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Investor sentiment seems to depend directly on the fortunes of Greece and any negative development on this front immediately drags down the benchmarks. Such was the case even yesterday as US markets reversed their gains following reports that euro-zone finance leaders were planning to delay part of the Greek bailout package until the country’s April elections. It was another roller-coaster ride for the benchmarks, and with changing events the benchmarks swung accordingly, finally recording one of their worst days for the year.
The Dow Jones Industrial Average (DJI) lost 0.8% and finished at 12,780.95. The Standard & Poor 500 (S&P 500) signed off yesterday’s trading session at 1,343.23, dipping 0.5%. The tech-laden Nasdaq Composite Index had touched a high of 2,958.19 during the trading session, but lost all its gains to close 0.6% lower at 2,915.83. Consolidated volumes on the New York Stock Exchange, NYSE Amex and Nasdaq were 7.38 billion shares, lower than the daily average of 6.98 billion. Decliners beat advancers on the NYSE by a ratio of 4:3.
The closing figures indicate the concerns that had seeped in during the later hours. However, markets had opened higher and scaled great highs. While Greek debt woes once again sent the benchmarks down into the red zone, markets had actually opened with optimism about the European situation. Chinese central bank governor Zhou Xiaochuan said he believed in the euro-zone’s ability to fix lingering Greek debt woes and that China would keep investing in the European debt. The China-EU summit ended on a positive note after Beijing promised help for the struggling region. Zhou Xiaochuan said: "We strongly believe European countries can work together to handle the challenges. They are able to solve the sovereign debt crisis". Chinese Premier Wen Jiabao joined in and said: "China is firm in supporting the EU side in dealing with the debt problems. We match our words with actions".
Meanwhile, fourth quarter GDP numbers for the euro-zone region boosted sentiment. According to the figures, the French and German economies did modestly better than expected.
Markets also received a boost following news that prominent hedge-fund managers were buying Apple Inc.’s (NASDAQ:AAPL) shares. The iPad and iPhone maker and the Macintosh manufacturer is also the largest US company in terms of market capitalization, and movement in its stocks impacts the Nasdaq as well as the broader market. Following this development, Apple’s stock rose to a high of $526.29, helping the Nasdaq jump significantly. But during the later hours, the stock lost ground snapping its eight-day winning streak and closed 2.3% lower at $497.67. While Apple lost its gains, it also dragged the Nasdaq down and even contributed towards the market’s decline.
Markets also lost out on their gains after learning that euro-zone leaders were chalking out ways to delay Greece’s bailout package partly, or even completely. The euro-zone plans to delay the financial aid till Greece’s elections scheduled in April. However, the euro-zone wants to spare Greece the consequences of defaulting on its debt. But, uncertainty prevails as to how the euro-zone plans to save Greece from defaulting without releasing the funds now. Amadeu Altafaj, spokesman on economic and monetary affairs said: “Up until now, that’s (the bailout money) never been separated out. Now what will happen tonight, I don’t know, I can’t pre-empt that. But that’s certainly the logic we’ve been following so far”. Probably, the step is aimed at pressuring Athens’ political quarters, but Greece is in dire need of funds, without which it might default on its debt leading to an exit from the euro.
Coming to back to domestic news, the Fed minutes did not boost the markets by announcing another round of quantitative easing (QE). Rather, central bank members seem to be divided over the need of a third bond-buying program. While some Fed officials at the central bank’s January 24-25 policy meeting supported QE3 given the low inflation rate and high unemployment, the others believe QE3 will only become necessary if the inflation rate remains below 2% or if the economy weakens. However, the minutes also suggested that the central bank expects decent economic growth and a fall in unemployment.
On the economic front, a report from the Federal Reserve suggested that industrial production remained flat in January, while consensus estimates expected it to have surged 0.7%. Unchanged industrial production figures were caused by declines in mining and utilities which offset a 0.7% gain in manufacturing.
The Industrial SPDR Select Sector Fund (XLI) was down 1.3% yesterday, and this sector was one of the biggest losers of the day. As for the individual stocks, Caterpillar Inc. (NYSE:CAT), United Parcel Service, Inc. (NYSE:UPS), Emerson Electric Co. (NYSE:EMR), Deere & Company (NYSE:DE) and Union Pacific Corporation (NYSE:UNP) lost 1.7%, 0.5%, 0.5%, 5.4% and 3.3%, respectively.
Separately, the monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York showed positive trends. According to the report: “The February Empire State Manufacturing Survey indicates that manufacturing activity in New York State expanded for a third consecutive month. The general business conditions index rose six points to 19.5, its highest level in more than a year”. This was also substantively higher than consensus estimates of 14.7.
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