U.S. Indexes Higher on the Prospect of EU Plans

Bikram Pandey
06 Dec, 2011
New York City

U.S. and European markets traded sideways and metals declined. U.S. indexes followed weak European and Asian markets after a rating agency placed 15 euro zone nations on a rating watch. An independent panel said management at Olympus hid losses of $1.5 billion.

[R]4:00 PM New York – U.S. and European markets traded sideways and metals declined. U.S. indexes followed weak European and Asian markets after a rating agency placed 15 euro zone nations on a rating watch. An independent panel said management at Olympus hid losses of $1.5 billion.[/R]

The U.S. indexes struggled as European leaders make more pronouncements ahead of a two-day summit later in the week. The market worries after a rating agency warned that it may downgrade debt ratings of 15 euro-zone nations, including France and Germany.

The euro zone debt contagion worries are beginning to spillover in Asia and the Asian Development Bank lowered the growth rate in East Asia to 7.2% from the previous estimate of 7.5%.

In addition, Australian central bank also lowered its benchmark rate by 25 basis points to 4.25% largely to ease financing conditions in the event more troubles erupt in the euro zone. More rate cuts are expected in Asia.

In corporate news, 3M Company affirmed its 2011 earnings and anticipated better 2012 outlook and AutoZone said first quarter net increased 11% to $191 million. Clearwire plans to raise $300 million in a public offering and Toll Brothers fourth quarter net declined to $15 million.

European indexes edged lower after S&P placed sovereign ratings of 15 euro area nations on watch for potential downgrades. Political leaders in the region used the latest alert to spin their agenda as German finance minister urged other member nations to rally around tighter fiscal integration.

Yesterday, French President Nicolas Sarkozy and German Chancellor Angela called for stricter fiscal discipline among euro-zone members and offered a master plan ahead of the 2-day summit later in the week.

However, investors largely ignored the warning from the S&P that most deemed too late and lacking credibility. The rating agency today extended its warning to include the debt of the rescue fund that relies on the funding from Germany and France.

The rating agencies have come under fire after they ranked subprime mortgage loans in U.S. as investment grade and have lagged in downgrading the U.S. sovereign debt rating that does not reflect the economic realities and lack of political will to cut the largest sovereign debt in the world of $15 trillion.

Rating agencies were also lax in lowering the debt ratings of Greece, Spain, Portugal and Ireland. The International Monetary Fund approved €2.2 billion disbursement for Greece.

The euro area economy expanded an unrevised 0.2% in the third quarter. Germany''s factory orders soared and Czech retail sales improved in October. Switzerland''s consumer prices declined in November.

UK indexes traded flat and investors were cautious ahead of the 2-day summit in Europe. Home prices, retail sales and car registrations in the UK declined in November. BP accused Halliburton of destroying unfavorable results from tests on cement used to plug the well in the Gulf of Mexico.

Stocks and indexes in Tokyo trading fell on the worries that the euro zone summit at the end of the week may not produce intended results. Meiji, the maker of powdered milk recalled 40,000 cans after a radioactive contamination scare.

A third-party panel said Olympus avoided declaring losses as much as $1.5 billion and said that there was no evidence of embezzlement or the organized crime involvement. The company is still under scrutiny from regulators in Japan, UK and the U.S. and police investigation in Tokyo and the U.S. Federal Bureau of Investigation.

Australian stocks declined after Reserve Bank lowered its benchmark rate 25 basis points to 4.25%. The second rate cut in as many months also raised worries that the growing debt contagion in the euro zone may affect Australia. Santos Limited began its gas processing plant in Western Australia that will increase the gas output by 20% in the region.

Commodities, Bonds and Currencies

U.S. bonds yield on 10-year U.S. bond closed up to 2.08% and 30-year bond increased to 3.08%.

The U.S. dollar rose 0.1% at $1.338 to one euro and closed lower against the Japanese yen to 77.73.

Immediate delivery futures of Texas crude oil increased $0.13 to $101.20 a barrel and futures of natural gas increased 1 cent to $3.47 per mbtu and gasoline prices increased 2.77 cents to 264.14 cents a gallon.

In metals trading, copper decreased 4.6 cents to $3.57 per pound, gold fell $6.20 to $1,728.30 per ounce and silver rose $0.34 to $32.72.