World Markets Spin as Financial Contagion Reach to Spain

Bikram Pandey
29 May, 2012
New York City

Stocks in New York traded higher and the growing financial contagion spread to Spain dragging the euro to a 2-year low as investors seek the safety in currencies and increase the U.S. dollar exposure. Commodities traded volatile and gold fell.

[R]3:40 PM New York – Stocks in New York traded higher and the growing financial contagion spread to Spain dragging the euro to a 2-year low as investors seek the safety in currencies and increase the U.S. dollar exposure. Commodities traded volatile and gold fell.[/R]

U.S. indexes gained on the hopes that the U.S. economy will avert the slow moving crisis in the euro zone and put faith in the latest housing market data highlighting possible price stabilization in the highly priced properties.

Investors were surprised after consumer confidence index declined in May and April data was also lowered according to a private survey.

In deal making, bankers announced deals after a three day weekend in the U.S. and Japan-based Marubeni agreed to buy grain handler Gavilon for $3.6 billion.

Hostile investor Carl Icahn agreed to acquire 7.6% stake in Chesapeake and Colfax agreed to purchase Soldex S.A. valued at $235 million. FedEx is likely to make an offer to Brazil based transportation and logistics company Rapidão Cometa. Interline Brands acquired by GS Capital Partners LP for $1.1 billion. Teledyne agreed to acquire LeCroy in approx $291 million.

Bank of Nova Scotia second quarter net declined 10% to $1.46 billion.

The European indexes pared gains after Bank of Spain forecasted weakening economy and retail sales extended slump.

The weak economic outlook in Spain, falling home values and fear of financial contagion stemming from Greece has accelerated slow moving bank run in the recent weeks in the nation. Spanish bond yields spreads to German bunds soared above 5 percentage points as Spanish government yields reach unsustainable levels.

In addition, Italy sold €8.5 billion of Treasury bills at a higher borrowing costs and but bid-to-cover ratio at the auctions was weak compared to last three auctions. The European Financial Stability Facility disbursed €18 billion through bonds to the four largest banks in Greece.

The euro dropped below $1.25 against a dollar and traded at a two year low.

In European economic news, German import price index eased, Spanish retail sales slumped but Swiss consumption indicator rose in April. Swedish sentiment dropped in May and Norwegian jobless rate fell in March.

In London trading, the UK indexes advanced after retail sales at larger stores rose in May. BG Group agreed to sell Comgás stake to Brazil-based Cosan for $1.7 billion. Wolseley slumped 3.5% after quarterly revenues fell.

Stocks in Tokyo gained but pared earlier advances on domestic corporate and the euro zone export worries. Panasonic, Renesas and Sony were in focus after a multi-year rising competition from South Korean and Taiwanese companies force electronics maker in Japan to retreat.

Australian markets advanced but near the close struggled on the rising financial contagion worries in the euro zone. April new home sales in Australia surged 6.9% after dropping to the worst level in a decade in March.

Commodities, Bonds and Currencies

The yields on 10-year U.S. bond decreased to 1.72% and 30-year U.S. bond edged lower to 2.83%.

The U.S. dollar edged up to $1.2485 to one euro and gained against the Japanese yen to 79.53 in New York trading.

Immediate delivery futures of Texas crude oil decreased 22 cents to $90.64 a barrel and Brent crude futures fell 54 cents to $106.51. Futures of natural gas decreased 0.13 cents to $2.42 per mbtu and gasoline price increased 1.36 cents to 290.59 cents a gallon.

In metals trading, copper increased 1.05 cents to $3.45 per pound, gold decreased $17.00 to $1,554.20 per ounce and silver fell 59 cents to $27.76.