Not all is well on the Wall street

Dow's triple digit gains are completely wiped out as yuan dominates everybody's mind

US stocks erased triple digit gains at Wall Street on Monday, 21 June 2010 and ultimately ended little lower. Traders continued to mull over the fact of unleashed yuan's effect on world trade though the same has been considered good till now. Stocks started the day higher riding on the back of strong Asian stocks across the world but the rally fizzled out due to the lack of any support on any major front. Corporate news and data flow was not there today to dictate market momentum.



For the day, that ended on Friday, 21 June 2010, Dow ended lower by 8.23 points at 10,442.41. Nasdaq ended lower by 20.71 points at 2289.09. S&P 500 ended lower by 4.31 points at 1113.02. Dow was trading higher by 141 points earlier during the day.

Eight of ten economic sectors ended lower led by consumer discretionary, technology and utilities sectors. Seventeen of thirty Dow components ended lower.

Though Beijing has yet to make any formal announcements related to actually un-pegging its yuan, the government there has restricted any substantial immediate movement in the currency by allowing only a 0.5% move in either direction per day. But this step has been viewed in the light that a stronger yuan will benefit the Chinese economy as it shifts to a service-based economy. Moreover, a stronger yuan will boost consumption by increasing purchasing power, while also fighting inflation. A move to a stronger yuan also benefits U.S. companies that export to China since they will receive more dollars when profits are repatriated. Conversely, Chinese exporters are hurt by a stronger yuan as the relative cost of their goods becomes more expensive for U.S. consumers and the dollar buys fewer goods that are denominated in yuan.

Another important implication of stronger yuan is a reduced ability for China to purchase foreign reserves, including U.S. Treasuries. China has long been a ready buyer of U.S. debt, which has helped finance the government's deficits in recent years.

China's decision to unleash its currency against the dollar was viewed as a positive for commodities sector across the world. Thus natural resource plays saw some of the strongest gains earlier in the day today. However, early buying lost momentum and the sector finished with a marginal gain.

The sector's downturn followed that of the broader market, which was unable to produce any kind of follow through after its initial gap higher in the opening minutes of trade. In turn, it descended steadily for the rest of the session.

Retailers were hit with some of the hardest selling pressure. Tech stocks weren't far behind, though. The sector, which is the largest by market weight, booked a substantial loss. Its weakness imbued the Nasdaq, which underperformed the other headline indices for almost the entire session. Amazon.com was one of the weaker performers in the index after reports indicated the company has cut prices on Kindle, the company's electronic reader.

Bullion metal prices ended substantially lower on Monday, 21 June 2010 at Comex. This came just a day after bullion metals touched record highs. Gold started the day swerving in and out positive territory, when China's currency move to free its currency against the US dollar was viewed alternatively as neutral or negative for gold.

On Monday, gold for August delivery ended at $1,240.7 an ounce, lower by $17.6 (1.4%) an ounce on the New York Mercantile Exchange. July Comex silver futures ended lower by 38 cents (1.9%) at $18.8 an ounce.

In the currency market on Monday, the dollar index shook off initial weakness and the dollar index, which measures the strength of the dollar against a basket of six other currencies rose by 0.6%.

Volatile crude oil prices managed to end higher on Monday, 21 June 2010 at Nymex. Prices rose as demand for oil from China seemed to be rising in current months. On Monday, crude-oil futures for light sweet crude for August delivery closed at $78.61/barrel (higher by $0.35 or 0.4%). During intra day trading, prices rose to a high of $79.97.

China's plan of freeing its currency against the dollar has been viewed well for commodities and the global economy. A report showed today that China's apparent oil demand continued to climb at a steady clip. Demand rose 9.8% in May compared to the same month last year. The processing of crude oil in China rose 14.4% on year in May thereby boosting prices.

On Monday, natural gas for July delivery reversed course, losing 12 cents, or 2.5%, to $4.87 per million British thermal units, moderating earlier gains.

For every two issues rising, three declined on the New York Stock Exchange, where nearly 1.1 billion shares traded.

Indian ADRs ended mixed on Monday but with more gainers than losers. Banking stocks were the main gainers with HDFC Bank and ICICI Bank gaining 2.7% and 2.3% respectively. WNS shed 14.7% respectively.

For tomorrow, the economic reports expected are existing home sales data and housing price index data. Few earning reports are also expected.