Global Markets Overview 08/08/2011
US Markets
Standard & Poor's took the unprecedented step of downgrading the U.S. government's "AAA" sovereign credit rating Friday in a move that could send shock waves through global financial markets and potentially undermine world economic growth. In a press release, S&P, cut its top-notch long-term credit rating for the U.S. Treasury's debt to AA+ with a negative outlook.
[Kick off your trading day with our newsletter]
It is the first time in modern history that one of the three main ratings firms has stripped the U.S. of its coveted AAA rating. While the timing of Friday's evening's downgrade surprised some market participants and followed a tumultuous week for global markets, others noted that the possibility of S&P's move had been well telegraphed for weeks while Congress wrangled over raising the debt ceiling.
Analysts were closely watching the outcome of a planned conference call among the Group of Seven finance ministers and an emergency meeting of the European Central Bank Sunday. The balance of opinion is divided on whether a coordinated policy response would be needed to calm the frayed nerves of investors, but a G-7 response also depends on how badly markets react to the downgrade.
U.S. blue-chip stocks closed higher Friday in a whipsawed trading session, but it wasn't enough to prevent major indexes from staging the biggest weekly decline since the financial crisis. The Dow Jones Industrial Average finished up 60.93 points, or 0.54%, at 11444.61. For the week, the blue-chip index finished down 698.63 points, or 5.75%, its biggest weekly point drop since October 2008. It has dropped 9.75% over the last two weeks and is down 1.15% for the year. Stocks experienced turbulent trading through much of Friday's session.
The Dow gained as much as 171.73 points minutes after the open following a better than expected U.S. jobs report, but lost those gains within the first half-hour of trading and dropped as much as 244.68 points at its morning low. The Standard & Poor's 500-stock index edged 0.69 point, or 0.06%, lower to 1199.38. For the week, it finished down 7.2%, its biggest percentage drop since November 2008. The index is down 10.83% throughout the last two weeks.
The Nasdaq Composite Index tumbled 23.98 points, or 0.94%, to 2532.41. The technology-oriented index slumped 8.13% during the week and is down 11.42% over the last two weeks. Volume was heavy, with 8.62 billion shares traded in NYSE composite volume. It was the largest volume day since May 7, 2010, the day after the flash crash. By comparison, average daily volume this year is 4.14 billion, excluding Friday's action.
European Markets
European stock markets ended sharply lower in a volatile session Friday, extending a global selloff, though stronger-than-expected U.S. jobs data helped shares trade above their session lows. The Stoxx Europe 600 index dropped for the sixth straight session, ending 1.8% lower at 238.88, its lowest close since July 2010. The index tumbled as much as 3.3% earlier in the day as fears over European sovereign debt gripped investors, and fell 10% for the week. European stocks were helped off their lows for the day by data showing the U.S. economy added 117,000 jobs in July, beating the consensus forecast, as the unemployment rate edged down to 9.1%.
Against this backdrop, some European financial stocks that have been hammered in recent sessions managed to post gains Friday, along with cyclical stocks that have been hit by recession worries. Top gainers included French bank Natixis, which saw shares soar 11% after reporting a modest 3% drop in second-quarter net profit late Thursday. Telecom equipment provider Alcatel-Lucent rose 3.5%. Still, the French CAC 40 index fell 1.3% to close at 3,278.56, including a 3% drop for oil giant Total as crude-oil futures added to Thursday's heavy losses.
Shares of Spanish and Italian banks also rose, with UniCredit SpA up 2%. The Italian FTSE MIB index still fell 0.6% to 16,028.8, while the Spanish IBEX 35 index ended virtually unchanged. For the week, the FTSE MIB declined 13%. U.K. banks were among the worst performers in Europe. Shares of Royal Bank of Scotland Group PLC dropped 6.9%. The stock, however, had tumbled more than 20% in early trading after second-quarter financial results showed the bank swinging to a loss and taking hefty impairment charges on its Greek debt holdings.
London's FTSE 100 index dropped 2.7% to close at 5,246.99. In Frankfurt, the German DAX 30 index sank 2.8% to finish at 6,236.16. Decliners included a 4.5% fall for Allianz SE after the insurer reported an 8.2% drop in net profit for the second quarter, driven by a write-down on its holdings of Greek government debt.
Asian Market
Asian stock markets were pounded Friday as a severe sell-off on Wall Street and escalating fears over the global economic outlook took a heavy toll on investor confidence, prompting a flight to safety. The stampede out of equities spared few sectors or individual stocks as losing stocks overwhelmed gainers across Asia, wiping out hundreds of billions of dollars in market capitalization across the region. China's Shanghai Composite Index was the best performer among the major markets in the region, finishing 2.2% lower at 2,626.42.
Other markets lost even more heavily, with Hong Kong's Hang Seng Index diving 4.3% to 20,946.14, Japan's Nikkei Stock Average dropping 3.7% at 9,299.88, Taiwan's Taiex plunging 5.6% to 7,853.13, and South Korea's Kospi off 3.7% to 1,943.75. The session erased more than $136 billion in market value of companies listed on Japanese stock exchanges, according to data from FactSet Research. The Hong Kong stock exchange lost more than $132 billion in investor wealth, with the two main Chinese stock exchanges losing more than $84 billion.
Friday's performance left Taiwan's benchmark index with a net weekly loss of more than 9%, which was followed closely by an 8.9% decline for the Kospi. Financial stocks were again among the worst hit stocks in Asia, with Nomura Holdings Inc. down 5.4% and HSBC Holdings PLC down 4.3%. In Tokyo, Inpex Corp. shares fell 6.8% in Tokyo, while Cnooc Ltd. dropped 6.1% in Hong Kong.
Commodities
Copper limped to its fifth consecutive negative close on the London Metal Exchange Friday, capping off a week that saw the metal shed 8% of its value amid the worst pan-asset class sell-off since the height of the financial crisis. While copper's worst losses were initially pared following a better than expected monthly payroll reading from the U.S., the red metal slid once more later in the session as the data failed to alleviate concerns over weak global growth, said analysts.
At the close, LME three-month copper was down 3.4% at $9,040/ton from Thursday's kerb close, its lowest close since late June. Losses were mirrored throughout the complex, with zinc dropping the most, closing the day 5.6% lower at $2,199.5/ton. Crude oil futures prices finished slightly higher Friday, after signs of progress in Europe's debt crisis vaulted markets into positive territory late in the day. Light, sweet crude for September delivery settled up 25 cents, or 0.3%, to $86.88 a barrel on the New York Mercantile Exchange. The contract sank to an intraday low of $82.87 a barrel, its lowest since Nov. 26, before ending the day higher.
Brent crude on the ICE futures exchange settled up $2.12, or 2%, at $109.37 a barrel. Gold ended in the red for a second day as reports of a debt deal between the European Central Bank, Italy and Spain soothed demand for a financial haven. The most actively traded contract, for December delivery, settled down $7.20, or 0.4%, at $1,651.80 a troy ounce on the Comex division of the New York Mercantile Exchange. Thinly traded August-delivery gold fell $7.40, or 0.5%, to settle at $1,648.80 a troy ounce.