Euro Weakens, Oil and Gold Extend Losses; Greece in Focus

Bikram Pandey
16 May, 2012
New York City

U.S. markets wavered and the latest Fed statement showed no appetite for another stimulus plan. European markets watched Greek developments as the ECB president urged Greek leaders to stick to austerity plans and asked Greek banks to recapitalize. The euro slid and oil and precious metals weakened.

[R]4:25 PM New York – U.S. markets turned lower in the afternoon and the latest Fed statement showed no appetite for another stimulus plan. European markets watched Greek developments as the ECB president urged Greek leaders to stick to austerity plans and asked Greek banks to recapitalize. The euro slid and oil and precious metals weakened.[/R]

U.S. stocks wavered and markets in Europe closed lower as central banks on sides of Atlantic issued statements to calm markets. However, the euro continued its slide as Greece heads for its second parliamentary election in as many months.

Federal Reserve in its latest minutes of meeting indicated firmness in its approach and showed no plan to provide additional stimulus to the economy or waver from its commitment to negative interest rates held for several years. However, more committee members showed willingness for stimulus discussion if growth falters of global markets face a sharp decline.

ECB President Mario Draghi also increased pressured on Greek leaders to stay in the euro zone but also highlighted to the limits of the willingness of the central bank. The bank also said it has stopped working with some undercapitalized banks but left open access to the emergency funding window at slightly higher interest cost. Much of Greek banks have been funding their operation with the access to this short term loans as more Greeks withdraw money from the banking system.

Yesterday, Greek President cited data from the Greek central bank and said 700 million euros have left banks on Monday alone and additional 100 million euros are likely to leave before the next election.

Greek central bank said approximately $4 billion have left banking system every month in the years 2010 and 2011 and in the first quarter of 2012 and $6.5 billion were withdrawn last month alone.

President worked for the sixth time in a failed bid to form a unity government. Greeks are expected to vote again on June 17 but no official date has been announced so far.

In New York trading, U.S. indexes traded sideways after housing starts rose in April but the housing market continues to bump along near the bottom as home sales remain weak but apartment constructions are showing some life.

In merger news, GE agreed to acquire Australia-based Industrea in a deal valued at approximately A$700 million and Fairchild International in support of the global expansion of its mining business.

In earnings news, Deere & Co. second quarter net soared 17% to $1.06 billion. J. C. Penney first quarter net swung to $163 million loss. Staples first quarter net slipped 6% to $187 million and Target first quarter net rose 1.2% to $697 million and raised the outlook.

Across the Atlantic, the European indexes edged lower as the euro dropped to the low of the year against the dollar and Greece heads for another election in June. Central Bank heads of Belgium and Ireland said the euro zone can handle the departure of Greece from the currency union. However public admission of the breakup of the euro zone by central bankers drew attention from investors.

Euro area annual inflation eased and jobless claims in the UK fell unexpectedly in April. EADS lifted full year earnings outlook.

Nikkei index in Japan dropped below 8,800 for the first time in two months on the growing worries in the euro zone and more outflows from international funds.

In India, the rupee hit to all time low of 54.44 against one dollar as fears of the euro zone drive currencies in the emerging markets to new lows in the year. Currencies in Russia, South Africa and Brazil also weakened.

Australian stocks plunged as the index dropped the most in one day in six months and extended losses in the last two months. The dollar fell to the low of the year. BHP Chairman Jacque Nasser estimated commodities prices are expected fall further and the company may revise its 5-year investment plan of $80 billion.

Commodities, Bonds and Currencies

The yields on 10-year U.S. bond decreased to 1.76% and 30-year U.S. bond edged higher to 2.92%.

The U.S. dollar edged up to $1.272 to one euro and eased against the Japanese yen to 80.27 yen in New York trading.

Immediate delivery futures of Texas crude oil decreased $1.16 to $92.83 a barrel and Brent crude futures increased $1.83 to $109.51. Futures of natural gas increased 0.12 cents to $2.64 per mbtu and gasoline price eased 2.91 cents to 291.32 cents a gallon.

In metals trading, copper eased 4.4 cents to $3.41 per pound, gold fell $16.20 to $1,540.90 per ounce and silver decreased 94 cents to $27.14.