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Title: Stocks Retreat as Gloom Descends on Several Fronts
Source:
NYTIMES
URL Source: http://www.nytimes.com/2010/08/12/business/12markets.html?src=busln
Published: Aug 11, 2010
Author: CHRISTINE HAUSER
Post Date: 2010-08-11 15:48:57 by Brian S
Keywords: None
Views: 1492
Comments: 2
Shares on Wall Street retreated Wednesday in the wake of the announcement by the Fed that it would buy government debt and as new trade figures suggested a slowdown in growth in the United States. Equity indexes were down at least 2.3 percent in mid-afternoon trading in the first full day after the Fed said the recovery had slowed and that it had decided to recycle the proceeds of its mortgage-bond portfolio into Treasuries. In addition, investors were treated to some gloomy trade figures that caused the outlook for second-quarter growth to be revised lower. The country’s trade deficit unexpectedly widened 18.8 percent in June, as American exports slacked off. The deficit was much wider than expected as imports continued to surge, especially in automobiles and consumer goods. Nigel Gault, the chief United States economist for IHS Global Insight, said the deficit combined with other weak data suggested that second-quarter growth was only 1.2 percent, “placing the economy on even shakier ground than it seemed, and underlining why the Fed has shifted towards an easing bias.” The original government estimate was for 2.4 percent growth in the second quarter. But Mr. Gault said the trade deficit could improve in the coming months; imports may slow as consumer demand weakens. As stocks fell, the price of 10-year Treasury notes continued to rise. Yields reached lows not seen in more than a year. The 10-year yield was at 2.69 percent from 2.76 percent late Tuesday. In mid-afternoon, the Dow Jones industrial average was down 245.51 points, or 2.31 percent, while the broader Standard & Poor’s 500-stock index dropped 30.10 points, or 2.68 percent. The technology heavy Nasdaq fell 66.95 points, or 2.94 percent. The decline was broad-based, led by basic materials, band and industrial shares. More S.&P. sectors were down at least 2 percent. Stuart A. Schweitzer, global markets strategist at J.P. Morgan Private Bank, said that the trade figures and expected weaker growth made the slowdown look even more pronounced. “Uncertainty is very high,” Mr. Schweitzer said. “My view has been that with earnings season behind us, investors are depending on the macroeconomic data to point the way, and so far the data is not cooperating. Certainly not in the way we would all like to see.” “We all have to acknowledge that the risks to growth are rising,” he said. Traders also faced disappointing economic news on two other continents. In Europe, the Bank of England cut its forecast for growth in Britain because banks were slow to increase lending and the pace of a recovery in the United States and Europe remains uncertain. Britain’s central bank now forecasts growth to peak at an annual rate of 3 percent, less than the 3.6 percent it had predicted in May. It also said inflation would remain above the bank’s 2 percent target until the end of next year, longer than previously predicted In London, the FTSE 100 was down 131.20 points, or 2.4 percent, while the DAX in Frankfurt fell 132.18 points, or 2.1 percent. The CAC 40 in Paris was 102.29 points, or 2.7 percent, lower. In Asia, the latest news from China indicated that its economy was beginning to cool after a torrid pace in the first half of the year. The July indicators for industrial output, retail sales, fixed-asset investment and bank lending all provided a fairly consistent snapshot of a country where economic growth remains the strongest in the world, but where the nearly manic spending of the last few months is starting to fade. “It is just all adding up to a picture of a much more slowdown risk than people were hoping for,” Mr. Schweitzer. The dollar strengthened against the euro. But the dollar sank to a 15-year low against the yen on Wednesday, as the Federal Reserve’s pessimistic view of the American economy prompted investors to sell. The dollar, which has declined more than 10 percent against the yen in the last three months, dropped to 84.72 yen to the dollar on the Electronic Brokering Services trading platform late Wednesday — the lowest level since April 1995. The Nikkei index in Japan fell 2.7 percent. As the yen remains around 85 to the dollar, Japanese investors are expected to buy into Treasuries, Tom di Galoma, head of United States rates trading at Guggenheim Securities, wrote in a research note. “Surprisingly, so many didn’t anticipate the Fed re-establishing asset purchases and now the focus seems buying any dip,” he added. Tuesday’s decision by the Fed to begin buying at least $10 billion a month in new Treasury securities caught some traders off-guard. Acknowledging that the recovery has slowed, the Federal Reserve plans to use the proceeds from its huge mortgage-bond portfolio to buy long-term Treasury securities. Mr. di Galoma said the Federal Reserve’s decision to make the move during August indicates policy makers are more concerned than previously thought. “And there is certainly a lot of angst about when this recovery is going to take shape,” he said of the Fed officials who met on Tuesday. “They let that be known yesterday.” Joe Battipaglia, a market strategist with Stifel Nicolaus, said the Fed’s move did little to instill confidence in global equity markets. “It actually shakes confidence and raises questions about the future.” “What kind of economy do we have that requires more quantitative easing?” he said.
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#2. To: Brian S (#0)
3 years of Dem control.
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