afternoon after the Fed minutes were released. The Dow jumped as much as 65 points. But the optimism didn't last long and Moody's downgrade prompted the big reversal.
European Markets
European stock markets ended lower Tuesday as fears over the spread of the sovereign-debt crisis continued to drive selling, though a relatively successful Italian debt auction helped put a floor under losses. The broader losses came after European officials failed to convince investors they could halt contagion in sovereign-debt markets. Euro-zone finance ministers said late Monday that they were ready to adopt further measures to prevent the crisis from spreading, but didn't take any direct action.
Analysts at Bank of America Merrill Lynch also issued a stark warning over the mounting pressure on Italy, saying the size of the Italian bond market means that further deterioration could be a threat to the global economic recovery. The Stoxx Europe 600 index dropped 0.6% to close at 268.16, adding to Monday's 1.4% fall. However, the index pared losses of as much as 2.7% after Italy's Treasury said it had sold EUR6.75 billion of 12-month bills. The average interest rate on the debt rose 1.5 percentage points from a similar sale just last month, but demand was almost unchanged. Relief over the sale helped lift shares in Italian banks, which have been hammered in recent sessions.
UniCredit SpA rose nearly 6% and Intesa Sanpaolo SpA gained 3.3%. Those gains also followed unconfirmed reports that the European Central Bank had bought Italian and Spanish government bonds. An ECB spokesman had no comment on the rumors. Italy's FTSE MIB index rose 1.2% to 18,510.5, while Spain's IBEX 35 index dropped 0.7% to 9,603.40. Banking and insurance stocks were lower across most of the rest of Europe.
Deutsche Bank AG dropped 1% in Frankfurt, where the DAX 30 index fell 0.8% to settle at 7,174.14. National Bank of Greece erased a loss to rise 1.6% as the ASE Composite slipped 0.2% to 1,216.51. The index earlier Tuesday hit its lowest level since January 1997. The French CAC 40 index fell 0.9%, according to FactSet. Pricing of the index had been suspended for several hours due to technical problems at Euronext. The U.K.'s benchmark FTSE 100 index finished 1% lower at 5,868.96, with chip maker ARM Holdings PLC falling 4.9%.
Travel stocks also fell hard after U.K. mid-cap holiday company Thomas Cook Group PLC warned that its fiscal third-quarter results will miss expectations due to a bigger than expected impact from the unrest in the Middle East and North Africa. Its shares slumped 28% in London.
Asian Markets
Hong Kong and South Korean stocks tumbled to lead Asian markets lower Tuesday as fears about spreading European debt troubles rattled investors, hitting financial shares and exporters especially hard. Stock losses quickened in late afternoon trading in Asia, with Hong Kong and Indian markets losing more ground, following media reports quoting Dutch Finance Minister Jan Kees de Jager as saying a selective debt default in Greece was no longer excluded from the options under consideration.
Steep early losses for Italian stocks also unnerved investors. The Hang Seng Index fell 3.1% to 21663.16, its biggest one-day percentage drop since May 2010. The Shanghai Composite dropped 1.7% to 2754.58 and South Korea's Kospi fell 2.2% to 2109.73. Japan's Nikkei Stock Average ended the day 1.4% lower at 9926.54, Taiwan's Taiex declined 2% to 8491.01 and India's Sensex dropped 1.7% to 18411.62.
Financial stocks bore the brunt of the sell-off. In Tokyo, Shinsei Bank gave up 2.3% and Nomura Holdings lost 3.3%. In Hong Kong, heavyweight HSBC Holdings dropped 3% and Industrial & Commercial Bank of China sank 4%. Exporters in Japan and other markets were also among notable losers. Sony dropped 3% and Canon was off 1.8%, shrugging off a report that showed sentiment for Japanese manufacturers returning to positive territory for the first time since the massive earthquake in March.
Base Metals
Base metals recouped earlier losses to close higher on the London Metal Exchange Tuesday as the euro regained some ground against the dollar and previously bearish investors were forced to buy back short positions, or bets against the market. LME three-month copper traded 0.8% higher at $9,650 a metric ton, while lead was 2.1% higher at $2,732/ton.
Oil futures finished higher Tuesday after the Federal Reserve signaled it was considering another round of monetary stimulus measures, sending the dollar retreating. Light, sweet crude for August delivery settled up $2.28, or 2.4%, at $97.43 a barrel on the New York Mercantile Exchange, after spending much of the day in negative territory.
Brent crude on the ICE futures exchange was flat at $117.24 a barrel. Gold rallied to a record high in U.S. trading Tuesday as fears about Europe's sovereign-debt crisis spurred investment demand for a safe haven. It made further gains in after market trade as hints of further economic stimulus from the Federal Reserve reinvigorated investors.
The most actively traded contract, for August delivery, gained $13.10, or 0.9%, to settle at a record $1,562.30 a troy ounce on the Comex division of the New York Mercantile Exchange. This surpassed the previous settlement high May 2, though the contract has yet to best its all-time intraday high of $1,577.40. The front-month July delivery contract, which has had no trades, also hit a record settlement at $1,561.90 a troy ounce.
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