U.S. stocks fell sharply with the Dow losing 213 points and closing below 11,000 level. The broad based sell-off was triggered by the intensified concerns over Greek’s ability to pay its debt obligations and fears of sovereign debt default contagion in the eurozone as Standards & Poor’s downgraded Greek sovereign credit rating to junk status (BB+) with a negative outlook and also cut Portugal’s ratings.
S&P also warned that Greek debt-holders will incur losses if any restructuring were to occur. The market makers are increasingly expecting some form of restructuring of the Greek debt. Greece needs to repay a €8.5 billion in borrowings on May 19. The Financial aid package that Greece officially requested this past Friday includes €30 billion from the EU and another €15 billion from the IMF.
The turmoil in European markets pressured the euro and commodities prices, which prompted a plunge in basic materials and energy stocks in the U.S. The basic materials sector fell almost 4% in the Dow. In the S&P 500, the financials sector fell by 3.3% with Citigroup shares down by 5.86%. JP Morgan and Bank of America shares fell by 3.3% amid concerns over financial regulation reform. Although the Senate vote (57-41) fell short yesterday, negotiations will continue to reach a bipartisan agreement of the bill. The proposed derivatives regulation remains one of the most contentious elements of reform as it would force banks to spin off derivatives trading resulting in billions in lost profits for financial firms.
The push for the financial system overhaul comes on the heels of the Securities and Exchange Commission civil fraud charges against Goldman Sachs for failing to inform investors about the role played by a hedge fund in the deal involving mortgage-securities. Lloyd Blankfein, Goldman’s CEO, along with six other current and former executives aggressively refuted accusations during their testimony before a Senate committee today.
Positive Q1 earnings results reported today by 36 companies in the S&P 500 index have been overlooked together with more encouraging economic data, which showed growing consumer confidence in the U.S. and an improved economic outlook for the next six months.
Investors will pay close attention to the minutes released on Wednesday from the U.S. Federal Reserve’s two-day policy meeting. Most analysts don’t expect a change to the “extended period” promise for low rates. However, it could be time for Ben Bernanke to signal a move as the U.S. housing market shows signs of life and stronger growth forcing peers to consider tightening (Canada will likely raise rates in June).
In earnings today, Ford Motor Co. reported Q1 profit of $2 billion, or 46 cents a share, exceeding the average analyst estimate of 31 cents a share surveyed by Bloomberg. Revenue was $14.1 billion, up from $10 billion a year earlier. However, the Ford CEO Alan Mulally was cautious about the 2010 outlook due to excess capacity, higher commodity prices and subdued European sales.
On the economic calendar, the Conference Board consumer confidence index rose to 57.9 in April, continuing the gain posted in March, after a sharp collapse in consumer confidence in February.
The S&P/Case-Shiller 20-City Composite Index rose 0.6 y/y on a seasonally adjusted (s.a.) basis in February 2010, the first y/y gain since December 2006. However, on a monthly basis, home prices in the 20 metro areas fell 0.1% between January and February 2010, after eight consecutive months of monthly gains. On a seasonally unadjusted basis, the 20-city composite index fell for the fifth consecutive month, down 0.8%, following a 0.4% decline in January 2010. Only one of the 20 cities showed a monthly gain in prices in February 2010, compared to a peak of eighteen cities in July 2009, when the first time homebuyer tax credit was in full effect.
Into close, the S& P 500 index fell 28.34 points, or 2.34% to close at 1,183.71.
The Dow lost 213.04 points, or 1.90% to close at 10,991.99.
The tech-heavy Nasdaq composite index was down 51.48 points, or 2.04% to close at 2,471.47.
Treasurys rose, with the yield on the benchmark 10-year Treasury note down yielding 3.69% from 3.81% from late Monday.
Crude for June delivery settled down $1.76, or 2.1% at $82.44 a barrel on the New York Mercantile Exchange.
In currency markets today the euro took a hit after Greece’s credit rating was downgraded to junk status and Portugal’s credit rating was lowered as well.
In currency, EUR/USD traded at 1.3181, down from 1.3382 late on Monday in New York, Cable was quoted at 1.5262, down from 1.5455. USD/JPY traded at 93.18, down from 93.97. USD/CHF was at 1.0873, up from 1.07030, while USD/CAD was quoted at 1.0165, up from 1.0012.
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