Commodities, Miners and Energy Majors Fall

Posted on | June 22, 2009 |

US stock markets opened lower this afternoon, as downward global growth revisions by The World Bank encouraged investors to take profits across various sectors.

‘The worries are still out there,’ said John Wilson at Morgan Keegan & Co. ‘Nobody is ready to get the trumpets out and herald the end of the recession.’ [1]

The World Bank predicted that the recession would be deeper than it had initially anticipated this year and downwardly revised its global GDP forecasts to show a 2.9% contraction for the year, compared to an earlier estimate for a 1.7% decline. This left the market extremely disappointed, as it conflicted with expectations for a modest improvement in the International Monetary Fund’s global GDP projections.

Fear over weakening global demand hit commodities, with copper seen tumbling as much as 4% to $4,831 a metric ton, trimming its 2009 advance to 57%, and aluminium retreating 4.1% to $1,611 per ton. Crude oil futures were also knocked for a second day, with the July WTI contract dropping 3.2% to $67.34 a barrel and the August Brent contract down 2.9% to $67.15 a barrel.

Not surprisingly, miners and energy majors tracked the downward trend in underlying commodities today, with shares in US aluminium producer Alcoa plunging 6% to $10.34, Freeport-McMoRan Copper & Gold tumbling 8% $46.81 and Newmont Mining down 3.9% to $40.26. In the energy sector, Schlumberger sank 4.5% to $52.83, ConocoPhillips fell 3.7% to $41.38 and Chevron declined 2.7% to $66.19 a share.

Banks also exerted pressure on US indices today, with the likes of Bank of America down by more than 4.9% to $12.57 after board members Tommy Franks and Joseph Prueher resigned from their posts, bringing the total number of departing directors since April to seven. Shares in Wells Fargo dropped 4% to $23.22, while JPMorgan Chase slid 2% to $34.24.

Elsewhere, Apple had initially started off in positive territory but negative sentiment dominating markets later took its toll. Its share price had initially garnered some support after optimism about the launch of its new iPhone model. Founder Steve Jobs, who has been on medical leave since January, may have also helped Apple’s share price at the start of trading today. It has emerged that he will resume his position on a part time basis at the end of this month.

Microsoft, meanwhile, fell 1.8% to $23.63, despite Barons News suggesting that the company is looking ’super cheap’. The financial news company believes that Mircosoft’s new search engine Bing will help drive growth.

By 3.30pm (London time), the Dow Jones Industrial Average was down by 124.17 points (-1.45%) to 8415.56, while the S&P 500 had declined 17.45 points (-1.9%) to 903.78.

It is worth noting that the Fed is scheduled to purchase Treasuries maturing December 2013 to April 2016 today, as part of plan to lower borrowing costs and revive the economy. The market is also beginning to speculate that policymakers will signal that the central bank may buy more debt during this week’s FOMC meeting.

[1] Source: Bloomberg News (22 June 2009)

By Anthony Grech, Research Analyst, IG Index.

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