US Stocks closed mixed on Wednesday as concerns over the credit crisis again took the focus. Positive news on the economic front buoyed many sectors, but word mid-afternoon from Moody's suggesting it may lower the credit ratings of two key bond insurers kept the market in check.
Comments from a speech by Federal Reserve chairman Ben Bernanke to the graduating class at Harvard put downward pressure on the broader markets near the close. The chairman again emphasised the possibility of higher inflation and potentially increased interest rates going forward.
However, a run of minor economic data was a little more positive. First-quarter productivity was revised to a gain of 2.6 per cent from an initial read of 2.2 per cent, topping forecasts for a rise to 2.5 per cent.
The Institute for Supply Management also said that its services sector index reading for May dipped to 51.7 from 52 in April, versus forecasts for a drop to 51. Economically sensitive stocks, such as communications equipment makers, drew strength from the report and positive employment data.
The ADP National Employment Report showed a surprise gain of 40,000 jobs in May, suggesting that even though the employment outlook looked poor, it was not deteriorating.
The Dow finished 12.37, or 0.10 per cent lower at 12390.48, the broader S&P500 slipped 0.45, or 0.03 per cent to close at 1377.20, while the NASDAQ was up 22.66, or 0.91 per cent at 2503.14.
Technology shares came back after two down days, largely due to the services sector data and some positive brokerage comments on chip makers.
Qualcomm was the top gainer on the NASDAQ100 , rising 3.1 per cent. Network equipment maker Cisco Systems picked up 1.6 per cent.
Brokerages increased their price targets on Xilinx and Altera, which rose 3.5 per cent and 2.8 per cent respectively. Intel Corp added 2.4 per cent, while AMD rose 5.6 per cent and Ebay gained 2.1 per cent.
Financials fell for the third day in a row on concerns about more credit losses.
The main focus fell on MBIA and Ambac Financial Group after Moody's Investors Service said it is likely to cut their top credit ratings. Moody's cited concerns about mortgage-related losses and limited new business prospects. MBIA plummeted 15.8 per cent and Ambac was thrashed 17 per cent.
However it wasn’t all bad news across the sector. American Express said it expected full-year profit to increase in spite of mounting credit losses. The credit card company rose 3 per cent.
An upgrade for Morgan Stanley from Wachovia gave the brokerage a gain of 1.7 per cent. Lehman Brothers reclaimed 2.6 per cent from the 18 per cent it had tumbled since last Thursday, but it had little impact on the sector.
Declining oil prices also gave consumer related sectors a boost. Whole Food Market was among one of the leading gainers in the consumer staples sector, rising 4.4 per cent after an analyst at FTN Midwest Securities recommended buying the stock.
In the discretionary sector, Guess put on 13.8 per cent after reporting estimate-beating first-quarter profits and raised its full year earnings forecasts.
Starbucks and Hasbro also made gains, advancing 2.1 per cent and 4.7 per cent respectively. Walt Disney added 3.5 per cent on speculation that its ABC network would receive higher advertising rates than expected.
Falling commodity prices weighed on energy and material stocks for a second day. Sunoco dropped 9.1 per cent, while Titanium Metals fell 4 per cent.
NYMEX light crude for July delivery fell US$2.01 to settle at US$122.30 a barrel following the release of the government's weekly oil inventories report. The report showed a bigger-than-expected rise in gas stockpiles and a surprise drop in crude supplies.
COMEX gold for August delivery fell US$1.70 to US$883.80 an ounce.
UK markets
Stocks beat a decided retreat in London, sliding lower on the drop in crude prices. Miners also felt the pinch, retreating on the back of weaker gold and copper prices.
The FTSE 100 finished the day 87.6, or 1.4 per cent lower at 5970.1, its lowest point since mid-April.
Oil shares were the biggest sector losers, dropping after US crude prices fell as much as 2 per cent on indications of decreasing demands. The retreat was led by a 3.9 per cent drop in Royal Dutch Shell, a 2.9 per cent decline in BP and a 2.8 per cent downturn in BG Group.
Mining stock softened and copper fell for a third day after the US dollar pushed to a near two-week high. Aluminium also slid. Vedanta Resources, Kazakhmys, Eurasian Natural Resources and Antofagasta were all down between 2 per cent to 4 per cent.
Of the Aussies, BHP Billiton gave up 1.6 per cent, while Rio Tinto ended more than 2 per cent lower.
Homebuilders also remained in the red, with Davy Stockbrokers rating UK homebuilders as a negative. Barratt shares plunged 8.2 per cent, their lowest since 1994, while Taylor Wimpey fell to its lowest since 1993, down 5.2 per cent.
The year’s second best performer in the sector, Bellway, fell 4.1 per cent and Redrow slipped 1.5 per cent after UBS recommended investors sell the shares.
Banks were still not out of the woods, with Barclays down 2.3 per cent after Fitch Ratings said the UK's fourth-biggest bank might have to raise additional capital. HBOS fell 3.2 per cent and Standard Chartered finished 2.9 per cent lower.
It wasn’t all doom and gloom in the finance sector, with Royal Bank of Scotland climbing 1.9 per cent after Morgan Stanley raised its recommendation on the UK's second-biggest bank.
Alliance & Leicester was also on the up, gaining around 3 per cent on M&A chatter.
European markets
European equities retreated again on Wednesday, hitting a six-week low as oil and mining stocks slipped on the back of weaker commodity prices. The banking sector was also battered as fresh credit worries resurfaced.
France’s CAC 40 slipped 68.64, or 1.38 per cent to 4915.07, while Germany’s DAX Index dropped 53.70, or 0.77 per cent to 6965.43.
Investors took profits in oil companies as oil prices again came off highs. Norway’s StatoilHydro fell 3.9 per cent, France’s Total lost 3.8 per cent, Italy’s Eni shed 2.4 per cent and Austria’s OMV was off 3.1 per cent.
The fall in oil prices also acted to boost airline stocks. Lufthansa gained 3.4 per cent, British Airways jumped 5.9 per cent and Air France-KLM soared 6 per cent.
Credit-market jitters resurfaced after JPMorgan predicted that continental wholesale and investment banks would suffer more pain in the coming months.
The brokerage said that Deutsche Bank could face a pre-tax write-down of 3.6 billion euros, 2.1 billion suisse francs at Credit Suisse, 1.8 billion euros at SocGen and 1.4 billion euros at Natixis
French bank Societe Generale dipped 1.7 per cent and domestic peer Natixis dropped 0.9 per cent. Investment bank Credit Suisse was down 0.3 per cent and Deutsche Bank fell 1 per cent.
Japanese markets
Japanese stocks rose to the highest since January after automakers posted better sales in the US. A weakening yen and stronger dollar boosted earnings prospects at companies reliant on overseas markets.
The Nikkei 225 rallied 226.40, or 1.6 per cent, to close at 14,435.57.
Honda, Japan's second-largest carmaker, jumped to its highest since December, up 8.6 per cent. Sales of the group’s Civic and Accord models were higher than those of Ford's F- Series pickups in the US last month, the first time any car has outdone the truck in 15 years.
Mazda, which exports 80 per cent of its production, lept 9.1 per cent, its biggest gain since early 2006.
Sony rose 2.8 per cent and Nintendo Co, the world's biggest maker of handheld game players, added 2.8 per cent, the most since May.
Elsewhere, Mitsubishi UFJ Financial Group gained 3.3 per cent.
Hong Kong markets
Hong Kong stocks lost ground on Wednesday, led by Chinese telecom firms, oil producers and coal stocks. Meanwhile, Hong Kong's largest airline Cathay Pacific Airways rallied 2.4 per cent on a correction in global oil prices.
The benchmark Hang Seng Index slid 252.51 or 1.04 per cent to 24,123.25 in volatile trade.
China Unicom took a dive after bearish talks from analysts about the earnings prospects at the proposed China Unicom-China Netcom merged entity. China Netcom fell 3.4, while China Unicom lost 4.3 per cent.
Offshore oil producer CNOOC shed 4.1 per cent after crude oil prices fell below $123 a barrel, triggered by a stronger dollar after the US Fed suggested it would not cut rates further.
Coal producer Yanzhou Coal plunged almost 9 per cent after the group said its home province of Shandong had cut prices of thermal coal for the next three months.
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