US stockmarkets fell for the first time in five weeks on Friday with a fall driven by another set of less than encouraging news on consumer sentiment.
The first reading of August consumer sentiment from the Reuters/University of Michigan Survey showed consumer confidence fell to its lowest level since March.
That’s when the market was bottoming out and just starting the current rebound.
Not helping was news during the day of a deal to dismember a big regional bank, Colonial BancGroup of Alabama.
It failed Friday night in the biggest collapse so far in 2009.
Regulators sold $US22 billion of the bank’s $US25 billion assets to a rival, BB&T Corp.
The remaining $US3 billion looks like being a cost to the main regulator, the FDIC, which insures bank deposits.
It was one of five banks closed and/or sold off in the US on Friday. The other four banks were in Arizona, Nevada and Pennsylvania.
The closures boosted to 77 the number of federally insured banks that have failed in 2009.
The failure of Colonial is expected to cost the deposit insurance fund an estimated $US2.8 billion and pushes the amount of losses for the key regulator to just over $US18 billion so far in 2009, which is now more than last year which was boosted by losses from the failures of Washington Mutual and IndyMac banks.
The news of the sizeable failure (which could cut home lending in some parts of the US even deeper) will rattle investor sentiment already strained by the growing realisation that consumers are too weak to help the recovery.
A series of reports last week and the week before were ignored by markets as they showed weaker-than-expected reports on consumer activity.
Now it’s closer to the forefront of market thinking, so investors will now be driven as much by those fears (even if inflation isn’t a concern) than any other factor.
The Dow fell 76.79 points, or 0.8%, on Friday to 9,321.40; the Standard & Poor’s 500 Index lost 8.64 points, or 0.85%, to 1,004.09 and Nasdaq dropped 23.83 points, or 1.2%, to 1,985.52.
For the week, the Dow shed half a per cent, the S&P fell 0.6% and Nasdaq slid 0.7%.
Retail stocks fell, a victim of the poor sentiment data and a weak outlook from department store JC Penney Inc which lost more than 6% Friday.
A small but welcome rise in US industrial output in July (for the first time in nine months) rose more than expected, and consumer price inflation remains under control.
As welcome as the Fed’s news on production was, as usual when you looked into the figures, the news wasn’t as encouraging: the rise flowed from higher production of cars and nothing else.
That came from the American car scrappage scheme which boosted output in the final weeks of the month.
"Aside from a hurricane-related rebound in October 2008, the gain in July marked the first monthly increase since December 2007," the Fed reported.
"Manufacturing output advanced 1.0 percent in July; most of the increase was due to a jump in motor vehicle assemblies from an annual rate of 4.1 million units in June to 5.9 million units in July.
"Excluding motor vehicles and parts, manufacturing production edged up 0.2 percent. The output of utilities fell 2.4 percent, reflecting unseasonably mild temperatures in July, and the output of mines increased 0.8 percent.
"At 96.0 percent of its 2002 average, total industrial production was 13.1 percent below its level of a year earlier.
"In July, the capacity utilization rate for total industry edged up to 68.5 percent, a level 12.4 percentage points below its 1972-2008 average."
The capacity utilisation figure, as dry as it sounds, tells us the US economy is nowhere approaching any sort of recovery. Markets will get excited when it moves past 75%.
The Consumer Price Index (CPI) was unchanged in July, as expected.
CPI rose 0.7% in June. The so-called core CPI, which strips out volatile food and energy prices, rose 0.1%, as expected. Core CPI rose 0.2% in June.
The news on the economy, especially consumer sentiment, added to the downward pressure on US Treasury bond yields.
The 10 year bond yield fell to 3.54% Friday from 3.6% Thursday and 3.71% Wednesday, a sizeable fall.
European markets ended lower and Asian markets mostly ended higher.
European shares reacted to the consumer sentiment figures in the US (which have now fallen for the past three months).
The Dow Jones Stoxx 600 Index lost 0.8% to 228.77 ending four weeks of gains.
European growth improved to be down 0.1% in the second quarter as Germany and France rebounded on government spending but Spain saw more bad news and the worst growth figures since they were started in 1970.
Indexes fell in 10 of the 18 main European markets. London’s FTSE 100 lost 0.4%, and France’s CAC 40 decreased 0.7%. Germany’s DAX fell 2.8%.
London had risen for the previous four weeks; the Footsie rose the highest since October on Thursday.
In Asia, China’s correction had no impact on the region’s performance.
The MSCI Asia Pacific Index rose 3.2% to 114.23 last week.
The index is up 62% from its March 9 five-year low. Japan and Australian markets both rose for a 5th week in a row.
The local market rose 3.7% with banks driving much of the gains (and the gains in the region).
The CBA rose 5.8%, Westpac, 6.9% and the NAB 8.8%.
JB Hi-Fi capped a good week with a gain of 12.2%. James Hardie ros
