Record Low Mortgage Rates, Global Slowdown Worries Wall Street

Bikram Pandey
12 Jul, 2012
New York City

U.S. indexes struggled as investors feared that worldwide economic slowdown may dampen earnings of domestic companies. Infosys lowered its sales outlook. Grocery retailers dropped after SuperValu cut its dividend and plans to lower prices. Mortgage rates drop to a new low.

[R]4:00 PM New York – U.S. indexes struggled as investors feared that worldwide economic slowdown may dampen earnings of domestic companies. Infosys lowered its sales outlook. Grocery retailers dropped after SuperValu cut its dividend and plans to lower prices. Home builders advanced as mortgage rates drop to a new low.[/R]

U.S. indexes were under pressure after tech stocks and retailers dropped on the growing worries that the worldwide economic slowdown will catch up with the earnings of U.S. companies.

The mood on Wall Street soured after Infosys, the leading software services provider trimmed its sales outlook more than expected and electronic chip makers and technology companies weakened in the session. Home builders rallied on the hopes that the housing market may be on the mend.

Grocery retailers dropped sharply after SuperValu ((SVU)) plunged 47% after quarterly earnings plunged 45%. The operator of Albertson’s and other grocery chains said it plans to cut its dividend and lower prices at many locations and the retailer is looking to sell assets to cut its debt.

On the news, Kroger ((KR)) dropped 4% and Safeway Inc ((SWY)) plunged 10%. Separately, Sears Holdings plunged 5% after Cleveland Research in a note said in the second quarter sales at domestic stores are trending lower than expected.

On the earnings front, Chevron ((CVX)) lifted second quarter earnings outlook. Fastenal second quarter increased 19.3% to $112.3 million. Infosys ((INFY)) first quarter net rose 8.3% to $416 million. Marriott International ((MAR)) said second quarter net grew 6% to $143 million.

Home builder stocks gained after foreclosure filings fell in the first half by 11% to 1.04 million from a year ago six month period.

According to Freddie Mac, the average rate on the 30-year home loan fell to 3.56% from 3.62% last week, the lowest since the issuance of the longer date mortgages sixty years ago. The average rate on 15-year mortgage rate declined to 2.86% from the previous week’s record of 2.89%.

Separately, U.S. government said its budget deficit widened in June 38.7% to $59.7 billion from a $43.1 billion a year ago month. Revenues in the month increased 4.2% to $260.2 billion and expenditures jumped 9.3% to $319.9 billion.

The deficit increased after July social security payments were shipped in the month of June due to the July 4 holiday.

In the first nine months of the fiscal year that started in October, the deficit narrowed to $904.2 billion from $970.5 billion in the same period a year ago.

The European indexes declined after latest statement from the ECB highlighted downside risks and the European industrial production rebounded unexpectedly. Italy sold €7.5 billion of debt at lower yields. Peugeot estimated loss in the first-half. Greek jobless rate rose to a record in April.

Greek jobless rate rose to a record high in April. German wholesale price inflation eased but French annual inflation remained unchanged in June. Industrial production in the euro area improved and Dutch exports soared in May.

The UK indexes slumped after home purchase loans rose in May. Irish economy shrunk in the first quarter and inflation eased in June. Aegis agreed to be acquired by Dentsu for £3.2 billion. Rolls-Royce won $630 million contract from Brazil-based Synergy Aerospace.

Stocks in Tokyo traded lower for the sixth day in a row after the central bank held its asset purchase and lending program and offered less than expected aggressive response to revive the economy. The yen traded volatile. Asahi Glass plunged after it lowered its fiscal year operating earnings outlook.

Australian indexes turned lower for the sixth day in a row after local employers cut 22,700 jobs in June and unemployment increased to 5.2%. The dollar edged lower ahead of GDP data from China tomorrow.

Commodities, Bonds and Currencies

The yield on 10-year bond traded flat at 1.49% and on 30-year bond fell to 2.58%.

The U.S. dollar inched lower to $1.219 to a euro and decreased against the Japanese yen to 79.31 yen.

Immediate delivery futures of Texas crude oil decreased 81 cents to $85.02 a barrel and Brent crude fell 51 cents to $99.72, futures of natural gas gained 0.01 cents to $2.86 per mbtu and gasoline price increased 0.57 cents to 277.46 cents a gallon.

In metals trading, copper decreased 3.2 cents to $3.41 per pound, gold decreased $13.30 to $1,562.40 per ounce and silver decreased 4 cents to $27.06.