Monday, April 6, 2009

U.S. Markets Wrap: Stocks Drop on Bank Concern, Treasuries Fall

By Rita Nazareth

April 6 (Bloomberg) -- U.S. stocks fell for the first time in five days as Mike Mayo, analyst at Calyon Securities, advised selling bank shares and International Business Machines Corp.’s purchase of Sun Microsystems Inc. collapsed.

SunTrust Banks Inc. and KeyCorp slid more than 7 percent as Mayo said government measures to shore up banks may not help as much as expected and loan losses will exceed levels from the Great Depression. Sun Microsystems sank 23 percent as people familiar with the matter said talks with IBM fell apart. U.S. Steel Corp. and AK Steel Holding Corp. lost at least 2.7 percent as metals fell on concern over the slumping economy.

“Concern about the condition of the financial system will be here for a while, at least for the rest of the year,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group, which oversees $8 billion in New York. “It will take a while to put the pieces together.”

The Standard & Poor’s 500 Index retreated 0.8 percent to 835.48. The Dow Jones Industrial Average slipped 41.74, or 0.5 percent, to 7,975.85. About three stocks fell for each that rose on the New York Stock Exchange. The MSCI World Index of 23 developed nations lost 0.7 percent.

U.S. stocks capped a fourth straight week of gains on April 3, the longest stretch since the bear market began in 2007, as the economy showed signs of improvement, Group of 20 leaders agreed on measures to halt the recession and accounting regulators relaxed rules on so-called fair-value accounting. The S&P 500 has rebounded 23 percent from a 12-year low on March 9.

Europe’s Dow Jones Stoxx 600 Index declined 0.6 percent, erasing a 1.9 percent advance, after Morgan Stanley cut the region’s stocks to “underweight” from “neutral.” The MSCI Asia Pacific Index rose 0.4 percent.

Mayo’s Call to Sell

SunTrust, the Georgia lender that received $4.9 billion in U.S. rescue funds, slid $1.12, or 8.1 percent, to $12.70. KeyCorp, Ohio’s second-largest bank, lost 7 percent to $7.94. Mayo, the former Deutsche Bank AG analyst who gained a reputation for independence, gave “sell” ratings to the two companies as well as BB&T Corp., Fifth Third Bancorp and U.S. Bancorp, all of which fell at least 4.4 percent.

He assigned “underperform” ratings to Bank of America Corp., Citigroup Inc., Comerica Inc., JPMorgan Chase & Co., PNC Financial Services Group Inc. and Wells Fargo & Co, sending all of their shares lower. He cited concern over rising loan losses.

A gauge of financial companies in the S&P 500 slid 2.9 percent for the biggest decline among 10 industry groups. The group of 80 banks, insurers and investment firms is still 55 percent above its March 6 low.

‘Rolling Recession’

“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote in a report. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”

Financial shares pared a drop of as much as 4.4 percent and the S&P 500 trimmed a 2.3 percent decline after Meredith Whitney, founder of the Meredith Whitney Advisory Group, told CNBC the financial sector’s tangible book values and will go higher, and with it share prices, although it may take till mid- next year to get “out of the woods.”

The benchmark index for U.S. stock options rose for the first time in five days, climbing 3.1 percent to 40.93. The VIX, as the Chicago Board Options Exchange Volatility Index is known, ended last week at a two-month low of 39.70.

Treasury Auctions

Treasuries fell as traders shifted focus to this week’s auctions after the Federal Reserve completed its sixth targeted purchase of U.S. securities.

The Treasury will auction $59 billion in coupon securities, including a record $35 billion of three-year notes on April 8, as it sells record amounts of debt to revive economic growth and service deficits. The Fed bought $2.53 billion in notes as part of its effort to lower consumer borrowing costs.

“The battle continues between the Treasury and the Fed,” said Jeffry Feigenwinter, head of Treasury trading at BNP Paribas Securities, one of 16 primary dealers that trade with the central bank. “The Fed is trying to keep rates low while the Treasury needs to fund all these programs and needs to raise a lot of cash.”

The 10-year note yield rose four basis point, or 0.04 percentage point, to 2.93 percent at 2:45 p.m. in New York, according to BGCantor Market Data. The 2.75 percent security due in February 2019 fell 10/32, or $3.13 per $1,000 face amount, to 98 14/32.

Dollar Rises

The yield on the 30-year bond increased 5 basis points to 3.74 percent.

The dollar gained against most major counterparts after the decline in U.S. stocks increased demand for the safety of the world’s main reserve currency. The greenback rose for the first time in five days against the Canadian dollar South Africa’s rand retreated from the strongest level versus the dollar since October.

“It’s back to the dollar being a safe haven,” said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. “Every time we see some retracement in the equity markets, we see the dollar benefiting.”

The dollar rose for the first time in three days against the euro, advancing 0.6 percent to $1.3409 at 4:11 p.m. in New York, from $1.3486 on April 3. The yen traded at 135.48 per euro, compared with 135.26, after touching 137.41, the weakest level since Oct. 20. The euro will probably fall to 126 yen and $1.31 in the next two weeks, Kabbani predicted. Japan’s currency declined 0.7 percent to 101.02 per dollar, from 100.31 last week, and reached 101.44, the weakest since Oct. 21.


The U.S. currency gained 0.7 percent against the Canadian dollar to C$1.2386 and 0.8 percent to 8.0514 Swedish kronor. The Canadian currency advanced 1.3 percent versus the greenback in March and the krona advanced 9.3 percent on speculation the global economic slump may be ending. South Africa’s rand dropped 0.3 percent to 9.0823 per dollar after touching 8.9647, the strongest level since Oct. 14.

Crude oil fell for a second day in New York as U.S. stocks declined. Qatari Oil Minister Abdullah bin Hamad al-Attiyah said he doesn’t expect prices to rebound to $70 a barrel this year as OPEC implements its biggest-ever supply reduction.

“There’s a lot of nervousness about the equity market,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Until we see declining inventories there won’t be a sustained gain in the oil price.”

$50 a Barrel

Crude oil for May delivery dropped $1.46, or 2.8 percent, to $51.05 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Oil has risen 14 percent this year and is down 65 percent from a record in July.

“Fifty dollars a barrel is reasonable for the world economy now,” Qatar’s al-Attiyah said.

Copper fell from a five-month high as declining equity markets spurred concern that a recent rally may have been overdone, given the slumping global economy. Last week, copper surged 9 percent as the S&P 500 jumped on speculation that the worst of the global recession had passed.

“People had gotten pretty excited last week about the economy,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “The reality is not that the economy is good. It’s just not as bad as people had feared. We could see copper pull back this week as some of that optimism dies out.”

Worst Since 1975

Copper futures for May delivery fell 4.15 cents, or 2.1 percent, to $1.959 a pound on the New York Mercantile Exchange’s Comex division. Earlier, the price touched $2.037, the highest for a most-active contract since Oct. 30.

Copper usage will drop 9.2 percent in 2009, the most since 1975, as slumps in housing and auto sales reduce demand for wire and pipe made from the metal, according to Macquarie Group Ltd. Copper still is up 39 percent this year on speculation demand would rebound.

Wheat fell from the highest in almost two months on speculation that freezing weather will do little damage to U.S. crops because plant development was already delayed by colder weather last week.

Temperatures averaged 6.7 degrees Fahrenheit below normal in Kansas the past 10 days, delaying the so-called jointing stage when winter-wheat tillers emerge, protecting the plant from potential yield losses from a sudden freeze, said Mike Tannura, meteorologist for T-Storm Weather in Chicago. About 46 percent of the Kansas crop was susceptible to damage on April 1, 2007, when a freeze reduced yields, compared with 13 percent on March 31 this year, Tannura said.

‘Vulnerable to Cold Weather’

“There is less crop that was vulnerable to cold weather,” said Chad Henderson, a market analyst for Prime Agricultural Consultants in Brookfield, Wisconsin. “The market already rallied on the threat of cold last week, so today we are giving back some of those gains.”

Wheat futures for March delivery fell 6.5 cents, or 1.2 percent, to $5.57 a bushel on the Chicago Board of Trade, after earlier reaching $5.7275, the highest since Feb. 9. The most- active contract climbed 11 percent last week, the biggest gain since February 2008.

Hog futures fell for the first time in three sessions on speculation that ham demand is declining after U.S. meatpackers filled orders for the Easter holiday. Cattle prices rose.

The wholesale price of ham, a traditional food for Easter meals, dropped 11 percent in the week ended April 3, U.S. Department of Agriculture data show. The average cash-market hog price was 55.79 cents a pound at the end of last week, down 0.4 percent from a week earlier. Most Christians will celebrate Easter on April 12 this year.

“We have the Easter holiday right in front of us, and packers can drop cash prices here for a few days beforehand, because there will be a little less need for the hogs,” said Rich Nelson, a broker at Allendale Inc. in McHenry, Illinois.

Hog futures for June settlement fell 0.9 cent, or 1.2 percent, to 72.75 cents a pound on the Chicago Mercantile Exchange. The contract climbed 3.2 percent last week, the biggest weekly gain since Feb. 13.

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