U.S. Indexes Volatile; Economy to Weaken After Debt Deal

Bikram Pandey
01 Aug, 2011
New York City

U.S. indexes turned lower after U.S., Europe, China and India reported weak manufacturing reports. Market indexes opened higher on the expectations that the debt framework agreed by the White House and Congressional leaders will clear legislative bodies ahead of Aug 2 deadline.

[R]4:00 PM New York – U.S. indexes turned lower after U.S., Europe, China and India reported weak manufacturing reports. Market indexes opened higher on the expectations that the debt framework agreed by the White House and Congressional leaders will clear legislative bodies ahead of Aug 2 deadline.[/R]

U.S. indexes gained at the opening after the White House and the Congressional leaders agreed to raise the debt ceiling framework. The deal was a compromise that pushed the Democratic demand to raise taxes to 2013 and prioritized the spending cuts in two steps as demanded by the most extreme wing of the Republican Party.

Most investors were disappointed with the size of spending cuts and lack of new government revenues. The debt deal if passed, will certainly slowdown the economy and keep unemployment rate near or above 10% well into 2013.

After rising sharply at the opening, the Dow and the S&P indexes fell 1.2% on the weak manufacturing report. The U.S. manufacturing index dropped in July and showed nearly no growth in the month. Markets were also unnerved by the weak manufacturing data in Europe and Asia.

In merger news, First Niagara agreed to acquire 195 branches from HSBC subsidiary for $1 billion and in Europe the parent of the Airbus and defense contractor, EADS agreed to acquire Vizada for $960 million.

In the earnings news, Acorda reported second quarter net loss narrowed. CNA Financial second quarter net income fell to $126 million. Allstate reported second quarter net loss of $620 million. Humana second quarter net income increased 35.3% to $460.3 million. Loews second quarter net income decreased to $252 million.

European manufacturing activity fell in July. Euro area jobless rate remained flat at 9.9% and Italy jobless rate dipped in June to 8% and Danish retail sales fell.

The UK indexes rose after the U.S. lawmakers agreed on a broad framework of deficit cut that requires approval of two legislative bodies. Manufacturing activity in the UK declined in July. HSBC first-half net rose 36% and the firm planned to cut 30,000 jobs by the end of 2013.

Stocks in Japan closed higher on the hopes that the U.S. lawmakers will approve the debt framework agreed by the leaders of the Senate, the House and the White House. The yen hovered near its 4-month high and just shy of 5% from the record high in the last three decades. Exporters and electronics makers gained.

The Australian benchmark index rebounded from the lows of 11-month after the U.S. lawmakers agreed on a framework to cut spending and lift debt ceiling that may not cut unemployment and hut the economy more in the short term.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 2.80% and 30-year U.S. bond closed down at 4.14%.

The U.S. dollar increased at $1.426 to one euro and fell against the Japanese yen to 77.08 yen.

Immediate delivery futures of Texas crude oil decreased $0.49 to $95.21 a barrel and futures of natural gas increased 0.05 cents to $4.19 per mbtu and gasoline price increased 0.11 cents to 305.90 cents a gallon.

In metals trading, copper decreased 7.10 cents to $4.40 per pound, gold fell $8.60 to $1,622.60 per ounce and silver decreased $0.73 to $39.37.