S&P 500 and Nasdaq Drop 1.6%; Oil Nears $100, Gold at 31-Year High

Bikram Pandey
01 Mar, 2011
New York City

U.S. stocks dropped, oil rallied and gold closed at 31-year high as investors feared higher oil price impact may impact the economic recovery. Investors largely ignored Fed chairman comments that higher commodity prices have temporary impact on the economy. SEC charges ex-director of Goldman Sachs.

[R]4:00 PM New York – U.S. stocks dropped, oil rallied and gold closed at 31-year high as investors feared longer the oil stays higher the deeper its impact will be on the economic recovery. Investors largely ignored Fed chairman comments that higher commodity prices have temporary impact on the economy. Goldman Sachs declined after its former director was charged by the SEC.[/R]

U.S. indexes traded lower and Fed Chairman Bernanke said inflation pick up is temporary and is driven by high commodities prices but is not expected to lift prices in the broader economy.

His prepared comments for U.S. Senate Banking Committee’s semi-annual review also suggested that bond buying program will remain in place and reiterated that rates are likely to stay low.

He also noted that economic recovery is at a risk of oil price rise for a prolonged period of time and suggested that economy is recovering but not fast enough to lower the 9% unemployment quickly.

In addition, manufacturing index also showed a healthy gain in February. According to the latest factory index reported by Institute for Supply Management rose to 61.4 from 60.8 in January.

U.S. construction spending declined in January at 0.7% annual rate to $791.8 billion and private construction spending fell 1.2% from December but homebuilding increased 5.3% and home improvement rose 11%, according to the latest by the Commerce Department.

Construction spending annual rate is near its 10-year low.

Health Care REIT agreed to buy real estate assets of Genesis for $2.4 billion. Range Resources sold Barnett Shale Assets for $900 million. Japan-based Daiichi Sankyo purchased Plexxikon for $805 million.

Goldman Sachs Group Inc said in a regulatory filing that it made $100 million or more on days in 2010 down from 131 days in the previous years and lost money in 25 days compared to record low 19 days in 2009.

AutoZone second quarter net income increased 20% to $148.06 million. Bank of Montreal first quarter net income rose to $776 million. Domino’s quarterly net income surged 5% to $24.17 million. Sotheby's fourth quarter net income rose 31% to $96.2 million.

The Bank of Canada left its key lending rate at 1%, where it has been since September but the central bank noted that economic recovery is “slightly faster” than estimated.

The European indexes traded higher after euro-zone and German manufacturing expanded in February and German jobless rate fell. Swedish GDP rose more than estimated and Hungarian producer price index eased in January. Nestle and two France based companies are in the race to acquire Yoplait stake.

The UK indexes traded sideways after home prices and mortgage approvals rose and Irish manufacturing activity improved in February. Barclays agreed to acquire Egg’s UK credit card assets. Xchanging swings to loss.

Stocks in Japan closed higher for the second day as foreign investors see low risk of sharp rise in inflation. The benchmark Nikkei index added 2.9% in the 2-day rally and export sensitive stocks led gainers. Automakers Toyota, Honda and Nissan gained. Dentsu jumped 5% after it was appointed to represent Facebook in Japan.

Stocks in China gained after manufacturing index declined to a six-month low and fell for the third month in a row. Poly Real Estate Group rose after 2010 net rose 40%. HSBC Holdings declined 5% after it lowered target rate of return on equity. Trading volume on mainland Chinese exchanges soared more than 20%.

Stocks in Mumbai gained a day after budget that estimated narrower deficit and auto sales soared in February. A private survey indicated manufacturing expanded at a faster pace in the month. Exports in January soared 29% and the government lifted its exports target to $225 billion.

Australian stocks and dollar closed nearly unchanged after the Reserve Bank of Australia left rates on hold and cited rising wage pressures. Current account deficit in the quarter to December widened to $7.3 billion and retail sales in January rose 0.4%.

Commodities, Bonds and Currencies

Yield on 10-year bond decreased to 3.40% and on 30-year bond fell to 4.49%.

The U.S. dollar increased to $1.382 to a euro and fell against the Japanese yen to 81.98 yen.

Immediate delivery futures of Texas crude oil increased $2.80 to $99.77 a barrel, for natural gas fell 0.16 cents to $3.84 per mbtu and gasoline prices increased 9.38 cents to 298.65 cents a gallon.

In metals trading, copper prices decreased 2.00 cents to $4.47 per pound, gold increased $21.70 to $1,431.60 per ounce and silver rose $0.78 to $34.60.