Global Markets Overview 08/11/2011
US Markets
U.S. stocks slumped as investors were squeezed between fears of further contagion among European banks and the Federal Reserve's gloomy economic outlook. The Dow Jones Industrial Average plunged 519.83 points, or 4.62%, to 10719.94, more than reversing the previous day's exuberant gains.
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The Standard & Poor's 500-stock index slid 51.77 points, or 4.42%, to 1120.76 and the Nasdaq Composite lost 101.47 points, or 4.09%, to 2381.05. All 30 of the Dow components and all 10 of the S&P 500 sectors were in negative territory, with just 11 of the S&P 500 components finishing in positive territory. In a reflection of investor concern, the CBOE Market Volatility Index, the fear gauge known as the VIX, surged 23%.
Leading the declines were financial stocks, with Citigroup falling 10%, Bank of America off 11%, J.P. Morgan Chase down 5.6% and American Express shedding 7.2%. Walt Disney was the steepest decliner among the Dow components for most of the day, tumbling 9.1% after the blue-chip media and entertainment conglomerate reported results that topped analyst expectations, but raised analyst concerns about decelerating advertising rate growth.
The stock declines follow several days of volatile trading, including the biggest day of Dow gains in more than two years Tuesday. The blue-chip index had rallied sharply in the final hour to close Tuesday up 430 points after the Federal Reserve said it would leave rates exceptionally low through mid-2013. Initially, though, the Dow slumped to an 11-month low as the Fed said economic growth had been considerably slower than expected.
European Markets
European stocks tumbled Wednesday, as growing fears over France's triple-A credit rating triggered a plunge in banking shares, with Societe Generale dropping nearly 15% in Paris. The benchmark equity indexes in France, Germany, and Spain all slumped more than 5%. Italy's FTSE MIB index fared even worse, sinking 6.7% to 14,676.04. The pan-European Stoxx 600 index fell 3.8% to end at 223.50. French banks led the fall in Europe, including a 14.7% slump for Societe Generale, a 9.5% drop for BNP Paribas and a nearly 12% tumble for Credit Agricole.
A London trader, who didn't want to be named, said there had been rumors of a downgrade of France's triple-A credit rating. Worries over the sustainability of France's rating have been growing since Standard & Poor's downgraded the U.S., sending the cost of insuring French government debt against default to new highs. Earlier Wednesday, French President Nicolas Sarkozy held an unscheduled meeting with ministers and the governor of the Bank of France to discuss the financial situation. The losses for French banks pulled the CAC-40 index down 5.5% to 3,002.99.
Other banks, especially those in Italy and Spain, also suffered heavy losses. UniCredit SpA and Intesa Sanpaolo dropped 9.4% and 13.7% respectively in Milan. Shares of Banco Santander fell 8.3% in Madrid, weighing on the IBEX 35 index, which closed down 5.5% at 7,966. The sharp downturn for banking stocks weighed on all markets, though well-received earnings news helped boost several stocks.
Among them, shares in Germany's Henkel AG rose 2.7% after the household products group lifted its sales forecast to the top end of its previous range and said its second-quarter profit jumped 34%. The stock was one of the few gainers on Germany's DAX 30 index, which dropped 5.1% to 5,613.42. Shares in electricity utility E.On AG sank 11% in Frankfurt after the company cut its forecasts and dividend payout due to Germany's plan to shut down all its nuclear power stations. Also in the sector, shares of RWE AG dropped 9.7%.
In the U.K., life insurance and investments firm Standard Life PLC rallied 5.7% after it reported a 44% rise in first-half operating profit that comfortably beat market expectations. The stock was the top performer on the FTSE 100 index, which dropped 3.1% to 5,007.16. The biggest faller was Essar Energy PLC, which fell 12.6% after Goldman Sachs removed the stock from its conviction buy list. U.K. banks also joined the selloff, with Barclays PLC down 8.2%.
Asian Markets
Asian stock markets ended higher Wednesday as investors stepped back into beaten-down shares, with sentiment helped by a strong rebound on Wall Street after the Federal Reserve pledged to keep rates low through mid-2013. Gains in most markets lacked the firepower observed on their way down. The advance also lagged the extent of Tuesday's gains on Wall Street. Hong Kong's Hang Seng Index climbed 2.3% to 19,783.67 after contracting nearly 15% over the past six days, while South Korea's Kospi rose 0.3% to 1,806.24, and Taiwan's Taiex gained 3.3% to 7,736.32.
All three indexes are still down more than 10% so far in August. Japan's Nikkei Stock Average ended the day 1.1% higher at 9,038.74, while China's Shanghai Composite finished 0.9% higher at 2,549.18. Wednesday's bounce-back was fronted by stocks that had led markets lower in the recent past, and included many commodity-related firms and banks.
Japan's Inpex rose 2.8%, and Cnooc soared 6% in Hong Kong. The performance was mixed among companies with a large exposure to demand overseas. South Korean blue-chip LG Electronics added 1.8%, paring this month's losses to just under 23% and Hynix Semiconductor rose 4%, while Samsung Electronics dropped 0.6%.
Commodities
Base metals closed mixed Wednesday after fresh euro-zone debt fears and a slump across the stock markets dragged them from their earlier highs. Three-month copper closed the session down 1.6% at $8,590 a metric ton, after having risen as high as $9,005/ton earlier in the day. Risk appetite took a hit during afternoon trading hours in London as investors fretted over European banks and digested the U.S. Federal Reserve's downbeat assessment of the economy. Three-month lead, however, managed to hold in positive territory, while three-month zinc finished the session unchanged.
Oil futures rallied sharply Wednesday after a government report suggested better than expected U.S. oil demand last week. Light, sweet crude for September delivery settled up $3.59, or 4.5%, at $82.89 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange settled up $4.11, or 4%, at $106.68 a barrel. U.S. commercial oil inventories dropped 5.2 million barrels last week, while gasoline stockpiles fell and refiners ramped up their operations, the Department of Energy said in its weekly inventory report Wednesday.
The results surprised market watchers, who had expected inventories to climb and refineries to cut operations given recent signs of weakening crude demand in the world's biggest consumer, the U.S. A gold rush swept across the global investment community Wednesday, sending prices above $1,800 on fears that France may lose its top-notch credit rating.
The most actively traded contract, for December delivery, settled at a record $1,784.30 a troy ounce, up $41.30, or 2.4%. December-delivery gold touched an intraday record of $1,801.00. The front-month contract, for August delivery, gained $41.30, or 2.4%, to settle at a record $1,781.30 a troy ounce and touched an intraday record of $1,795.60.