U.S. Indexes Surrender Gains; IMF Lowers World Oulook

Bikram Pandey
17 Jun, 2011
New York City

U.S. stocks surrendered early gains after expectations of a resolution on Greek debt lifted sentiment in the morning. The IMF lowered the estimate of world economic growth to 4.3%, for U.S. to 2.5% and euro-zone to 2%. China and India are expected to grow at 9.6% and 8.2% respectively.

[R]4:15 PM New York – U.S. stocks surrendered early gains after expectations of a resolution on Greek debt lifted sentiment in the morning. The IMF lowered the estimate of world economic growth to 4.3%, for U.S. to 2.5% and euro-zone to 2%. China and India are expected to grow at 9.6% and 8.2% respectively.[/R]

U.S. stocks traded higher as Germany and France inch closer to a Greek bailout agreement. The agreement is likely to involve rescheduling of loans with longer maturities and seeks “full voluntary” participation by private lenders.

The hope of an agreement for Greek bailout revived sentiment in Europe and New York trading. Earlier talks of Greek contagion had lifted the cost of insuring Greek credit default swaps to the highest to $2 million a year for $10 million of bonds.

Separately, the International Monetary Fund lowered the world economic growth estimate down to 4.3% from previous estimate in April of 4.4%. The IMF also lowered the U.S. growth estimate to 2.5% from 2.8% and Japan estimate to a decline of 0.7% from 2.8%.

In addition, the index of leading economic indicators increased 0.8% in May after the revised gain of 0.4% in April from the preliminary estimate of 0.3% drop. The rise in consumer expectations and increase in housing permits and interest rate spread contributed positively to the index and supplier deliveries contributed negatively.

The U.S. consumer sentiment index declined in early June to 71.8 from 74.3 in May as tracked by the Thomson Reuters and University of Michigan. The preliminary reading is expected to be revised higher as crude oil prices declined in the recent weeks.

Euro zone is expected to grow at 2%, China at 9.6% and India at 8.2% in the current year. The multilateral agency also noted that progress on bank reforms was moving at an “insufficient pace” but budget reforms in advanced nations was progressing at a “broadly appropriate pace.”

Research in Motion dropped 18% after it estimated lower sales and earnings The weak outlook was driven a rise in competition from Google supported phones and Apple Inc.

Capital One agreed to acquire ING Direct for $9 billion.India based Tata Steel agreed to sell its entire stake in Australia listed Riversdale to Rio Tinto for $1.12 billion.

Euro-zone construction output declined and trade deficit widened in April. Europe new passenger car registrations increased in May. Spanish industrial orders and turnover growth rate slowed in April. Austria's central bank lifted its growth forecast for the year.

The UK indexes climbed on optimism for a resolution to the Greece sovereign debt crisis. ARM agreed to acquire U.S.-based Obsidian Software. CSR and Zoran agreed to revised terms for proposed merger. Vallares raised £1.35 billion in its initial public offering.

The Nikkei 225 Stock Average declined 1.7% in the week as political uncertainties dominated trading. The rising tensions in Greece and the euro-zone also contributed to market decline. Builders, exporters and banks led the decliners in Tokyo.

The European indexes traded higher after Greek Prime Minister George Papandreou reshuffled his cabinet. ING Groep sold ING Direct to U.S.-based Capital One for $9 billion. The euro area trade balance swung to deficit of €4.1 billion in April.

Commodities, Bonds and Currencies

The 10-year bond yield increased to 2.93% and 30-year bond traded up to 4.19%.

The U.S. dollar decreased to $1.435 to a euro and fell against the Japanese yen to 80.10 yen.

Immediate delivery futures of Texas crude oil decreased $1.90 to $93.05 a barrel and futures of natural gas fell 0.06 cents to $4.34 per mbtu and gasoline price fell 0.3 cents to 294.64 cents a gallon.

In metals trading, copper fell 1.4 cents to $4.12 per pound, gold gained $10.20 to $1,540.10 per ounce and silver increased $0.27 to $35.83.