Tech lifts US stocks as market awaits Fed

NEW YORK—Apple and some other technology stocks led US markets higher Thursday ahead of next week’s hotly anticipated Federal Reserve monetary policy meeting.

The tech-rich Nasdaq Composite Index jumped 39.72 points (0.84 percent) to 4,796.25.

The Dow Jones Industrial Average rose 76.83 (0.47 percent) to 16,330.40, while the broad-based S&P 500 added 10.25 (0.53 percent) at 1,952.29.

Apple powered up 2.2 percent a day after unveiling a spate of new and upgraded smartphone, tablet and television products. Biotech stocks like Gilead Sciences (+3.3 percent) and Biogen (+3.0 percent) were also big gainers.

Charlie Bilello of Pension Partners said investors increasingly believe the Fed is unlikely to make the leap to raise zero-level benchmark interest rates at its policy meeting next Wednesday and Thursday.

“There’s increasing hope that they’re not going to do anything,” he said. “My view is that they’re not data-dependent, they’re stock market-dependent.”

Besides Apple, strong performers in the Dow included pharma giants Merck (+1.5 percent) and Pfizer (+2.1 percent).

ZS Pharma, a much smaller biopharmaceutical company, shot up 28.6 percent after Bloomberg reported it had been approached by Switzerland-based Actelion in a deal that would value ZS at about $2.5 billion.

Snack-food giant Mondelez International climbed 0.9 percent as it confirmed that it expects organic net revenue growth of at least three percent in 2015. It also announced plans to lift the share of revenues from healthy snacks to 50 percent by 2020.

Yoga-attire maker Lululemon Athletica tumbled 16.4 percent after it projected 35-37 cents per share in third-quarter earnings, well below the 43 cents expected by Wall Street analysts.

Cybersecurity company Palo Alto Networks rose 7.4 percent as it forecast sales of $280-$284 million for the current quarter, more than the $269.7 million expected by analysts.

Trucking and logistics company Con-way shot up 33.8 percent on news it will be acquired by rival XPO Logistics for $3.0 billion. XPO fell 11.0 percent.

Bond prices fell. The yield on the 10-year US Treasury rose to 2.23 percent from 2.19 percent Wednesday, while the 30-year advanced to 2.99 percent from 2.95 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks surge for 2nd straight day; S&P 500 up 2.43%

NEW YORK—US stocks posted big gains for the second straight session Thursday as strong American economic data extended a global rally that began with a surge in beaten-down Chinese equities.

The Dow Jones Industrial Average rose 369.26 points (2.27 percent) to 16,654.77.

The broad-based S&P 500 jumped 47.15 (2.43 percent) to 1,987.66, while the tech-rich Nasdaq Composite Index advanced 115.17 (2.45 percent) to 4,812.71.

The Commerce Department reported that the US economy grew at an annual rate of 3.7 percent in the second quarter, much higher than the 2.3 percent initially estimated.

The US growth report added to positive momentum from a 5.34 percent rise in the Shanghai stock exchange, ending the worst five-day rout for almost two decades, and solid gains in European bourses.

Stocks were positive all day, but lost most of their gains during a bumpy mid-afternoon stretch before regaining their footing.

“We have returned to a period where volatility has grown,” said David Levy, portfolio manager at Kenjol Capital Management. “We’ve seen very intense swings.”

Some investors were growing more confident after the US market held two straight days of gains.

“We went through a rocky week or two,” said David Kotok, chief investment officer at Cumberland Advisors. “I think we’re heading higher.”

All 30 members of the Dow rose, with specially large gains in Chevron (+6.2 percent), General Electric (+4.2 percent) and Nike (+3.6 percent).

Other petroleum-linked stocks surged after oil prices climbed more than 10 percent, rebounding from deep falls. Drilling company Nabors Industries jumped 12.2 percent, EOG Resources gained 6.8 percent and ConocoPhillips added 5.7 percent.

Technology stocks enjoyed big gains, including Netflix (+6.8 percent), Tesla Motors (+8.1 percent) and Apple and Facebook (both +2.9 percent).

Metals and oil producer Freeport-McMoRan powered 28.7 percent higher as it announced deep cuts to its capital budget in light of weak commodity prices. Freeport now expects to spend $4 billion in 2016, down 29 percent from its estimate a month ago.

PVH, which owns the Tommy Hilfiger and Calvin Klein apparel brands, rose 6 percent as it lifted its full-year profit forecast to $6.90-$7.00 per share, five cents above the prior range.

Bond prices were mixed. The yield on the 10-year US Treasury rose to 2.19 percent from 2.18 percent Wednesday, while the 30-year dropped to 2.93 percent from 2.94 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks finish lower; Apple -3.2%

NEW YORK–US stocks finished lower Tuesday following a mixed batch of earnings reports and another big decline by technology giant Apple.

The Dow Jones Industrial Average dropped 47.51 points (0.27 percent) to 17,550.69.

The broad-based S&P 500 fell 4.72 (0.22 percent) to 2,093.32, while the tech-rich Nasdaq Composite Index slid 9.84 (0.19 percent) to 5,105.55.

Apple fell 3.2 percent, leaving it down more than 12 percent since its July 21 earnings release. Analysts have cited fears of slowing growth, in part due to weakening conditions in China, a key Apple market.

Insurer Allstate fell 10.2 percent after a rise in payments for auto accidents dented second-quarter earnings, while handbag and accessories retailer Coach rose 3.2 percent after reporting better-than-expected results.

Biopharmaceutical company Baxalta jumped 11.9 percent on news that Dublin-based Shire offered to acquire the company for $30 billion. Shire fell 5.4 percent. Baxalta rejected the offer, saying it “significantly undervalues” the company.

Netflix shot up 7.7 percent as it confirmed it will launch its streaming television service in Japan on Sept. 2.

Priceline and Tesla Motors gained 3.5 percent and 2.4 percent, respectively, ahead of earnings releases Wednesday.

Chinese online marketplace Alibaba rose 1.1 percent on news that it appointed a senior Goldman Sachs banker, Michael Evans, as president, with an emphasis on globalizing the company.

American Express fell 0.3 percent after a US judge threw out a proposed class-action settlement with merchants on litigation over AmEx swiping fee restrictions. AmEx said it was disappointed with the decision.

CVS Health slid 2.5 percent after projecting earnings in the current quarter of $1.27-$1.30 per share, below the $1.37 forecast by Wall Street analysts.

American International Group shed 2.8 percent as net income for the second quarter rose 5.4 percent to $1.9 billion. The insurer also hiked its dividend and authorized up to $5 billion in new share repurchases, moves that BMO Capital Markets said were intended to compensate for a weak underwriting performance in some businesses.

Bond prices fell. The yield on the 10-year US Treasury rose to 2.23 percent from 2.15 percent Monday, while the 30-year advanced to 2.90 percent from 2.86 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks reach new records; Obama hits broadband firms

NEW YORK–US stock markets soared to fresh records Monday but Internet broadband carriers were hit hard by President Barack Obama’s call for tough net neutrality rules.

For the fourth straight session, the Dow Jones Industrial Average broke its all-time closing record, gaining 39.81 points (0.23 percent) at 17,613.74.

The S&P 500 added 6.34 (0.31 percent) at 2,038.26, its fourth record close in a row, while the Nasdaq Composite rose 19.08 (0.41 percent) to 4,651.62.

Obama’s statement against allowing large Internet service providers to discriminate between customers on Internet access and speeds was seen as a blow to an industry expecting to earn more by offering better broadband service and performance to preferred customers.

Comcast fell 4.0 percent, Time Warner Cable lost 4.9 percent, Charter Communications lost 6.2 percent, and Verizon fell 0.3 percent.

Nike led the Dow blue chips with a 1.3 percent gain, while Intel continued its slide with another 1.0 percent loss.

Among tech stocks, Amazon gained 1.8 percent while Chinese rival Alibaba soared 4.0 percent.

Merck shares dropped 0.9 percent after the failure of tests for an accelerated hepatitis C treatment.

Shares of rival pharmaceutical maker Gilead, whose hepatitis C treatment is selling strong despite a $90,000-plus cost, added 0.5 percent.

Bond prices fell. The yield on the 10-year US Treasury rose to 2.36 percent from 2.31 percent Friday, while the 30-year pushed to 3.09 percent from 3.05 percent. Bond prices and yields move inversely.

source: business.inquirer.net

Poor earnings at Sprint, Priceline push US stocks lower

NEW YORK–Shares of Sprint and Priceline tumbled Tuesday following disappointing earnings to help push the broad US equity market down, but buyers sent the blue chips of the Dow higher.

The Dow Jones Industrial Average finished up 17.60 points (0.10 percent) at 17,383.84.

The broad-based S&P 500 dropped 5.71 (0.28 percent) to 2,012.10, while the tech-rich Nasdaq Composite Index fell 15.27 (0.33 percent) to 4,623.64.

Sprint sank 16.5 percent as it announced it was slashing 2,000 jobs after reporting a $765 million loss in its fiscal second quarter.

Priceline tumbled 8.4 percent as it forecast fourth-quarter earnings of $9.40-$10.10 per share, well below the $10.91 projected by analysts. Rival online travel companies TripAdivsor (-1.7 percent) and Expedia (-2.4 percent) also fell.

Tuesday’s trade followed lackluster US economic data. New orders for US manufactured goods dropped $2.8 billion, or 0.6 percent, to $499.4 billion in September, the Commerce Department reported.

The US trade deficit widened in September to $43.0 billion as exports slowed and imports remained flat from the previous month.

Chinese e-commerce giant Alibaba rose 4.2 percent after it reported a 15 percent gain in third-quarter profits to $1.1 billion in its first earnings release since going public.

Petroleum stocks fell as US oil prices sank further below $80 a barrel. Dow member Chevron fell 1.2 percent, oil services company Weatherford International lost 7.6 percent and drilling company Transocean dropped 5.3 percent.

Delta Air Lines jumped 4.2 percent after reporting a three percent rise in consolidated passenger unit revenue in October, a closely watched industry benchmark. American Airlines and United Continental both gained 1.7 percent.

Apparel-maker Michael Kors slumped 8.4 percent on a disappointing outlook. The company forecast earnings of $1.31-$1.34 per share, compared with analyst projections for $1.34.

Bond prices rose. The yield on the 10-year US Treasury fell to 2.34 percent from 2.35 percent Monday, while the 30-year dropped to 3.05 percent from 3.07 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks finish flat on mixed data

NEW YORK–US stocks finished little changed Monday following mixed economic data as markets paused after last week’s records.

The Dow Jones Industrial Average fell 24.28 points (0.14 percent) to 17,366.24.

The broad-based S&P 500 dipped 0.24 (0.01 percent) to 2,017.81, while the tech-rich Nasdaq Composite Index gained 8.17 (0.18 percent) to 4,638.91.

The Institute for Supply Management’s purchasing managers’ index for October manufacturing rose to 59.0, with companies saying activity is picking up more than expected going into the yearend holiday shopping season.

But the Commerce Department reported Monday that US construction spending fell a second straight month in September, for a 0.4 percent annual decline, surprising analysts who expected a pickup.

“It’s not surprising (investors) are digesting a little bit after the highs” last week, said Mace Blicksilver, director of Marblehead Asset Management.

Chinese online vending giant Alibaba surged 3.25 percent to a new high, one day ahead of its first earnings after IPO.

Social messaging service Twitter, meanwhile, sank 3.0 percent, and Facebook lost 1.5 percent.

Petroleum industry stocks suffered as US oil prices fell to their lowest level since June 2012.

Dow members ExxonMobil and Chevron lost 1.5 percent and 2.6 percent, respectively, while oil services companies Diamond Offshore and Baker Hughes fell 5.7 percent and 2.0 percent.

Covance shot up 25.9 percent on news that it will be acquired by Laboratory Corp. of America for $5.6 billion to create a giant in healthcare diagnostics. LabCorp fell 7.4 percent.

Sapient soared 42.0 percent on news it will be acquired by French public relations giant Publicis for $3.7 billion.

Bond prices fell. The yield on the 10-year US Treasury rose to 2.35 percent from 2.34 percent Friday, while the 30-year rose to 3.07 percent from 3.06 percent Friday. Bond prices and yields move inversely.

source: business.inquirer.net

Anxiety over company earnings sends US stocks lower

NEW YORK–US stocks Monday finished modestly lower as investor caution returned to the market ahead of Wednesday’s unofficial kickoff of third-quarter company earnings reports.

The Dow Jones Industrial Average lost 17.78 points (0.10 percent) at 16,991.91.

The broad-based S&P 500 dipped 3.08 (0.16 percent) to 1,964.82, while the tech-rich Nasdaq Composite Index suffered deeper losses, falling 20.82 (0.47 percent) to 4,454.80.

Investors are nervous about the upcoming earnings reports in part because of fears that the dollar’s big rise has hit US profits, said Peter Cardillo, chief market economist at Rockwell Global Capital.

“People are going to be anxious to see how the few first major reports indicate the rest of the season, especially among the multinationals, because of the strong dollar,” he said.

Aluminum giant Alcoa reports financial results after the market closes Wednesday, kicking off the earnings season.

Analysts also cited profit taking as a factor in Monday’s dip in the wake of a strong September jobs report that pushed Wall Street stocks sharply higher Friday.

Hewlett-Packard advanced 4.7 percent after announcing it plans to split into two separate, listed companies, one focusing on computers and printers, the other on corporate hardware and services operations.

The move by the world’s second-largest personal computer maker is the latest in the technology sector based on the belief that tightly focused firms perform better.

BD, a medical device manufacturer, plans to acquire rival CareFusion for $12.2 billion, the companies announced. BD jumped 7.9 percent, while CareFusion soared 22.9 percent.

Hilton Worldwide fell 0.5 percent after announcing it would sell the legendary Waldorf Astoria hotel in New York City to Anbang Insurance Group of China for $1.95 billion.

Airline stocks fell on concerns about the Ebola virus. American Airlines dropped 3.6 percent, Delta Air Lines fell 2.3 percent and United Airlines lost 2.8 percent.

Bond prices were mixed. The yield on the 10-year US Treasury fell to 2.42 percent from 2.45 percent Friday, while the 30-year held steady at 3.13 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks finish higher on Alcoa earnings, Fed minutes

NEW YORK–US stocks Wednesday scored moderate gains following a solid kickoff to earnings season from Alcoa and Federal Reserve meeting minutes signaling an end to its bond-buying program in October.

The Dow Jones Industrial Average gained 78.99 points (0.47 percent) to 16,985.61.

The broad-based S&P 500 rose 9.12 (0.46 percent) to 1,972.83, while the tech-rich Nasdaq Composite Index advanced 27.57 (0.63 percent) to 4,419.03.

Wednesday’s gains snapped a two-day slide.

Alcoa unofficially kicked off second-quarter earnings season after markets closed Tuesday with profits of $138 million, up from a loss of $119 million a year ago. The company benefited from lower costs and said aluminum demand was on track to increase seven percent in 2014.

Alcoa shares shot up 5.7 percent to $15.69.

The Fed minutes of the June meeting of the policy-setting Federal Open Market Committee showed the central bank plans to end its bond-buying stimulus program in October.

But the Fed also expects it would not begin raising its near-zero benchmark interest rate for “a considerable time” after the asset-purchase program ends, “especially if projected inflation continued to run below the Committee’s 2 percent longer-run goal,” the minutes said.

“They still are not in any rush to change monetary policy,” said Peter Cardillo, chief market economist at Rockwell Global Capital.

American Airlines jumped 4.3 percent as it said it expects second-quarter pre-tax profit margins of 12-13 percent, up from the range of 10-12 percent estimated in May.

The Container Store sank 8.4 percent after the company reported a loss of $3.6 million in its fiscal first quarter on a 0.8 percent drop in comparable store sales.

“Consistent with so many of our fellow retailers, we are experiencing a retail ‘funk,’” said Kip Tindell, chief executive of the Container Store.

Salix Pharmaceuticals announced it reached a deal to combine with an Irish-based subsidiary of Cosmo Pharmaceuticals of Italy. The companies said the transaction will enhance Salix’s holdings in treating gastrointestinal disease and result in lower taxes. Salix shares fell 2.9 percent.

Bond prices rose. The yield on the 10-year US Treasury dipped to 2.55 percent from 2.57 percent Tuesday, while the 30-year dropped to 3.36 percent from 3.38 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks tank ahead of earnings reports

NEW YORK—US stocks tumbled Monday ahead of a raft of corporate reports as earnings season gets into full swing this week.

The Dow Jones Industrial Average shed 179.11 points (1.09 percent) at 16,257.94.

The broad-market S&P 500 skidded 23.17 (1.26 percent) to 1,819.20 and the tech-rich Nasdaq lost 61.36 (1.47 percent) at 4,113.30.

Stocks opened modestly lower then traded near the flatline until midday, before steadily selling off all afternoon.

Traders were “likely playing their cards close to the vest before 4Q earnings season and the economic calendar kick into gear,” Charles Schwab & Co. said in a market note.

On Tuesday, before markets open, JPMorgan Chase, the biggest US bank, and Wells Fargo will report earnings and the government will release data on December retail sales covering the important holiday shopping season.

Yoga apparel retailer Lululemon plunged 16.6 percent after lowering its fourth-quarter revenue and earning guidance and highlighting it saw January sales and traffic trends “decelerate meaningfully.”

Fashion retailer Express sank 4.6 percent after lowering its fourth-quarter guidance and reporting weak January traffic to date.

General Motors fell 1.1 percent after signaling it was close to resuming dividends, according to media reports. Its Chevrolet brand won the top car and truck of the year awards at the Detroit auto show.

In merger and acquisition news, Beam, the maker of Jim Beam bourbon, agreed to be acquired by Japan’s Suntory Holdings for $83.50 a share in a $16 billion deal creating the spirit sector’s third-largest player.

Beam skyrocketed 24.6 percent to $83.42.

Google slipped 0.6 percent. After the market closed, the search giant announced it was buying Nest, a smart-home company that makes thermostats and smoke alarms, for $3.2 billion in cash. Shares were up 0.5 percent in after-hours trading.

Chinese search engine Qihoo 360 Technology rose 3.0 percent after a Stifel upgrade from “hold” to “buy,” saying “2014 is the year of significant search monetization for Qihoo, fueling strong revenue growth and potential upside surprise.”

Bond prices rose. The yield on the 10-year US Treasury slipped to 2.83 percent from 2.86 percent Friday, while the 30-year fell to 3.77 percent from 3.80 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks finish lower as Fed meets

NEW YORK—US stocks Tuesday closed lower as investors awaited Wednesday’s conclusion of a much-anticipated US Federal Reserve policy meeting.

The Dow Jones Industrial Average dipped 9.31 points (0.06 percent) to 15,875.26.

The broad-based S&P 500 fell 5.54 (0.31 percent) to 1,781.00, while the tech-rich Nasdaq Composite Index gave up 5.84 (0.14 percent) at 4,023.68.


“Investors are basically sitting on their hands,” said Sam Stovall, chief investment strategist of S&P Capital IQ.

“Yesterday we had an oversold rally,” Stovall said. “And now, investors really don’t want to chase that rally for fear that the Fed will do or say something that turns this market back down.”

The Fed’s Federal Open Market Committee Tuesday kicked off a two-day meeting that will debate whether economic conditions are strong enough to immediately scale back the $85 billion a month quantitative-easing program.

Analysts disagree on the likelihood of a taper, but some, including Stovall, expect the Fed to announce a modest reduction of about $10 billion to bond purchases.

Facebook rose 2.0 percent after beginning to experiment with video ads on news feeds this week, potentially unlocking a big revenue source.

Petroleum pipeline company Williams Companies jumped 4.3 percent after Corvex Management and Soroban Master Fund disclosed that they together had acquired 8.8 percent of the company and seek board representation. The effort is the latest example of shareholder activism in the oil patch.

Dow component Boeing increased 0.9 percent after announcing a $10 billion share buyback and a 50 percent dividend hike.

Fellow Dow member 3M rose 2.9 percent after announcing a 35 percent dividend increase. The company also forecast 2014 earnings of $7.30-$7.55 per share, compared with analyst expectations of $7.40.

Hewlett-Packard tacked on 3.5 percent after JPMorgan Chase upgraded the stock. The JPMorgan note said challenges facing HP are “easing” and that the PC outlook is “starting to improve,” Barron’s reported.

Bond prices rose. The yield on the 10-year US Treasury fell to 2.84 percent from 2.88 percent Monday, while the 30-year declined to 3.87 percent from 3.90 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks end mostly lower after deluge of data

NEW YORK—US stocks Wednesday ended mostly lower after markets weighed a stream of generally solid economic data ahead of Friday’s big jobs report.

The Dow Jones Industrial Average lost 24.85 points (0.16 percent) at 15,889.77.

The broad-based S&P 500 fell 2.34 (0.13 percent) to 1,792.81 while the tech-rich Nasdaq Composite Index inched up 0.80 (0.02 percent) to 4,038.01.

Markets were in negative territory most of the day after payrolls firm ADP reported strong jobs growth, the US trade deficit declined and October new-home sales notched a 25.4 percent rise compared with the prior month.

On the downside, the Institute for Supply Management’s purchasing managers index for service sector activity fell to 53.9, below the 55 consensus estimate.

But markets pared losses after the Federal Reserve released its Beige Book report, which painted a generally good picture of the economy in the wake of October’s partial government shutdown.

Analysts are awaiting Friday’s monthly jobs report, which could signal whether the Federal Reserve is likely to accelerate a plan to scale back its bond-buying program.

Anthony Conroy, head of global trading at Bank of New York Convergex, said traders are in “more of a profit-taking mood” in anticipation a Fed taper, most likely early in 2014.

“Everybody is looking to every data point trying to get a sense of what the Fed is going to do,” Conroy said.

Conroy does not expect major market swings before the Fed winds up its next policy meeting on December 18.

Agriculture equipment manufacturer Deere & Co. rose 3.2 percent after announcing it was boosting its share buyback program by $8 billion.

Retailer JC Penney fell 4.5 percent despite reporting a 10.1 percent jump in comparable-store sales in November over last year. Sterne Agee called the sales a “step in the right direction,” but said the result was “certainly not heroic” in light of aggressive promotions.

Apparel retailer Express plummeted 23 percent after projecting fourth-quarter earnings of 66-71 cents per share, well below the 78 cents seen by analysts.

Fertilizer company CF Industries shot up 10.7 percent after suggesting it would maintain or accelerate its ongoing share buyback program.

Bond prices fell. The yield on the 10-year US Treasury rose to 2.84 percent from 2.78 percent Tuesday, while the 30-year increased to 3.91 percent from 3.84 percent. Bond prices and yields move inversely.

source: business.inquirer.net

US stocks retreat as Fed keeps stimulus going

NEW YORK CITY—US stocks Wednesday closed lower after the US Federal Reserve maintained an aggressive monetary stimulus program and reiterated that it will await stronger economic conditions before scaling it back.

The Dow Jones Industrial Average fell 61.59 (0.39 percent) to 15,618.76.

The broad-based S&P 500 declined 8.64 (0.49 percent) to 1,763.31, while the tech-rich Nasdaq Composite Index gave up 21.72 (0.55 percent) at 3,930.62.


The Fed’s decision to hold steady on its $85 billion per-month bond-buying program, though bullish for stocks, was widely anticipated and had helped propel the Dow and S&P 500 to records Tuesday.

Analysts said the markets were due for a break.

“It’s just a case of profit taking,” said William Lynch, director of investment for Hinsdale Associates.

The market “has been so strong that it’s been due for a breather.”

US auto giant General Motors powered 3.2 percent higher after earnings excluding special items bested expectations by three cents at 96 cents per share. The company reported better results in North America and a narrowed loss in Europe.

Video game developer Electronic Arts jumped 7.8 percent after reporting earnings of 33 cents per share, more than double the 12 cents expected by analysts. The company also raised its earnings forecast.

Pharmaceutical company Gilead Sciences jumped 4.6 percent after earnings rose 17 percent to $788.6 million and the company raised its revenue forecast and plans for research and development spending. Sales of antiviral products were particularly strong.

Money transfer firm Western Union sank 12.4 percent after announcing that it expects operating profit growth to stall in 2014 due to significantly higher regulatory costs.

Internet networking site LinkedIn sank 9.3 percent after the company’s fourth-quarter revenue forecast of $415-$420 million lagged analyst forecasts of $438.1 million.

Bond prices fell. The yield on the 10-year US Treasury rose to 2.53 percent from 2.51 percent Tuesday, while the 30-year edged higher to 3.63 percent from 3.62 percent. Bond prices and yields move inversely.

source: business.inquirer.net

Fitch puts US debt rating on watch for downgrade

WASHINGTON—Rating agency Fitch on Tuesday put the United States on warning for a downgrade after Congress failed to reach a deal on raising the country’s debt ceiling.

Fitch placed the United States’s top-grade AAA rating on a “negative watch,” citing the possibility the Treasury could default on its obligations after October 17 if the ceiling is not raised.

“The US authorities have not raised the federal debt ceiling in a timely manner,” Fitch said.

“Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default.”

The Fitch move came after a day of politicking in Congress revealed Republicans and Democrats remained far apart over a deal to fund the government and increase the $16.7 trillion debt ceiling.

US Treasury Secretary Jacob Lew has repeatedly warned that as of October 17 the government will not have any more room to borrow under the ceiling to cover the federal deficit, and that the Treasury’s cash level will be a small $30 billion.

After that, the risk steadily rises that the Treasury will default on its obligations, including possibly its debt.

“The Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so,” noted Fitch.

Even if it can, the US government would risk missing payments to suppliers and employees, as well as social security payments to citizens, “all of which would damage the perception of US sovereign creditworthiness and the economy,” the agency said.

In addition, it said, “the prolonged negotiations over raising the debt ceiling… risks undermining confidence in the role of the US dollar as the preeminent global reserve currency.”

Fitch said that if the US was forced into default, it would reduce the US sovereign credit grade to “restricted default” based on the belief that Washington would quickly move to make good on the debt.

But it would cut the rating on the specific debt affected by missed payments to B+ from AAA, the highest rating it could give defaulted securities, in expectation that the default would be “cured.”

Still, Fitch said that if and when the political gridlock is overcome and the ceiling is raised, allowing the Treasury to balance its finances, it would review the rating based on how the problem was solved “and the perceived risk of a similar episode occurring in the future.”

The proposals in Congress Tuesday left open the prospect for a new crisis in January and February.

A Treasury spokesperson said in reaction: “The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy.”

source: business.inquirer.net