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Shares and Commodities Fall on Currency Concerns

Published in The New York Times


By Christine Hauser

Nov. 12, 2010

Stocks fell Friday and commodity prices declined, reflecting concerns about global issues and the possibility of a slower economy in China. The declines came after world leaders at the G-20 summit meeting in Seoul, South Korea, came up with an agreement that fell short of the Obama administration’s goals for trade surpluses and deficits. Investors were also apparently reacting to signs of financial pressures in Europe and to the possibility that China’s higher-than-forecast inflation rate of 4.4 percent in October could lead to measures to slow its economy. Doug Roberts, the chief investment strategist for Channel Capital Research Institute, said that in addition to the focus on China, there were outstanding questions about the effect of the Federal Reserve’s resumption of buying Treasuries.

The Fed announced last week that it would buy government securities worth $600 billion as a way to stimulate the economy. It began the new round with a purchase of $7.23 billion in Treasury paper Friday, according to Reuters.“What is driving everything is really the quantitative easing, and people wondering how successful it is going to be,” Mr. Roberts said of the program aimed at jolting the economy into recovery.

The Dow Jones industrial average fell 90.52 points, or 0.8 percent, to 11,192.58 on Friday. The Dow was down 2.2 percent for the week, but is up 7.33 percent so far this year.The Standard & Poor’s 500-stock index declined 14.33 points, or 1.18 percent, to 1,199.21. It was down 2.2 percent for the week, but is up 7.54 percent for the year. The Nasdaq composite index, which includes many technology stocks, slid 37.31 points, or 1.46 percent, to 2,518.21. It was down 2.4 percent for the week, but is up 10.98 percent so far this year.

“Nothing is a one-way bet,” said Bart Melek, a global commodity strategist for BMO Capital Markets. “Typically markets look to sell off and make some profit.”He said one of the catalysts on Friday was related to expectations that China would act after its latest inflation report, ultimately affecting its appetite for commodities. “There is wide speculation that China is going to undertake a program of monetary tightening,” he said. “The consensus is building that China will likely slow things down a little bit.” The worries also sent crude oil futures down nearly 3 percent, while gold prices also fell.

“Commodities have moved sharply into reverse as markets fear further tightening from China,” following the inflation report and expectations that inflation will keep rising, Edel Tully, head of precious metals strategy at UBS, wrote in a research note.Stocks of materials companies fell more than 2 percent, while energy and industrial shares fell more than 1 percent. “China was a big catalyst to that,” said Alan B. Lancz, the president of Alan B. Lancz & Associates. “Obviously China has a big role in global economic growth, so that might force some investors to take risk off the table.” President Obama and other leaders wrapped up the G-20 meeting with an agreement to curb “persistently large imbalances” in saving and spending. But there is still outstanding friction over currency, Mr. Roberts of Channel Capital said.

China, which accounts for most of the United States trade deficit, has managed to resist pressure to allow its currency to appreciate quickly, and Mr. Obama said the Chinese currency issue was an “irritant” to the United States as well as “to a lot of China’s trading partners and those who are competing with China to sell goods around the world.”Investors have been watching corporate earnings and economic indicators for trading cues in recent weeks, but developments in Asia and global markets, including concerns over borrowing costs in Europe, have captured the market’s focus this week. Mr. Melek said concern that some European countries, particularly Ireland, could be restructuring their sovereign debt was another reason for a lower market Friday. The technology sector declined for a second day, because of disappointing earnings forecasts from Cisco. Shares of Cisco fell 37 cents, or 1.80 percent, to $20.15.

Intel said it was raising its quarterly dividend to 18 cents a share, starting in the first quarter of next year. Shares of Intel rose 32 cents, or 1.51 percent, to $21.53.Shares of Nvidia rose 65 cents, or 5.15 percent, to $13.26, after the company said that its third-quarter profit was stronger than expected. Citigroup and Bank of America declined. Citigroup lost 7 cents, or 1.61 percent, to $4.29, while Bank of America dropped 25 cents, or 2.02 percent, to $12.12.

The Thomson Reuters/University of Michigan’s preliminary November reading on consumer sentiment failed to lift market spirits, even though it came in at 69.3, up from 67.7 in October and slightly higher than the median Reuters forecast of 69.0.The price on the 10-year Treasury note fell 1 7/32, to 98 19/32. The yield rose to 2.79 percent from 2.63 percent late Wednesday. The bond market was closed Thursday for Veterans Day. The dollar edged down on its weighted index against a range of currencies. The euro was up to $1.3693. The American market followed declines in Europe and Asia.

The FTSE 100 in Britain was down 18.36 points, or 0.32 percent, to 5,796.87, while the DAX index in Germany declined 11.2 points, or 0.17 percent, to 6,734.61.The CAC 40 in France was lower by 36.23 points, or 0.94 percent, at 3,831.12.