U.S. Stocks Turn Lower, Republicans Feel Debt Talks Stress

Bikram Pandey
14 Jul, 2011
New York City

U.S. indexes retreated after Fed Chairman Ben Bernanke clarified no immediate plan of economic stimulus on the second day of his testimony. President Barack Obama and Republican lawmakers attempt last minute talks to avert government shutdown as August 2 deadline looms.

[R]6:00 PM New York – U.S. indexes retreated after Fed Chairman Ben Bernanke clarified no immediate plan of economic stimulus on the second day of his testimony. President Barack Obama and Republican lawmakers attempt last minute talks to avert government shutdown as August 2 deadline looms.[/R]

U.S. indexes turned lower after Fed Chairman Ben Bernanke clarified that the Fed has no plan to offer any economic stimulus “at this point.” The euphoric market on Wednesday advanced and began to raise expectations for third economic stimulus.

In the economic news, weekly jobless claims fell 22,000, retail sales rose 0.1% and producer prices slid 0.4% in June. U.S. business inventories rose more than estimated in May.

President Barack Obama gave till tomorrow to find a compromise on spending cuts and a lower deficit plan or settle for a way to raise debt ceiling of $14.3 trillion. The final deadline raised the tensions and sharpened the focus as lawmakers stay far apart in spending cuts and tax revisions for the wealthy.

The stakes were raised after the rating agency Moody’s placed the U.S. debt rating on watch with negative implications if lawmakers fail to negotiate a way to increase debt ceiling. The last time the rating agency placed the U.S. debt on a watch list was in 1995.

On the earnings front, JPMorgan net rose 13% on significantly lower provision for credit losses. Marriott declined after it offered a cautious 2011 outlook and ConocoPhillips rose more than 1.6% after it decided to split its refining and energy exploration businesses.

Nexen second quarter net increased to $252 million. YUM! Brands second quarter net increased 10% to $316 million.

European indexes traded lower after a rating agency downgraded Greece but Italy managed to sell 5-year bond at higher yield of 4.93%.

Lafarge agreed to sell gypsum assets to Belgian Etex for €1 billion.

Euro-zone inflation remained stable at 2.7% but Italian inflation rose in June. Dutch retail sales eased and Spanish leading index was flat in May. The economic growth forecast of Finland for fiscal year 2010 was revised up to 3.6%.

The UK indexes traded lower on global economic concerns. The Irish Finance Minister Michael Noonan said that Ireland has successfully met the targets set out by the EU and the IMF. Irish annual inflation remained steady in June.

Stocks in Japan headed lower and the yen traded volatile after the U.S. debt was placed under a review at a rating agency. The yen rose to a 4-month high of 78.40 against one dollar. Shipping companies led the decliners after the freight rate index fell for the fourth day in a row.

Stocks in Mumbai closed fractionally higher a day after three bomb blasts killed at 21 people and injured more than 40.

The financial capital of India has been under siege for more than two decades by various terrorist and criminal groups that are trained or financed by retired military or intelligence officers in Pakistan. The last attack in 2008 killed more than 160 people and the attack planners and financiers based in Pakistan are still not brought to justice.

Australian stocks closed lower but resources linked stocks advanced. News Corp was forced to drop its bid to acquire UK based BSkyB after lawmakers united against its bid. The company is also likely to face more investigation in the U.S.

Peabody Energy revised its bid for Macarthur Coal and initiated the due diligence process on the condition of an offer of at least $15.50 a share.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 3.125% and 30-year U.S. bond traded up to 4.375%.

The U.S. dollar decreased at $1.413 to one euro and rose against the Japanese yen to 79.15 yen.

Immediate delivery futures of Texas crude oil decreased $2.30 to $95.75 a barrel and futures of natural gas decreased 0.01 cents to $4.39 per mbtu and gasoline price fell 3.54 cents to 311.62 cents a gallon.

In metals trading, copper decreased 1.6 cents to $4.38 per pound, gold decreased $0.40 to $1,585.10 per ounce and silver increased $0.28 to $38.44.