S&P 500 Index Drops 1.7%; Central Banks Lower Outlooks

Bikram Pandey
16 Nov, 2011
New York City

U.S. stocks accelerated the fall in the afternoon after crude oil surged more than 3% and narrowed the spread between two grades. The rising energy prices overshadowed the decline in inflation and a rise in production last month. Italy appointed new government but bond market stress reached France.

[R]4:20 PM New York – U.S. stocks accelerated the fall in the afternoon after crude oil surged more than 3% and narrowed the spread between two grades. The rising energy prices overshadowed the decline in inflation and a rise in production last month. Italy appointed new government but bond market stress reached France.[/R]

U.S. indexes turned lower as oil jumped 3% and central banks in Japan and UK lowered their economic outlooks.

In early trading in New York stocks struggled after a weakness in European trading and widening debt contagion on France and Holland. However, investors were optimistic after reported inflation in October showed a decline and industrial output increased.

In the late afternoon crude oil built on the early gains and added 3% to close above $1012 a barrel. Though the oil gained on the local demand and supply and Libya continued to produce adequate oil to supply in the world oil markets.

A key pipeline that connected supply from the fields in Oklahoma to Midwestern refineries will now be able to reverse the supply to the Gulf Coast refining region from the second quarter in 2012.

The reversal was agreed upon after ConocoPhillips decided to sell its stake in the pipeline to the Canada based Enbridge Inc and direct the crude to the refineries in the region which relies on imported crude.

The news narrowed the spread between the benchmark West Texas Intermediate and ICE Brent Crude to $10.25 a barrel, the narrowest since March.

Sovereign bond market yields in the euro zone rose as Italy appointed Mario Monti as the next prime minister and a cabinet of technocrats. However, earlier in trading Italian bond yields jumped above 7% before closing just below crucial level.

Several political analysts also noted that the new government in Italy has at least three candidates that are close to the banking industry which may be difficult to sell to voters.

Banks continued to trim workforce as volatile financial markets in Europe curb securities business. Citigroup, BNP Paribas and Bank of America and Credit Suisse announced jobs cuts of at least 6,000 in the last two days.

Stock in Europe declined as bond yields remained high. French bonds spread to German bund rose to a record high of 195 basis points and yielded 3.6% and Spanish bonds soared to 6.3%. UK jobless rate in third quarter increased to 8.3% and youth jobless rate surged to 21.9%, record since 1992.

The largest telecom and media group in Europe, Vivendi lowered its annual income outlook and blamed on the rising taxes. The company also said it will lower debt to no more than €13.5 billion on its balance sheet and halt new business acquisitions.

Japanese stocks declined and Bank of Japan left its key lending rate near zero and held its asset purchase program at $260 billion. Central bank also lowered its economic assessment and highlighted risks emerging from the euro zone and supply disruptions linked to Thai floods.

Stocks in Australia lost momentum in the afternoon on the rising worries in the euro zone. Seasonally adjusted wages in the quarter to September increased 0.7%. BHP Billiton approved the investment in the development of the largest open iron ore mine in Western Australia.

Commodities, Bonds and Currencies

U.S. bonds yield on 10-year U.S. bond closed down at 2.02% and 30-year bond decreased to 3.05%.

The U.S. dollar rose 0.2% at $1.351 to one euro and closed lower against the Japanese yen to 76.98.

Immediate delivery futures of Texas crude oil increased $3.01 to $102.38 a barrel and futures of natural gas decreased 5 cents to $3.35 per mbtu and gasoline prices increased 3.04 cents to 261.60 cents a gallon.

In metals trading, copper increased 0.50 cents to $3.53 per pound, gold fell $9.10 to $1,772.70 per ounce and silver decreased $0.53 to $33.92.