U.S. STOCKS, BOND MARKETS
Global-growth worries slammed stocks Thursday, triggering a bearish recommendation from Goldman Sachs that accelerated declines and helped drive major benchmarks to their second-biggest one-day drop of the year.
Gold Prices Stall on Greek Indecision
The Dow Jones Industrial Average dropped 250.82 points, or 2%, to 12573.57, while the Standard & Poor's 500-stock index fell 30.18 points, or 2.2%, to 1325.51. The Nasdaq Composite shed 71.36 points, or 2.4%, to 2859.09, snapping a five-session streak of gains.
The Dow inched higher at the open but quickly turned red after data showed mid-Atlantic manufacturers' business conditions deteriorated sharply this month, according to the Federal Reserve Bank of Philadelphia. Another sour reading from the jobs market also weighed.
The number of Americans filing for jobless benefits fell slightly last week, though the prior week's figure was revised higher, indicating the labor market is sputtering.
Stocks slid to session lows after analysts at Goldman Sachs recommended clients set up short positions in the S&P 500. The analysts set a short target for the benchmark index at 1285, more than 5% lower than Thursday's close, writing that Thursday's soft U.S. reports provide further evidence that weakness has extended into June.
Short sellers borrow shares from other investors and sell them in the hope of buying them back at a lower price later. Traders also cited rumors that the tab for Spain's bank bailout may be higher than previously reported.
Energy and materials stocks led all 10 of the S&P 500's sectors lower after reports showed business activity in the euro zone and manufacturing activity in China contracted in June.
The reports of slowing industrial activity crimped demand for commodities. Aluminum company Alcoa fell 4.2%, making it the Dow's biggest percentage decliner.
Blue chips Exxon Mobil and Chevron each fell more than 3.3% as oil prices dropped below $80 for the first time this year.
Additionally, traders cited lingering disappointment that the Federal Reserve held off on announcing more aggressive stimulus measures Wednesday. Instead, the Fed opted to extend Operation Twist, a program in which the central bank sells short-term Treasurys and buys longer-dated bonds to help tamp down long-term borrowing costs.
EUROPEAN STOCK MARKETS
European shares closed lower Thursday following a disappointing batch of U.S. economic data and ahead of a closely watched independent audit of Spain's banking sector.
The Stoxx Europe 600 index slipped 0.5% to 248.40, snapping a four-day winning streak. While equity markets closed in the red, the 10-year Spanish government bond yield eased below 6.5% during the session, well below recent record highs, following an auction of Spanish bonds.
Spain sold a total of 2.2 billion euros of various maturities. Elsewhere, Portugal's 10-year bond yield fell below the 10% mark and Italy's eased below 5.7%. Spain's IBEX-35 index finished down 0.3% at 6773.50.
After the close of European markets, two independent audit reports were released on the Spanish banking system, putting the worst-case scenario for the sector's capital needs at EUR62 billion.
Most banks ended higher. Banco de Sabadell rose 4.3%, Banco Popular Espanol gained 3.5% and Bankinter added 3.6%. The broader European stock market struggled for direction for most of the session, but was sent lower in afternoon action after the Philadelphia Fed Index showed a sharp decline in June for manufacturing activity in the region.
Existing home sales also disappointed. The euro-zone manufacturing purchasing managers index was also a letdown. Although it was unchanged at 46 in June from May, it still remained in contraction territory.
And regionally, Germany's PMI data were a worry, falling to three-year lows and highlighting that the euro zone's biggest economy is also being sucked into the region's crisis.
London's FTSE 100 index dropped 1% to 5566.36, weighed down by its exposure to mining stocks and heavily weighted oil names. Miner Anglo American fell 5.2% and oil major BP dropped 3.2%.
In addition, U.K. bank stocks slid on reports that ratings firm Moody's would be downgrading U.K. banks late Thursday, as part of its full-scale review of the sector. Royal Bank of Scotland, which is 83%-owned by the taxpayer, fell 1.7% and Standard Chartered dropped 2.1%.
France's CAC-40 fell 0.4% to 3114.22 as banks weighed. Societe Generale shed 1.3% and BNP Paribas slid 1.4%. Germany's DAX dropped 0.8% to 6343.13. Daimler fell 1.3% and BMW gave up 0.8%.
Among sectors, airline stocks benefited from the fall in the oil price. International Consolidated Airlines rose 1.1% and Deutsche Lufthansa gained 0.8%. Air France-KLM jumped 5.5% after it announced it needs to shed 5,000 jobs by the end of 2013 to bring it back to profitability. Resource stocks were weak. Vedanta Resources gave up 4.9%, Antofagasta slipped 3.7% and BHP Billiton fell 3%.
ASIA-PACIFIC STOCK MARKETS
Most Asian markets fell Thursday, with sentiment hit by further evidence of cooling in Chinese manufacturing activity, while the Federal Reserve disappointed investors hoping for new major stimulus measures.
A weaker yen, meanwhile, helped lift Japanese stocks. China's Shanghai Composite dropped 1.4%, Hong Kong's Hang Seng Index fell 1.3% and South Korea's Kospi lost 0.8%.
Japan's Nikkei Stock Average, however, gained 0.8%. Stocks mostly extended losses after an initial reading of HSBC's China manufacturing Purchasing Managers' Index showed activity slowing in June from the previous month.
HSBC China chief economist Hongbin Qu said the sharp fall in prices and moderation of new orders pointed to weak domestic demand.
Commodity-tied firms were notable decliners following the data. China Coal Energy Co. fell 3.5% in Hong Kong. Energy firms were also mainly weaker across Asia, as Nymex crude-oil futures fell.
Cnooc Ltd. tumbled 3.2% in Hong Kong. Chinese financials also came under selling pressured. Bank of Communications Co. dropped 1.9% in Hong Kong, while in Shanghai, New China Life Insurance Co. slumped 3.3% and Haitong Securities Co. lost 3.8%.
Property firms were hit hard. Agile Property Holdings Ltd. fell 4.6%, China Resources Land Ltd. sank 5.3%, and Evergrande Real Estate Group's shares plunged 11.4%. Losses for exporters weighed in Seoul. Samsung Electronics Co. dropped 2%, and Kia Motors Corp. lost 1.5%.
In Japan, however, the weaker yen supported major Tokyo-listed exporters. Toshiba Corp. added 1.4%, Kyocera Corp. climbed 2.6%, and Panasonic Corp. gained 2.8%. Japanese car makers also extended recent gains, with Nissan Motor Co. up 1.9%, and Toyota Motor Corp. adding 1.2%.
Base metals closed sharply lower on the London Metal Exchange Thursday, weighed by global growth concerns and disappointment over the Federal Reserve's failure to announce aggressive stimulus measures.
At the close, LME three-month copper was 2.7% lower at $7,341 a metric ton. The red metal earlier hit a near-two-week low at $7,325/ton.
U.S. crude-oil futures settled below $80 a barrel Thursday for the first time since October and Brent crude futures closed below $90 a barrel for the first time since December 2010 as the oil markets were hit by a host of factors, including fresh signs of anemic industrial activity.
Oil futures for light sweet crude on the New York Mercantile Exchange settled at $78.20 a barrel, down $3.25 or 4%, piercing the psychologically important $80-a-barrel level.
Brent oil futures, the European benchmark, also declined sharply, dropping $3.46, or 3.7%, to $89.23 a barrel. The retreat comes as U.S. and global oil inventories remain well-supplied amid sluggish demand. It also follows policy moves by the Federal Reserve Wednesday that fell short of the quantitative easing market participants thought would stimulate the economy and boost demand for crude.
Precious metals slumped, with silver settling at a 16-month low after a set of weak economic data limited demand for the metal both as an inflation hedge and an industrial raw material.
The most actively traded silver contract, for July delivery, fell $1.55, or 5.5%, to settle at $26.839 a troy ounce on the Comex division of the New York Mercantile Exchange. That's the lowest settlement price since Jan. 25, 2011. Gold also slumped on the day, falling $50.30, or 3.1%, to settle at $1,565.50 an ounce, a three-week low and the first time the metal has settled below the $1,600 mark since June 11. Compiled from MORRISON SECURITIES PTY. LTD.
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