Wednesday, 1 August 2007

Rally on Wall St cut short, economic data mixed

Stock markets opened strongly in the US yesterday, but the strength did not last. Reuters reports:

Stocks had risen Monday and the first half of Tuesday's session, but the relief rally was cut short when American Home Mortgage Investment Corp. said it may have to liquidate assets. Shares of the mortgage lender fell 90 percent...

The Dow Jones industrial average slid 146.32 points, or 1.10 percent, to 13,211.99. For the month, the Dow was down 1.5 percent.

The Standard & Poor's 500 Index fell 18.64 points, or 1.26 percent, to 1,455.27. The Nasdaq Composite Index slumped 37.01 points, or 1.43 percent, to 2,546.27. For July, the Nasdaq was down 2.2 percent.

The US economic data yesterday were mixed. Reuters reports:

Personal spending rose a slight 0.1 percent in June after posting 0.6 percent gains in each of April and May, despite a rise in income, according to a Commerce Department report that suggested falling home prices and high gasoline costs were pinching consumers.

That was well below Wall Street economists' forecasts and was the weakest since last September, when spending declined...

The core personal consumption expenditures price index, which excludes food and energy, rose 0.1 percent on the month and 1.9 percent on the year, the smallest year-on-year increase since March 2004. The overall PCE price index rose 0.1 percent on the month and 2.3 percent on the year.

Incomes grew in June by 0.4 percent, matching May's increase, with its wages and salaries component advancing a solid 0.5 percent...

A report from the Conference Board in New York showed consumer confidence hit a six-year high of 112.6 in July -- its highest since August 2001 and well above an upwardly revised 105.3 in June...

In separate data, the Labor Department said second-quarter employment costs had gained by 0.9 percent, slightly faster than the first quarter's 0.8 percent rise as benefits climbed sharply...

In another report, the National Association of Purchasing Management-Chicago said its index of business activity in the Midwest declined to 53.4 in July from 60.2 in June...

Another sign of the problems facing the housing industry came in a Commerce Department report showing construction spending fell 0.3 percent in June as more commercial building failed to offset declines in homebuilding...

A report on home prices in major metropolitan markets -- the Standard & Poor's/Case-Shiller Home Price Index -- showed a continuing slide in prices during May, marking an 18th straight monthly decline.

In the euro area, confidence fell in July, but so did inflation. Bloomberg reports:

An index of sentiment among executives and consumers in the euro region declined to 111 from 111.7 in June, the European Commission in Brussels said today. That's lower than the 111.2 median forecast of 29 economists in a Bloomberg survey. Inflation slowed to 1.8 percent in July from 1.9 percent in June, staying below the European Central Bank's 2 percent limit for a 10th month, according to a separate report...

Capacity utilization in the euro area, which the ECB has cited as an inflation threat, fell to 84.2 percent in this quarter from a 17-year high of 84.8 percent in the previous three months...

... The euro-area jobless rate stayed at 6.9 percent in June...

And in the UK, consumer confidence fell but retail sales held up well in July. The Bank of England is scheduled to announce its latest interest rates this Thursday but no change is expected.

There was also no change in interest rates by the Reserve Bank of India yesterday. Instead, it raised its reserve requirement. AFP/CNA reports:

India's central bank on Tuesday warned inflation was still a risk and hiked its cash reserve ratio for banks by 50 basis points to seven percent but kept short-term borrowing rates unchanged.

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