Afternoon Rebound Pares Market Losses, Strong Rebound in Auto Sales

Bikram Pandey
04 Sep, 2012
New York City

U.S. indexes reversed earlier losses on a rally in tech stocks. Construction spending fell and factory activities, orders and employment fell in August confirming worldwide slowdown. GM auto sales in August increase 10% and Toyota sales jump 46%.

[R]4:00 PM New York – U.S. indexes reversed earlier losses on a rally in tech stocks. Construction spending fell and factory activities, orders and employment fell in August confirming worldwide slowdown. GM auto sales in August increase 10% and Toyota sales jump 46%.[/R]

U.S. indexes accelerated the decline after disappointing manufacturing and construction spending data in early trading but a mid-day lift in Apple Inc’s stock lifted tech sector and erased losses in broader indexes.

The latest round of economic data from the U.S., euro zone, China and Australia signalled weakening global scenario. U.S. factory activities in August month decreased for the third month in a row and an index of new orders also declined.

Separately, construction spending declined 0.9% in the month from August after gaining for three months on increased home and apartment construction. Construction activity is up 11.8% from a 12-year low in February 2011.

Investors are expecting a central bank action as early as Thursday and political leaders met in Rome and Berlin today.

Mario Draghi, President of European Central Bank hinted that he is comfortable buying 3-year bond issued by member nations. The widely anticipated and expected action has kept the yields on Spanish and Italian bonds under control.

In merger news, Valeant agreed to acquire Medicis for $2.6 billion and Onex signed a deal to acquire SGS International for $813 million. Heckmann agreed to buy Power Fuels valued for $370 million.

Among earnings, Campbell Soup net jumped 27% and revised earnings outlook higher. Smithfield Foods net declined 25%. Apple Inc gained 1.3% after it sent out invitation to media organization for a meeting on September 12. Apple is widely expected to release a thinner body and larger screen phone.

U.S. auto sales in August are expected to hit 20% increase from a year ago. GM sales jumped 10%, sales at Ford rose 13% and Chrysler’s sales advanced 14%.

The pent-up demand is driving auto sales as consumers have held back replacing ageing vehicles since 2008. Annual unit sales rate is expected to reach 14.8 million.

Toyota unit sales soared 46%, Honda sales surged 60% and Volkswagen sales jumped 63%.

The European indexes edged lower after Moody's lowered the European Union’s debt rating outlook to negative but held its top rating. European leaders ramped up diplomacy as the three-year old crisis drags on. Andalusia is the fourth Spanish region seeking financial assistance from Madrid.

Spanish unemployment rose in August by 0.8% to 4.6 million as the nation struggles with a cut in government jobs. The Swiss economy contracted in the second quarter. Industrial producer prices gained in the euro area and Romanian retail sales rose in July.

The UK indexes slid after retail sales fell and construction contracted in August at the second fastest pace since snow storm in March 2010. Bottomline agreed to acquire Albany Software.

The Nikkei index in Tokyo traded lower for the fourth day in a row and tested a 4-week low. Japan Tobacco declined 4% after Russian ministry proposed a ban on smoking in public places. Toyota eased after sales in China declined 15%.

Australian markets were under pressure and closed down 0.5%. Reserve Bank of Australia left its key lending rate unchanged at 3.5% for the third month in a row. Fortescue Metals, the third largest iron ore miner joined its larger peers and deferred capital spending as the iron ore prices fall to a 3-year low.

Commodities, Bonds and Currencies

The yield on 10-year bond increased to 1.58% and on 30-year bond fell to 2.70%.

The U.S. dollar inched lower to $1.2579 to a euro and increased against the Japanese yen to 78.44 yen.

Immediate delivery futures of Texas crude oil decreased 94 cents to $95.53 a barrel and Brent crude decreased $1.34 to $114.40, futures of natural gas rose 0.05 cents to $2.85 per mbtu and gasoline price edged down $1.10 to 296.18 cents a gallon.

In metals trading, copper increased 1.80 cents to $3.47 per pound, gold soared $10.50 to $1,698.10 per ounce and silver added 94 cents to $32.85.