U.S. Stocks Drop 1.6%; German Debt Top Rating Reaffirmed

Bikram Pandey
25 Aug, 2011
New York City

U.S. indexes dropped 1.6% after weekly jobless claims rose and markets in Europe closed lower. Three rating agencies reaffirmed the AAA status of German debt and France, Spain and Italy extended ban on short selling banks. BofA soared more than 12% after Berkshire Hathaway agreed to $5 billion.

[R]4:05 PM New York – U.S. indexes dropped more than 1.6% after weekly jobless claims rose and markets in Europe closed lower. Three rating agencies reaffirmed the AAA status of German debt and France, Spain and Italy extended ban on short selling banks. Bank of America soared more than 12% after Berkshire Hathaway agreed to invest $5 billion.[/R]

U.S. indexes traded lower more than 1.6% and extended market roller coaster this week. The indexes gyrated this week with the release of every economic statistics and some investors held out the expectations of another economic stimulus on Friday.

Weekly jobless claims rose 5,000 to 417,000 at the end of last week.

In corporate news, SPX agreed to acquire CLYDEUNION Pumps for $1.15 billion. Renaissance Learning received $15.50 per share takeover offer from Plato Learning. Steve Jobs resigned as CEO of Apple that he co-founded and turned it the most valued U.S. company.

Bank of America stock surged 10% after Berkshire Hathaway Inc. announced the investment of $5 billion. The stock has been under pressure in the last three weeks on the persistent rumors that it may need as much as $200 billion. This week, the bank was forced to deny it needs more capital.

The conglomerate will buy 50,000 preferred shares at 6% dividend with a buyback clause at 5% premium and also get 700 million warrants at $7.14 strike price. With the deal, Buffett will become one of the largest shareholders of Bank of America.

In earnings news, Applied Materials third quarter net income soared to $476 million. Big Lots second quarter net income rose to $35.7 million. Guess second quarter net earnings fell 9% to $60.7 million. TiVo second quarter net loss widened to $19.5 million.

European indexes declined and at one point the DAX index dropped more than 4% in fifteen minutes of trading on rumors that Germany may lose its top debt rating. Fitch, Moody’s and S&P reaffirmed the AAA debt status for Germany but the indexes failed to recover the losses.

The French Prime Minister Francois Fillon unveiled a package of austerity measures that could save €12 billion. Credit Agricole and the retailer Ahold quarterly net declined.

German consumer sentiment forecasted to weaken in September. Spanish producer price inflation rose in July. Dutch producer sentiment decelerated, Swiss investor confidence slumped, and Iceland inflation remained flat in August. Swedish jobless rate and economic sentiment fell.

The UK indexes declined after retail sales fell in August. The UK and Switzerland agreement on taxes increase the reach of UK government. U.S.-based SPX agreed to acquire CLYDEUNION Pumps for £700 million. Diageo fiscal year earnings rose.

Stocks in Tokyo trading rebounded and the yen weakened a fraction. Exporters and trading companies gained. Energy and resource linked companies advanced as the oil firmed. Banks rebounded a day after Japanese government debt was lowered.

The Australian stocks traded higher after a barrage of earnings. Virgin Blue reported smaller than expected losses. Retailer Woolworths said annual earnings rose 5% on sales increase of 4.9%. Leighton appointed new chief executive and chairman.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield increased to 2.22% and 30-year U.S. bond traded fell to 3.59%.

The U.S. dollar increased at $1.4376 to one euro and closed lower against the Japanese yen to 77.57 yen.

Immediate delivery futures of Texas crude oil decreased $0.13 to $85.05 a barrel and futures of natural gas increased 0.01 cents to $3.94 per mbtu and gasoline price increased 8.61 cents to 296.5 cents a gallon.

In metals trading, copper increased 9.00 cents to $4.105 per pound, gold increased $12.20 to $1,769.50 per ounce and silver increased $1.91 to $41.12.