World Focus on U.S. Debt Talks, Euro-zone Contagion

Bikram Pandey
12 Jul, 2011
New York City

U.S. indexes rebounded in the late afternoon after the release of the Fed minutes of meeting held last month as minority prefers additional stimulus. Electronic chip makers declined after Novellus provided cautious outlook. Cisco gained more than 2% after the company plans to cut 14% of its staff.

[R]4:00 PM New York – U.S. indexes struggled after the release of the Fed minutes of meeting held last month as minority prefers additional stimulus. Electronic chip makers declined after Novellus provided cautious outlook. Cisco gained more than 2% after the company plans to cut 14% of its staff.[/R]

U.S. indexes traded sideways as Italy was added to a long list of worries. Stocks staged a rally in final hour but settled lower after the release of Fed’s minutes of meeting last month. The meeting noted that the Fed is prepared to consider additional stimulus measures if economic growth remains anemic.

However, the news in Europe was all focused on Italy, Spain and Greece.

European ministers and regulators agreed to offer more flexible loan terms, longer maturities and cheaper loans to Greece to prevent the widening of debt contagion to Italy and Spain. However, ministers could not resolve the how private lender participation in debt restructuring.

In the U.S., Republicans and Democrats haggled with the U.S. President Barack Obama to lower deficit, raise debt limit and taxes for wealthy.

The on-again-off-again talks have been stalled as the Republican demand cuts in social spending but preserve military waste and lower taxes for wealthy. Democrats prefer to preserve social spending as unemployment hovers near 9%.

In economic news, the U.S. trade deficit widened to $50.2 billion in May as oil price rose in the month.

In corporate news, NCR agreed to acquire Radiant Systems for $1.2 billion and Alcoa Inc kicked off earnings season with sales increase of 27% and net more than doubled in the quarter to June. Clean Energy said Chesapeake investing $150 million. Microchip expects first quarter net sales to be fell 1.5%.

European finance ministers failed to resolve the participation level of private lenders in the second Greek bailout after six hours meeting on Monday. Growing Italian debt fears dragged European indexes more than 2%. Italy completed short term debt sale at a sharply higher rate.

Inflation in the euro area eased and Czech jobless rate dipped in June. Greek import price inflation slackened and French deficit widened in May.

The UK indexes declined after home prices fell, annual total retail sales increased 1.5% and inflation dropped unexpectedly to 4.2% in June. The UK leading index climbed in May. Thomas Cook plummeted 28% after bleak third quarter underlying operating profit outlook.

Stocks in Japan declined following the worldwide stocks and commodities selloff. Japanese investors are increasingly factoring a bailout of Spain and Italy in the next six months. Banks led the losers as trading and resource companies also dropped. The yen strengthened.

Australian markets followed world markets and declined 1.9% after the euro-zone debt contagion fears widened to Italy. The sudden shift in the sentiment unnerved world stock and commodities markets that saw major indexes decline near 2%.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 2.91% and 30-year U.S. bond traded fell to 4.19%.

The U.S. dollar increased at $1.4013 to one euro and fell against the Japanese yen to 79.50 yen.

Immediate delivery futures of Texas crude oil increased $2.15 to $97.30 a barrel and futures of natural gas increased 0.04 cents to $4.32 per mbtu and gasoline price gained 2.40 cents to 309.45 cents a gallon.

In metals trading, copper increased 3.3 cents to $4.40 per pound, gold soared $19.20 to $1,568.40 per ounce and silver increased $0.49 to $36.19.