Friday, 8 May 2009

Stocks, bonds fall despite US bank test results and ECB move

The much-awaited bank stress test results came out on Thursday. Investors apparently decided to sell on the news. Bloomberg reports:

U.S. stocks slid from a four-month high as declines in financial, telephone and technology shares snuffed out an early rally...

The S&P 500, which has risen 34 percent from a 12-year-low in March, slid 1.3 percent to 907.39 at 4:06 p.m. in New York. The Dow Jones Industrial Average decreased 102.43 points, or 1.2 percent, to 8,409.85... Three stocks fell for each rising on the New York Stock Exchange.

Bonds didn't gain from the stock sell-off.

Treasury 30-year bonds fell the most since February as investors demanded higher-than-forecast yields at today’s auction of $14 billion of the securities with the U.S. slated to sell a record amount of debt this year...

The benchmark 30-year bond yield climbed 18 basis points, or 0.18 percentage point, the most since Feb. 3, to 4.27 percent at 3:58 p.m. in New York, according to BGCantor Market data. The 3.5 percent security due in February 2039 dropped 2 3/4, or $27.50 per $1,000 face amount, to 87 1/8.

The 10-year note yield increased 12 basis points to 3.31 percent, the most in a day since gaining 15 basis points on March 10.

Meanwhile, there were important developments elsewhere in the financial world too.

While the Bank of England left interest rates unchanged on Thursday, the European Central Bank cut rates and announced a surprise bond purchase programme. Bloomberg reports:

Jean-Claude Trichet has dragged the European Central Bank into a new era by pursuing direct asset purchases over the objections of Germany’s Bundesbank.

President Trichet yesterday announced the ECB will buy 60 billion euros ($80 billion) of covered bonds, taking markets by surprise after Bundesbank chief Axel Weber had campaigned against such a policy...

... While the bank yesterday cut the rate by a quarter point to 1 percent and called that “appropriate,” Trichet said it is not necessarily at its lowest level. All of the decisions were “unanimous,” Trichet added.

Despite the ECB move, European stocks could not sustain their recent rally. From Bloomberg:

European stocks fell for the first time in six days as Barclays Plc and Lloyds Banking Group Plc said bad loans may soar this year, overshadowing a rally by food and beverage companies...

The Dow Jones Stoxx 600 Index declined 0.8 percent to 206.29. The European benchmark has still rebounded 31 percent since March 9 on optimism the U.S. government’s plan to finance the purchase of illiquid assets from banks will help to pull the global economy out of its first recession since World War II.

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