U.S. Indexes Decline 1% as Euro-zone Worries Spread to Italy

Bikram Pandey
24 Jun, 2011
New York City

Tech stocks led the decline in the U.S. indexes after Oracle and Micron earnings fell short of expectations. The broader indexes dropped 1% after the euro-zone debt worries spread to Italy as Greece struggles with austerity measures and asset privatization.

[R]4:00 PM New York – Tech stocks led the decline in the U.S. indexes after Oracle and Micron earnings fell short of expectations. The broader indexes dropped 1% after the euro-zone debt worries spread to Italy as Greece struggles with austerity measures and asset privatization.[/R]

U.S. indexes turned negative after weak tech stocks and renewed worries of wider debt contagion in Europe. The S&P 500 and the Nasdaq indexes declined nearly 1% after Oracle reported weak hardware sales and Micron sales and earnings were lower than expected.

The latest round of euro-zone worries were linked to Italy after a rating agency placed Italian sovereign debt on its watch list and today expanded to include a downgrade of several Italian banks.

Italy has been suffering from a slow growth and lack of productivity increase for two decades. The slow growth has become the central issue as the government debt has continued to rise and yields on its bonds have risen sharply in the last one year.

The ongoing worries of Greek default also pushed the yields on government bonds and spreads with the German bunds to near records for Portugal, Greece, Spain and Italy today. Italy is increasingly included in the list of troubled nations in the euro-zone as the region battles to contain the spread of debt contagion.

The weak news from the tech sector and the euro-zone overshadowed the increase in the first quarter GDP estimate and more than estimated durable goods orders in May.

In corporate news, Williams proposed to acquire Southern Union for $8.7 billion. Oracle net rose 36% to $3.2 billion on strong sales but hardware sales declined. Accenture third quarter net income increased 9.3% to $628 million. H&R Block fourth quarter net income slumped to $658.6 million.

However, European market indexes gained after European Union leaders agreed to extend more financial aid to Greece. NYSE Euronext and Deutsche Boerse settled shareholder lawsuits by paying dividends of $910 million. Rolls-Royce and Daimler secured 94% of Tognum shares.

Euro-zone leading economic index fell in May. German business sentiment improved and French consumer confidence remained flat in June. Hungarian retail sales dropped in April. Spanish producer price inflation eased in May.

The UK indexes rose on hopes of a resolution to the Greece debt crisis. The Bank of England Governor Mervyn King said that the euro-zone debt crisis poses a significant threat to the financial stability in the United Kingdom. Berkeley Group fiscal year 2011 sales and net advanced.

The benchmark index Nikkei registered 3.5% gain in the week, the largest weekly gain in the year. Stocks advanced to a 3-week high after Greece worries eased and oil fell. Retailers declined after Economy Minister Yosano strongly advocated the increase of consumption tax.

The Sensex index in Mumbai surged 2.9% to the high last seen on March 1 after oil price fell more than 4%, lowering the pressures on inflation. Software services companies also rallied after Tata Consultancy Services’ chief confirmed that the demand for outsourcing services is strong despite the weak economic conditions in the U.S. and Europe.

Australian stocks struggled after crude oil plunged more than 4%. The commodities markets also trended lower. BHP said it will invest nearly $500 million in its potash mining operation in Canada and its alumina refinery operation in Western Australia will cost significantly more.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 2.87% and 30-year U.S. bond traded down to 4.16%.

The U.S. dollar decreased to $1.418 to one euro and fell against the Japanese yen to 80.33 yen.

Immediate delivery futures of Texas crude oil increased $0.12 to $91.11 a barrel and futures of natural gas increased 0.05 cents to $4.24 per mbtu and gasoline price decreased 4.26 cents to 279.40 cents a gallon.

In metals trading, copper rose 4.7 cents to $4.10 per pound, gold dropped $20.70 to $1,499.80 per ounce and silver decreased $0.65 to $34.36.