Tuesday, 19 July 2011

Markets fall amid debt concerns in Europe and US

The week starts off with investors again turning away from risk. Bloomberg reports:

Stocks fell around the world, extending last week’s drop, and oil declined amid concern officials are no closer to solving the debt crises in Europe and the U.S. Gold extended its longest rally since 1980.

The Standard & Poor’s 500 Index lost 0.8 percent to 1,305.44 at 4 p.m. in New York and the Stoxx Europe 600 Index sank 1.8 percent, extending its slide from its 2011 high to almost 10 percent. The euro recovered losses after reaching an all-time low versus the Swiss franc, while costs to insure European sovereign debt climbed to a record. Gold topped $1,600 an ounce for the first time. Italy’s 10-year bond yield rose 20 basis points and Spain’s surged 25 points. Oil fell 1.4 percent.

US Treasuries were not able to take advantage of the flight from risk on Monday.

The yield on the 10-year Treasury note rose less than one basis point to 2.92 percent after decreasing four points earlier. Two-year Treasury yields were little changed at 0.36 percent.

Global demand for U.S. stocks, bonds and other financial assets rose in May from a month earlier as China and Japan added to their holdings of government securities, the Treasury Department reported. Net buying of long-term equities, notes and bonds totaled $23.6 billion during the month, compared with $30.6 billion in April. Including short-term securities such as stock swaps, foreigners sold a net $67.5 billion compared with net buying of $66.6 billion the previous month.

The true risk for US bonds, though, may become manifest next year, according to Ray Dalio.

Ray Dalio of Bridgewater Associates LP said he expects “another very difficult period” for financial markets next year or in early 2013 as governments struggle to reduce their debt, the New Yorker reported, citing an interview with the founder of the world’s biggest hedge fund by assets. The U.S. will eventually print more money to devalue its currency, which would hurt its bond markets, Dalio said, according to the New Yorker. Countries in the euro zone don’t have that option and will undergo “classic depressions,” he told the magazine.

Speaking of difficult periods, the US housing market has already been in one for some time. Bloomberg reports the latest data on homebuilders' sentiment:

Confidence among U.S. homebuilders improved in July from a nine-month low as executives turned less pessimistic on the outlook for sales.

The National Association of Home Builders/Wells Fargo sentiment index climbed to 15 this month, higher than forecast, from 13 in June, data from the Washington-based group showed today. The median projection of economists surveyed by Bloomberg News was for a gain to 14.

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