Bernanke Cautions; World Markets Falter

123jump.com Staff
03 Jun, 2009
New York City

Fed Chairman urged the U.S. lawmakers to trim budget deficit and make hard choices. His plea is likely fall on deaf ears as U.S. faces historic budget deficit of $1.8 trillion. World markets rally of ten weeks appear to run out of steam after major indexes surge between 35% and 70%. Crude oil and gold declined.

[R]5:00 PM New York, 10:00 PM London, 8:00AM Sydney – Fed Chairman urged the U.S. lawmakers to trim budget deficit and make hard choices. His plea is likely fall on deaf ears as U.S. faces historic budget deficit of $1.8 trillion. World markets rally of ten weeks appear to run out of steam after major indexes surge between 35% and 70%. Crude oil and gold declined.[/R]

U.S. stocks edged lower after investors worried that stocks may have advanced too fast. The world markets in the last ten weeks have erased the losses of the year and are now in the positive territory for the year. Foreign investors increase their investments in Russia, China and India.

Fed Chairman Bernanke cautioned lawmakers in his testimony that American people, administration and the Congress have to make hard choices to maintain fiscal stability and keep inflation under check. He also disagreed with the comments from German Chancellor Angela Merkel that the Fed has mad unwise choices in extending large bailouts to banks and other industries.

In other economic news, service industry index suggested that the sector is contracting at a slower pace. The service industry index of Institute of Supply Management increased to 44. Reading below 50 indicates a contraction and above 50 signals expansion.

ADP Employer Services reported that private sector cut 532,000 jobs in May after April losses were revised to 545,000 from the previous estimate of 491,000 cuts. The Labor Department is expected to release its monthly employment report and economists are looking for job losses of 525,000.

The U.S crude oil inventories increased 2.9 million barrels from the previous week, more than expected to 366 million barrels. Total motor gasoline inventories decreased 0.2 million barrels last week and distillate fuel inventories increased 1.6 million barrels.

Crude oil and natural gas prices fell after the inventory report.

In New York trading, Aetna dropped 7% after it lowered its earnings outlook for the year. Tivo surged after it won a court ruling in its favor. Valero fell after it estimated quarterly loss and proposed to sell 40 million shares. Williams-Sonoma first quarter sales dropped 22% and swings to loss.

The European benchmark indexes fell as global slump dragged market indexes. The U.S. private sector eliminated more than 530,000 jobs. ArcelorMittal may idle as much as 40% workers for as long as one year in Spain. Automakers in Germany fell after the weak sales in the U.S. last month.

UK stocks fell tracking the declines in commodities prices. The rally in stocks is now ten weeks long and investors are increasingly shying away from rising valuations. British Air reported a fall in May traffic but traffic at Ryan Air rose. Service sector expanded in the last month.

Stocks in Japan closed higher for the sixth day in a row. Optimistic investors are banking on a global economic recovery and strengthening commodities prices to lift earnings. Industrials, chemicals and energy and commodities related stocks closed higher.

In hectic trading, investors in Mumbai, India snapped up industrial, cement and consumer stocks. The optimism about the economy, rising international interest and new infrastructure projects are still contributing to investor enthusiasm. Investor confidence in trading was palpable.

North American Markets

Dow Jones Industrial Average decreased 65.63 or 0.8% to a close of 8,675.24, S&P 500 Index declined 12.98 or 1.4% to 931.76, and Nasdaq Composite Index edged lower 10.88 or 0.6% to close at 1,825.92. Toronto TSX Composite Index closed down 298.67 or 2.8% to 10,290.12.

Of the stocks in S&P 500 index, 75 increased, 420 declined and 4 were unchanged.

Valero Energy Corporation led the decliners in the S&P 500 index with a loss of 17.8% followed by losses in Tesoro Corporation of 13.3%, in CIT Group Inc of 11.7%, in Gannett Company of 11.4% and in Massey Energy of 8.2%.

Legg Mason led gainers in the S&P 500 index with a rise of 3.84% followed by gains in Gilead Sciences of 3.81%, in McAfee Inc of 3.7% and Starbucks Corp of 3.2%.

South American Markets Indexes

Mexico Bolsa Index decreased 532.51 or 2.1% to 24,651.32. Brazil Bovespa Stock Index declined 1,912.89 or 3.5% to 52,086.63.

Argentina Merval Index plunged 4%, Chile Stock Market Select index decreased 1% and Peru Lima General Index dropped 3.2%. Colombia IGBC General Index edged lower 0.7% and Venezuela Stock Market Index edged up 0.1%.

Europe Markets Review

In London FTSE 100 Index closed lower 93.60 or 2.09% to 4,383.42, in Paris CAC 40 Index decreased 68.39 or 2.02% to close at 3,309.65 and in Frankfurt DAX index lower 89.53 or 1.74% to close at 5,054.53. In Zurich trading SMI decreased 47.51 or 0.87% to close at 5,384.71.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 37.36 or 0.38% to 9,741.67, Hang Seng index in Hong Kong increased 187.39 or 1.02% closed to 18,576.47, CSI 300 index in China higher 74.29 or 2.59% closed to 2,939.39. ASX 200 index in Australia increased 61.90 or 1.56% closed to 4,017.20. The KL Composite index in Malaysia lower 8.22 or 0.77% closed to 1,055.40.

The Kospi Index in South Korea increased 2.04 or 0.14% to close at 1,414.89. SET index in Thailand closed higher 7.95 or 1.38% to 582.25 and JSE Index in Indonesia increased 12.27 or 0.61% closed to 2,010.91. The Sensex index in India decreased 4.01 or 0.03% closed to 14,870.90.

Commodities, Metals, and Currencies

Crude oil decreased $2.42 to close at $66.13 a barrel for a front month contract, natural gas decreased 33 cent to $3.79 per mBtu and gasoline decreased 2.80 cents to 189.67 cents.

Wheat futures closed down 52.00 cents in Chicago trading and closed at $6.17 a bushel. Sugar decreased 0.55 cent in trading at 14.89 cents a pound. Soybean future closed down 27 cent to $11.82 a bushel.

Gold decreased $21.70 in New York trading to close at $962.70 per ounce, silver closed down $0.60 to $15.35 per ounce and copper for the front month delivery decreased 7.30 cents to $2.22 per pound.

Dollar edged higher against euro to $1.4160 and closed up against the Japanese yen to 95.96.

Yields on 10-year U.S. bonds decreased to 3.54% and with 30-year maturities closed down at 4.45%.