Stocks slumped on Thursday as a jump in Treasury yields after China's revaluation of the yuan currency raised concerns the country will buy fewer U.S. bonds, says Standard & Poor's MarketScope. China, in a surprise move, announced it would no longer peg the yuan to the U.S. dollar.
The Dow Jones industrial average fell 61.38 points, or 0.57%, to 10,627.77. The broader Standard & Poor's 500 index was down 8.16 points, or 0.66%, to 1,227.04. The tech-heavy Nasdaq composite lost 9.97 points, or 0.46%, to 2,178.6.
The dollar fell after officials in Beijing revalued its currency to 8.11 yuan to the dollar, which amounts to a 2% increase in its value, according to news reports. This move is eventually likely to give U.S. exporters a boost, says Standard & Poor's MarketScope.
There are no major economic reports coming Friday.
Companies on Friday's earnings calendar include energy plays such as Halliburton (HAL ), Schlumberger (SLB ), and Occidental Petroleum (OXY ), along with Kimberly-Clark (KMB ), Maytag (MYG ), and Manor Care (HCR ).
Investors will also digest earnings news from Google (GOOG ) and Microsoft (MSFT ) coming after Thursday's market close.
In London, explosions struck the city's transport system Thursday, shutting down three Underground train stations and blowing out the windows of a double-decker bus, authorities said, according to the Associated Press. One casualty was reported initially in a confusing series of incidents that bore similarities to the July 7 attacks, when four suicide bombers killed 52 people and themselves on three Underground trains and a bus, the AP said.
Fed Chairman Alan Greenspan concluded his semiannual testimony before the Senate Thursday with no new revelations on the economy or monetary policy compared to what we learned yesterday, reports Action Economics. "The Fed chief, in his final monetary report to Congress this week, told the markets rates will continue to be pushed higher, and suggested the pace will still be measured," says Action. Though he didn't say how high, most Fedwatchers figure the Fed funds rate will be 4% before the year is out, says Action.
Investors got more of the Fed's thinking in the afternoon release of the FOMC minutes from the June 29-30 meeting. Fed members concurred that the "measured" language still correctly characterized the outlook, reports Action Economics. Members also agreed that with resources becoming more scarce, they needed to be "particularly alert to signs of inflation."
Thursday's economic calendar also included the July Philadelphia Fed index, which rebounded to 9.6 in July as business activity picked up after a surprising 2.2 contraction in June, says Action Economics. Employment slowed as the index slipped to 3.4 from 7.1. New orders were 5.0 from 2.5. Prices paid edged up to 26.5 from 23.5.
The June index of leading economic indicators (LEI) surged 0.9% to 137.7, well above the median forecast.
U.S. jobless claims fell 34,000 to 303,000 in the week ended July 16, largely erasing the combined 26,000 gains over the previous two weeks. It looks like auto retoolings and the residual from the July 4 holiday could still be impacting, says Action Economics.
On the earnings calendar, eBay (EBAY ) reported second-quarter earnings per share of 21 cents, vs. 14 cents a year ago (GAAP), on a 40% revenue rise. The online auction company sees 77-78 cents 2005 EPS (GAAP) on revenue of $4.34 billion to $4.41 billion. The shares surged on the news.
Qualcomm (QCOM ) posted third-quarter EPS of 33 cents, vs. 29 cents, on a slight revenue rise. It raised fiscal year 2005 EPS (pro forma) guidance to $1.13-$1.15 from $1.10-$1.14 on revenue of $5.55 billion to $5.65 billion.
However, Nokia (NOK ) shares fell after the cell phone maker posted lower-than-expected second-quarter net profit of €799 million, vs. €695 million on a 25% revenue rise. It sees third-quarter sales of €7.9 billion to €8.2 billion.
Verisign (VRSN ) also moved lower after the company reported 15 cents, vs. 9 cents, second-quarter EPS (GAAP) on 74% rise in revenue. It cited global services growth and healthy cash flow.
Treasury yields surged after the Chinese revalued the yuan by 2.1%, abandoned the peg, and left the door open to further moves. A repeat of relatively hawkish Fedspeak from Greenspan before the Senate and evidence in the FOMC minutes that his views were shared provided additional impetus to the upside after a fresh spate of botched London underground bombings briefly boosted the terror premium, says Action Economics. The 10-year note yield climbed to 4.28%.
European stock markets finished higher on Thursday, as China decided to revalue the yuan against the dollar for the first time in a decade. The markets were also being helped by lower oil prices.
After a confusing flow of news about incidents in the city's transportation system, London's FTSE 100 index closed up 6.4 points, or 0.12%, to 5,221.6.
Germany's DAX index climbed 45.37 points, or 0.95%, to 4,829.87.
In Paris, the CAC 40 index rose 7.27 points, or 0.16%, to 4,425.66.
Asian markets closed mixed on Thursday. In Japan, the Nikkei index closed down marginally at 11,786.73,as banking shares fell and exporters rose.
In Hong Kong, the Hang Seng index gained 17.44 points, or 0.12%, to 14,620.14. Gains in oil producer CNOOC and China Mobile contributed to the Hang Seng's modest rise, reports Standard & Poor's MarketScope.