Published: Friday August 31, 2012 MYT 8:28:00 AM
Updated: Friday August 31, 2012 MYT 12:39:03 PM
GLOBAL MARKETS-Shares, euro down ahead of Bernanke speech
NEW YORK: Stocks fell and the euro retreated on Thursday as investors pared back expectations that Federal Reserve Chairman Ben Bernanke will signal a new round of economic stimulus in a much-anticipated address on Friday to central bankers.
A successful Italian bond sale earlier in the day pointed to growing confidence among investors that the European Central Bank will take measures shortly to tackle more effectively the debt crisis that has plagued the 17-member currency bloc.
But investors grew more doubtful that Bernanke will deliver firmer hints on more monetary easing in his speech in Jackson Hole, Wyoming. The gathering is the same event where he hinted at the Fed's second round of easing in 2010.
Hopes for further easing have grown since minutes of a recent Fed meeting showed policymakers could act "fairly soon".
U.S. shares slid and European stocks hit a four-week low as investors closed out positions ahead of Bernanke's speech, which is expected to provide some clues to the Fed's next move.
"Everyone's waiting on Jackson Hole and QE3," said Mirko Mikelic, portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan. "Obviously it would be a disappointment if there wasn't QE3, and there would be a sell-off in risk assets."
All 10 S&P stock sectors were lower. The cyclical groups, which closely track the pace of economic growth, declined.
Over the past three weeks the benchmark S&P 500 index has traded in a tight range between 1,400 and the April 2 high of 1,422.38, which has acted as a resistance point to new peaks.
The Dow Jones industrial average closed down 106.77 points, or 0.81 percent, at 13,000.71.
The Standard & Poor's 500 Index fell 11.01 points, or 0.78 percent, at 1,399.48.
The Nasdaq Composite Index slid 32.47 points, or 1.05 percent, at 3,048.71.
In Europe, the FTSEurofirst 300 index of top European shares closed down 0.8 percent at 1,077.93.
MSCI's all-country world equity index, which has edged down over the past seven sessions, was 0.9 percent lower at 320.39.
"People are starting to realize that there is not going to be a huge amount of action from the Jackson Hole meeting. But I don't see a massive sell-off either as the market is waiting for a positive action from the European Central Bank," said James Butterfill, global equity strategist at Coutts.
Any signal from Bernanke that the U.S. central bank will embark on another asset-buying program would weigh broadly on the dollar.
The euro fell 0.2 percent at $1.2506, while the U.S. dollar index was up 0.2 percent at 81.686.
A rise above $1.2590 would mark the euro's strongest level in eight weeks.
Investors and economists have become more skeptical over the past two weeks that the Fed will announce another round of bond buying, or "quantitative easing," at its mid-September meeting, according to Reuters polls during the last week.
"The risk with Jackson Hole is that unless there are further strong signals of more easing, the market will take it as a disappointment," said Christian Lawrence, currency strategist at Rabobank, adding that this would be positive for the dollar.
"The bar is quite high, and if there is any paring back of talk of QE, the market is likely to react more because it is more or less expecting it."
The euro gained some support early in the day after Chinese Premier Wen Jiabao, who met German Chancellor Angela Merkel in Beijing on Thursday, said he was confident the euro zone could pull out of its debt crisis and that China would be willing, after a proper risk assessment, to keep buying the region's government debt.
In other markets, iron ore prices fell to their lowest levels since 2009, dragging down shares in miners, including Rio Tinto and BHP Billiton, as a slowdown in top consumer China threatened to further sap demand.
U.S. Treasuries gained in price. Discounting the likelihood of the Fed's launching new stimulus when it meets next month has been the predominant trade in recent weeks despite uncertainty over what debt would be purchased in any new program.
The benchmark 10-year U.S. Treasury note was up 7/32 in price to yield 1.6267 percent.
Growing expectations of a beefed-up bond-buying program from the ECB encouraged solid demand at a sale of 7.3 billion euros ($9.15 billion) of new five- and 10-year Italian sovereign bonds on Thursday.
Brent crude prices edged higher in choppy trading, supported by supply concerns and geopolitical tensions, while U.S. crude fell as oil companies assessed damage after Hurricane Isaac swept the Gulf Coast region.
A possible strike by Norway's oil services workers, upcoming North Sea maintenance and the ongoing dispute over Iran's nuclear program continue to support Brent prices.
Brent crude for October delivery settled up 11 cents at $112.65 a barrel. U.S. crude fell 94 cents to settle at $94.55 a barrel.
Wall Street retreats on eve of Bernanke speech
NEW YORK: Stocks fell on Thursday after several days of muted trading as investors took a defensive posture before Federal Reserve Chairman Ben Bernanke's much-awaited speech on Friday.
Bernanke, due to speak to central bankers in Jackson Hole, Wyoming, at 10 a.m. (1400 GMT) on Friday, is expected to keep markets guessing about the timing of another round of bond purchases.
The mood was cautious in financial markets due to the high stakes surrounding the Fed chairman's speech as well as a meeting of the European Central Bank on Thursday that is expected to take pressure off highly indebted countries.
Central banks face pressure to combat the weakness in the economy. In a sign of slowing growth, shares of mining companies fell as iron ore prices dropped to the lowest level since 2009. U.S.-traded shares of BHP Billiton
All 10 S&P industry sectors were lower, with technology <.GSPT>, energy <.GSPE> and materials <.GSPM> leading the decline. The benchmark index dipped below the 1,400 mark at the close for the first time since August 6.
U.S. economic data over the past two weeks have been a little stronger than expected, and Reuters polls show investors and economists were more skeptical the Fed will announce a new round of bond buying at its September meeting.
"If (Bernanke) doesn't tip his hand, then the market is going down on the speech," said Uri Landesman, president of hedge fund Platinum Partners. "I don't think the market hangs in around 1,400 if he doesn't say anything substantive."
The Dow Jones industrial average <.DJI> dropped 106.77 points, or 0.81 percent, to 13,000.71. The Standard & Poor's 500 Index <.SPX> dropped 11.00 points, or 0.78 percent, to 1,399.49. The Nasdaq Composite <.IXIC> dropped 32.47 points, or 1.05 percent, to 3,048.71.
The S&P had barely budged over the prior three sessions - resulting in a decline of merely 0.05 percent - and hasn't closed with a 1 percent move in either direction since August 3.
Volume continued to be anemic with the week's daily average so far at 4.49 billion shares changing hands on the New York Stock Exchange, NYSE MKT and Nasdaq. This week's four days so far are among the five lowest for volume all year.
Most U.S. retailers posted better-than-expected sales gains in August at stores open at least a year, boosted by back-to-school buying and setting the stage for a strong third quarter.
Sears' shares tumbled 7.9 percent to $52.90 after S&P Dow Jones removed the company from the benchmark S&P 500 index, effective after the close of trading on September 4. Chemicals maker LyondellBasell Industries
Economic data showed consumer spending enjoyed its biggest rise in five months while the number of Americans filing new claims for jobless benefits held steady last week.
Reuters reported from Tokyo on Friday Afternoon:
Asian shares fall to 4-week low before Bernanke speech
TOKYO: Asian shares fell to four-week lows on Friday as investors cooled expectations that U.S. Federal Reserve Chairman Ben Bernanke will offer any signal of a further monetary stimulus at a speech before fellow central bankers later in the day.
The annual Jackson Hole, Wyoming, gathering precedes the Fed's September 12-13 policy meeting, with market views mixed over whether the Fed would embark on an additional stimulus, and if so, whether it would be a forceful quantitative easing or something else.
Investors squared positions ahead of this week's biggest event to limit losses on recently oversold assets such as the Australian dollar and shares, which took a hit from slumping prices for iron ore, Australia's biggest export earner, due to concerns over demand weakening on slowing global growth.
MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.1 percent, after European shares and the Dow Jones industrial average touched their lowest in four weeks on Thursday. The pan-Asia stock index was set for a monthly drop of about 1.1 percent, swinging into the red from July's 3.5 percent gain.
Japan's Nikkei stock average slipped 1.1 percent to a two-week low.
"Expectations were quite frothy but have become a bit more realistic," said CMC Markets chief market strategist Michael McCarthy.
Australian shares inched down 0.2 percent while the Aussie traded at $1.0286, holding off a five-week low of $1.0276 hit on Thursday. The euro firmed 0.1 percent to $1.2516 while the dollar edged down 0.2 percent to 78.47 yen.
Sentiment remained underpinned by hopes central banks will take additional easing measures to support fragile global growth, but investors have been shifting focus to slackening economic activity in China and uncertainty over Europe's plan to tackle its debt crisis.
Data published on Friday showed Japan's industrial output unexpectedly fell in July while Japanese manufacturing activity contracted in August to the lowest level in 16 months.
"Markets will remain in a holding pattern until policy decisions are made in the United States and Europe, but even so, that won't solve the underlying structural problem which has deterred investors from fully returning to a 'risk on' mode," said Tetsuro Ii, CEO of Commons Asset Management, referring to the euro zone's protracted debt crisis.
"Worries over global demand deceleration are also heightening, with emerging economies becoming sluggish," he said.
GRABBING SHRINKING PIES
The monthly U.S. jobs report due on September 7 could shed more light on the Fed's next policy decision.
The German constitutional court ruling on the region's bailout funds due on September 12 could affect the implementation of the European Central Bank's planned bond-buying scheme aimed at driving down soaring borrowing costs in struggling countries such as Spain and Italy.
Euro zone finance ministers meet on September 14-15 while Greece awaits a review by international lenders of its austerity reforms due by early October, which could clear the way for a crucial bailout.
As markets mark time with persistent bias for more stimulus, assets will become even more expensive, with investors seen likely flocking to limited opportunities.
"As investors return from vacation and try to find worthwhile places to put money, they will be greeted with a familiar but worsening problem: little is cheap, with most assets even more expensive than they were before," said Kit Juckes, currency strategist at Societe Generale, citing the Australian dollar as an example.
"While easy money does little for growth, investors will continue to be squeezed out of 'safe' assets and drawn to corporate debt, equities and 'foreign stuff'. The Fed will continue to help asset prices and undermine the dollar."
EUROPE MAKING NOISE
Even if Bernanke fails to give any clues on the possible policy decision next month, investors could still cling on to hopes the ECB will take concrete action to soothe euro zone bond market jitters.
Although the ECB may map out details of its bond-buying scheme as early as its September 6 policy meeting, it may not intervene before it is satisfied that the euro zone's permanent rescue fund is operational.
Spain, faced with snowballing regional debts which were threatening the sovereign financing and fuelling speculation the country may need to seek a bailout, has ruled out such an option until aid conditions are made clear.
As Europe struggles on its way to fiscal consolidation, a German newspaper reported that the European Commission plans to give the ECB oversight of all banks in the euro zone, a move that could help break the "vicious" link between the euro zone's debt crisis and struggling banks.
Oil steadied, with U.S. crude and Brent both up 0.1 percent to $94.72 and $112.80 a barrel respectively.
Asian credit markets were subdued, with the spread on the iTraxx Asia ex-Japan investment-grade index wider by 1 basis point. - Reuters