Economic, Euro Malaise Ignites Wall Street Plunge; Dow Off 380
Published August 18, 2011
| FOXBusiness
Reuters
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Wall Street plummeted deep into the red, although well off of the lows of the session, as traders grappled with global economic fears and an escalating euro zone sovereign debt crisis.
Today's Markets
As of 12:07 p.m ET, the Dow Jones Industrial Average plummeted 404 points, or 3.5%, to 11,006, the S&P 500 slid 46.5 points, or 3.9%, to 1,147 and the Nasdaq Composite tumbled 106 points, or 4.2%, to 2,405. The FOX 50 plunged 29.8 points to 831.
Big financial institutions like Citigroup (C: 27.67, -2.18, -7.30%) and Morgan Stanley (MS: 16.12, -0.89, -5.23%) took strongest beating. However, the selloff was broad, with energy players like Halliburton (HAL: 41.84, -3.61, -7.94%) and industrials such as General Electric (GE: 15.38, -0.85, -5.24%) coming under intense selling pressure as well.
In a sign of the uncertainty in the markets, safe-haven assets rallied in early trading. Gold -- which hit a record high in the previous session -- jumped $22.80, or 1.3%, to $1,817 a troy ounce. The benchmark 10-year treasury rallied, with the price soaring over $100, and the yield slumping to an all-time low below 2%.
Volatility was quite high on the day. Indeed, the VIX, often referred to as a gauge of fear, spiked 33%.
The economy has come squarely back into focus with a heavy stream of economic data released on Thursday. Morgan Stanley also warned the global economy is "dangerously close to a recession" and cut its global economic growth outlook significantly. Goldman Sachs also pared back its forecast of economic growth.
Manufacturing in the Philadelphia area contracted sharply in August. The Philadelphia Federal Reserve's gauge of manufacturing activity came in at -30.7, far short of expectations of 3.7. Reading above 0 point to expansion, while those below 0 indicate contraction.
A number below the -20 level is "rare outside of a recession" and poses a "very worrying development" for policymakers who are working to keep the economy afloat, according to economists at Barclays Capital.
The markets are being driven lower "not only be the euro zone ... but also a relentless release of domestic data that speaks to both an underlying inflationary environment and anemic – if not stagnant growth here in the U.S.," Peter Kenny, managing director at Knight Capital Group said in a note to clients.
Wall Street has also been paying close attention to the sovereign debt crisis in Europe for several months. The fears peaked last week when reports suggesting certain large European banking institutions may have issues gaining access to sufficient capital sparked massive selloffs and volatility.
A report on Thursday by The Wall Street Journal saying the Federal Reserve is very concerned about major European banks facing significant funding difficulties rekindled those fears. The Fed was also worried that the crisis on the other side of the Atlantic could spillover into the U.S. banking system, according to the report.
Major European financial services companies like Societe Generale, Barclays (BCS: 10.34, -1.24, -10.71%) and UBS (UBS: 13.47, -1.16, -7.93%) took sizeable losses on the news.
Earlier this week, French President Nicolas Sarkozy and German Chancellor Angela Merkel failed to quell market concerns after a summit failed to produce a specific solution to address sovereign debt concerns in the 17-member European Union.
Energy Markets Sell Off
Energy markets were under pressure amid economic concerns and a stronger dollar. Light, sweet crude plunged $4.39, or 5%, $83.27 a barrel. Wholesale RBOB gasoline dipped 9 cents, or 3.2%, to $2.78 a gallon.
In currencies, the euro fell 0.83% against the U.S. dollar, while the greenback climbed 0.41% against a basket of world currencies.
Data Deluge
Initial claims for unemployment benefits rose to 408,000 last week, from a revised 399,000 the prior week, coming in higher than the 400,000 economists forecast. Claims have been hovering about the 400,000-mark for weeks, which has led market participants to question the strength of the recovery in the jobs market.
Companies are firing at the slowest pace since the financial crisis in 2008, but hiring still remains too slow to "put a real dent in the unemployment rate," according to Peter Boockvar, managing director at Miller Tabak + Co.
Prices at at the consumer level climbed 0.5% in June -- a much faster pace than the 0.2% economists estimated. Excluding the more volatile food and energy components, the so-called core level was up 0.2%, which came in line with forecasts. Prices are up 3.6% from last year, or 1.8% on the core level. A report on Wednesday on producer prices came in above expectations on the core and headline levels.
U.S. existing home sales fell 3.5% in July from June to an annual rate of 4.67 million units. Economists had been expecting a 3.8% increase to a 4.9 million-unit rate.
Foreign Markets
The English FTSE 100 tumbled 4.5% to 5,092, the French CAC 40 plummeted 5.5% to 3,092 and the German DAX plunged 5.8% to 5,603.
In Asia, the Japanese Nikkei 225 slumped 1.3% to 8,943 and the Chinese Hang Seng slid 1.3% to 20,016.
Read more: http://www.foxbusiness.com/markets/2011/08/18/daily-market-update/#ixzz1VOqXhrdy
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