U.S. Stocks Fall; Copper Drops, Dollar Jumps

123jump.com Staff
21 Oct, 2008
New York City

Stocks in U.S. fell on the weak earnings outlook from several industrial companies. Investors, focused on economic conditions overlooked a drop in overnight lending rates between banks below charged by the Fed. The dollar rose to a 20-month high. Argentina may nationalize pension funds.

4:30PM New York, 10:30AM Frankfurt, 6:30AM Sydney[R]– Weak earnings outlook from Textron, Terex, Western Union and DuPont dragged market indexes lower. Dollar rose to 20-month high. Canada lowered rates for the second time this month.[/R]

Global Markets

Copper and crude oil prices fell sharply dragging stocks lower. Investors are focused on the current weakness in the economy and overlooked a decline in interbank lending. Overnight rates fell below the Fed rates. Canada lowered its rate for the second time this year and indicated that the economy may just avoid a recession. Exports from Germany and China are weak and China recorded its weakest quarterly economic growth rate.

The Fed provided additional facility of $540 billion, this time to support the money market mutual funds. In the last five weeks the funds have seen withdrawals of $500 billion as crisis of confidence spreads to short term lending or commercial paper market.

The Bank of Canada lowered its key lending rate 25 basis points to 2.25% for overnight lending. The second cut in rate this month follows the previous rate cut of 50 basis points on October 8. The central bank also lowered the economic growth rate to 0.6% for this and next year but not a recession.

The Bank of England Governor Mervyn King said that the UK is likely to enter into a recession for the first time in 16 years, house prices will decline further and pound will trade lower and government will take action to prevent recession from spreading wider.

Western Union, the money transfer service provider plunged after it tightened its earnings guidance. The company did not back its long term earnings goals. ManPower, the employee staffing service provider dropped 10% after it reported a quarterly loss.

The U.S. dollar rose to a high last seen in February of 2007 as it rose against pound, yen, euro and most currencies in Latin America. The dollar rose 2.2% to 1.305 euro and against a pound to $1.67. The global economic slowdown has led to a retrenchment in worldwide financial markets and currencies.

Latin American currencies fell across the region as dollar regained its upward momentum. Brazil real dropped as much as 6.3%, peso in Chile fell 2.4%, in Colombia declined 2.3%, in Mexico slumped 2.4%, sol in Peru declined 0.5% and bolivar in Venezuela dropped 1% as the U.S. earnings confirmed the weakening economy.

North American Markets

Dow Jones Industrial Average dropped 231.77 or 2.50% to a close of 9,033.66, S&P 500 Index closed down 30.35 or 3.08% to 955.05, and Nasdaq Composite Index decreased 73.35 or 4.2% to close at 1,696.68. In Toronto, TSX Composite Index fell 455.60 or 4.4% to 9,795.80.

Of the 30 stocks in Dow Jones Industrial Average 4 closed higher, 25 declined and 1 was unchanged.

DuPont led decliners in the Dow Jones Industrial Average with a loss of 8% followed by losses in Hewlett Packard of 7.2%, in Citigroup of 6%, in Microsoft Corp of 5.5%, in Caterpillar Inc of 5% and in Intel of 4.9%.

American Express led gainers in the index with a rise of 8.4% followed by increases in 3M Company of 4.4%, in General Electric of 1.1% and in General Motors of 0.2%.

Of the stocks in S&P 500 index, 67 increased, 428 declined and 5 were unchanged. Of the index stocks, 14 rose more than 3% and 282 fell more than 3%. And 15 declined more than 10%.

Terex Corp led decliners in the S&P 500 index with a fall of 18% followed by losses in Western Union of 17.8%, in Sun Microsystems of 17%, in Textron Inc of 14.8%, in Prologis of 13.6% and in General Growth Properties of 13.4%.

KeyCorp led the gainers in the S&P 500 index with a surge of 12.4% followed by gains in Coach Inc of 9.3%, in American Express of 8.4%, in Sprint Nextel of 7.6%, in Regions Financial of 6%, in Quest Diagnostic of 5.5% and in Huntington Bancorp of 5%.

South American Markets Indexes

Argentina led decliners in the region with a plunge of 11% ahead of President Kirchner plan to nationalize its pension system released after the close of markets. The pension funds control $30 billion and have been net buyers in the stock market. In the region, Peru fell 3.2% followed by losses in Mexico of 2.8%, in Brazil of 1%, in Mexico of 0.5%, in Colombia of 0.4% and in Chile of 0.2%.

Currencies in the region fell sharply. Real in Brazil lost as much as 6% before recovering to close down 4.5% to 2.24 real to a dollar. Argentine peso was down 0.1% to 3.22 to a dollar, Colombian peso fell 2.2% to 2,299 and peso in Chile fell 2.4% to 627.91.

Europe Markets Review

In London FTSE 100 Index closed lower 52.94 or 1.24% to 4,229.73, in Paris CAC 40 Index increased 26.89 or 0.78% to close at 3,475.40 and in Frankfurt DAX index lower 50.60 or 1.05% to close at 4,784.41. In Zurich trading SMI decreased 30.98 or 0.50% to close at 6,185.48.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 300.66 or 3.34% to 9,306.25, Hang Seng index in Hong Kong decreased 281.84 or 1.84% closed to 15,041.17. CSI 300 index in China lower 15.33 or 0.81% closed to 1,881.41. ASX 200 index in Australia increased 160.20 or 3.87% to close 4,302.50. The KL Composite index in Malaysia higher 8.65 or 0.95% closed to 918.16.

The Kospi Index in South Korea decreased 11.53 or 0.95% to close at 1,196.10. SET index in Thailand closed higher 1.84 or 0.39% to 478.79, and JSE Index in Indonesia increased 13.21 or 0.93% to 1,440.15. The Sensex index in India increased 460.30 or 4.50% closed to 10,683.39.

Commodities, Metals, and Currencies

Crude oil decreased $3.03 to close at $71.36 a barrel for a front month contract, natural gas increased 12 cent to $6.86 per mBtu and gasoline futures decreased 4.2 cents to close at 167.00 cents per gallon.

Wheat futures closed down 14.5 cents in Chicago trading and closed at $5.49 a bushel. Sugar decreased 0.26 cent to 11.24 cents a pound. Soybean future closed down 25.00 cents to $9.15 a bushel.

Gold decreased $16.80 in New York trading to close at $773.20 per ounce, silver closed up 38 cents to $10.07 per ounce and copper for the front month delivery decreased 8.65 cent to $2.030 per pound.

Dollar edged higher against euro to $1.3062 and dropped against yen to 100.27.

Yields on 10-year U.S. bonds decreased to 3.72% and with 30-year maturities decreased to 4.21%.