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E.L. & C. Baillieu Morning Wrap; Hedge funds and banks moving out of oil futures

Friday, April 20, 2012

Stocks slumped overnight as a trio of disappointing economic readings outweighed better-than-expected earnings from Travelers and others.

Stocks slumped overnight as a trio of disappointing economic readings outweighed better-than-expected earnings from Travelers and others.

Author: E.L. & C. Baillieu Stockbroking - by Andrew Thain


HEADLINES

- Stocks slumped as a trio of disappointing economic readings outweighed better-than-expected earnings from Travelers and others.

- European stock markets ended in the red and Spain's 10-year government bond yield rose as concerns about the country's debt problems rumbled on.

- Hedge funds and banks are moving their investments out of oil futures in anticipation that the price of crude will taper off in the coming weeks, investors and analysts say.

- Gold's early rally waned, leaving prices to end marginally higher Thursday, as investors weighed disappointing U.S. employment data against the possibility of another round of monetary stimulus.


US MARKETS

Stocks slumped as a trio of disappointing economic readings outweighed better-than expected earnings from Travelers and others.

The Dow Jones Industrial Average declined 115 points, or 0.9%, to 12918 in late Thursday afternoon trading. The Standard Poor's 500-stock index shed 12 points, or 0.9%, to 1373, and the Nasdaq Composite ticked down 10 points, or 1% to 3001.

The information-technology and industrials sectors led the S&P 500 lower amid downbeat readings on domestic labor and housing markets and manufacturing activity in the mid-Atlantic region.

Travelers and Verizon Communications were the only two of the Dow's 30 components to advance after both reported first-quarter results that topped analysts' projections.

The number of Americans filing for unemployment benefits was higher than expected, a sign of lost momentum in the labor market. Mid-Atlantic manufacturers saw business conditions this month decline more than anticipated.

Sales of previously owned homes in the U.S. fell in March for the second consecutive month and missed expectations.

But the index of leading economic indicators in March posted the sixth increase in a row and edged out economists' forecasts.


EUROPEAN MARKETS

European stock markets ended in the red and Spain's 10-year government bond yield rose as concerns about the country's debt problems rumbled on.

In an auction that was seen as a critical test of foreign investors' willingness to buy Spanish debt, Madrid sold €2.54 billion ($3.3 billion) of two- and 10-year bonds, just above the upper end of the range the government had targeted, but the yield on the 10-year bond came in higher than at the previous auction. Spain's benchmark IBEX 35 finished 2.4% lower at 6908.10.

The Stoxx Europe 600 closed down 0.5% at 256.51. France's CAC 40 index closed 2.05% lower at 3174.02 and the German DAX ended down 0.9% at 6671.22. London's FTSE 100 fared significantly better than its peers, ending flat at 5744.55.


ASIAN MARKETS

Most Asian stocks fell, with the regional benchmark index retreating after yesterday rising the most in three weeks, as bad loans held by Spanish banks surged ahead of European bond sales today, damping investor confidence.

Indian shares rose for a fourth day Thursday, led by gains in HDFC Bank on strong quarterly results and as auto stocks climbed on hopes a recent interest-rate cut would boost vehicle sales.

However, the Bombay Stock Exchange's Sensitive Index rose 0.6% to 17,503.71, after trading between 17,361.71 and 17,530.30 through the day.

Hong Kong’s equity benchmark rose 1 percent as Chinese lenders gained after a report reserve ratios for mainland banks may be cut to stimulate the economy, according to Xinhua News Agency, which cited an unidentified People’s Bank of China official. The Shanghai Composite Index slid 0.2 percent.


AUSTRALIAN MARKETS

Shares closed at their highest level since August but were held back by another round of bad news on Europe and disappointing company earnings in the United States.

While the speculation on China buoyed Australian mining companies such as BHP Billiton and Rio Tinto, which gained 40¢ and 10¢ respectively, renewed concerns about Europe weighed on the market.

Flying the biggest red flag was Spain as its central bank warned that commercial banks would need another €29.1 billion ($36.9 billion) of extra provisions and €15.6 billion of core capital to counter the impact of bad loans, which rose to a fresh 17-year high of 8.2 per cent in February.

Telstra was one of the biggest movers by index points after saying it expected to generate up to $3Obillion in extra cash over the next three years as a result of its agreement with the federal government for the rollout of the national broadband network. Its shares gained 3¢ to close at $3.39.


OIL

Hedge funds and banks are moving their investments out of oil futures in anticipation that the price of crude will taper off in the coming weeks, investors and analysts say.

Brent crude prices rose 20% between early January and the beginning of March, touching $128.20 a barrel, the highest since the end of July 2008. But in March the growth stalled, and started heading lower in April. Brent was trading around $117 on Wednesday.


METALS

Gold's early rally waned, leaving prices to end marginally higher Thursday, as investors weighed disappointing U.S. employment data against the possibility of another round of monetary stimulus.

Gold for June delivery, the most-actively traded futures contract, settled $1.80, or 0.1%, higher at $1,641.40 a troy ounce on the Comex division of the New York Mercantile Exchange. Earlier in the session, gold had touched highs of $1,654.90 an ounce.

 

Andrew Thain can be contacted by email; CLICK HERE.

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