Today's Morning Report

U.S. Overnight Market Commentary 

U.S. stocks fell overnight, sending the Standard & Poor’s 500 Index to its longest losing streak in seven weeks, as banks dropped on concern over financial regulation and after the cost to protect from a Greek default surged to a record, while consumer shares retreated. Bank of America Corp. and JPMorgan Chase & Co. dropped more than 2.2%. Retailers slumped after Bed Bath & Beyond Inc., whose shares lost 5.6%, missed earnings estimates. Nike Inc. slid 4% as the athletic shoemaker’s sales trailed projections. Dell Inc. declined 6.4% after its 2011 forecast disappointed some investors. The S&P 500 lost 1.7% to 1,073.69 at 4 p.m. in New York, giving it a four-day slump of 3.9%. The Dow Jones Industrial Average slipped 145.64 points, or 1.4%, to 10,152.80. “It’s such a weak environment,” said Wasif Latif, vice president of equity investments at USAA Investment Management Co., which oversees US$45 billion in San Antonio. “European issues seem to be far from over. There’s concern about financial regulation. Minus the government stimulus, data showed there’s not a whole lot going on in the economy. The drop in retailers indicates they got ahead of themselves. There’s de-risking.” Stocks extended losses in the final two hours of the day, with the S&P 500 falling as low as 1,071.81. Traders said the annual rebalancing of Russell Investments’ indexes, which takes effect after 4 p.m. New York time tomorrow may have swayed prices today. Russell estimates that US$3.9 trillion is benchmarked to its U.S. stock market measures, which include the Russell 1000 Index of the biggest American companies and the Russell 2000 Index of smaller stocks. Investors that mimic the performance of those measures must buy and sell shares to match Russell’s adjustments. “The Russell rebalancing could be exaggerating moves in a low-volume environment,” said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. Volume on U.S. stock exchanges has averaged 8.27 billion shares a day since June 11, less than the 2010 average of 9.48 billion. Changes to the indexes unleash trading that can make rebalancing day among the busiest of the year. In 2009, 12.8 billion shares changed hands on June 26, the year’s 16th-highest total, according to data compiled by Bloomberg. In the prior four years, volume on rebalancing day was in the top 10.

 

Europe’s Overnight Market Commentary

European shares hit a two-week closing low in choppy trade on Thursday, with banks among the top decliners on heightened concerns over a U.S. financial reform bill and worries over the global economic recovery. The sell-off accelerated in the afternoon session when the index fell below a key support level. Investor appetite for risky assets drastically fell, with the VDAX-NEW volatility index hitting a two-week high (the higher the index, the lower the market's desire to take risk). The FTSEurofirst 300 index of top European shares ended down 1.9% at 1,020.33 points, the lowest close since June 11. It fell for a third straight session, after rising for nine sessions in a row to a seven-week high. Banks were the hardest hit, with the STOXX Europe 600 banking index falling 3.2%, as the proposed U.S. financial reform bill appeared likely to retain tough restrictions on banks' trading and investment activities that could crimp profits. Barclays, Lloyds , BNP Paribas and Societe Generale fell 4.1% to 5%. Worries about the eurozone's debt problems persisted and the cost of protecting Greek government debt against default rose to a record high. Greece's securities regulator extended a short-selling ban on shares on the Athens bourse until Aug 31."Tension in the eurozone still persists, with the CDS of various countries hitting new highs. Conditions in equity markets probably will remain shaky as we have no clarity on the further economic outlook," said Gerhard Schwarz, head of global equity strategy at UniCredit in Munich. "For now, the market is still preoccupied with the uncertainty over the outlook for the second half and that was illustrated by the reaction to the Fed statement where there was a more cautious assessment on the growth outlook going forward." The U.S. Federal Reserve scaled back its assessment of the pace of the nation's economic recovery on Thursday, taking note of pockets of weakness. It also issued a cautionary note about volatile financial markets in the light of Europe's debt woes. Miners were pressured by a shaky demand outlook for metals, offsetting optimism after Australia appointed a new prime minister, Julia Gillard, who offered to end a dispute over a controversial "super profits" mining tax, which is threatening US$20 billion worth of investment in the sector. ENRC, Xstrata and Rio Tinto shed 3.2% to 4.4%.

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Hanuman Investments Pty Limited trading as Hanuman Private Wealth - AFSL No. 313416

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