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Congress and Obama Failed Debt Negotiations Send Stocks Tumbling Down

  • By SGV Journal
July 11, 2011 - The near 2% drop suffered by the stock market this session was its worst single-day decline in more than a month. The aggressive sell-off came in response to concerns that the European Union is struggling to help countries in its periphery restore their financial health.

An emergency meeting during the weekend stirred speculation that European Union officials may be considering including Italy in any new bailout packages. Concerns about Italy's financial health began to intensify last week, as evidenced by the spike in yields there.

Worry that the EU remains so far from resolving the threats of countries in the region's periphery sank many of Europe's major bourses. Both France's CAC and Germany's DAX dropped more than 2% in their latest round of trade. Italy's FTSE fell 4%.

Such weakness imbued domestic stocks and prompted participants to sell any gains that they had scored during the course of the past couple of weeks. In turn, the broad-based S&P 500 dropped precipitously. It didn't really secure any support until it came into close contact with its 50-day simple moving average just below the 1320 line.

Financials fell the hardest. The sector's near 3% tumble came amid weakness in banks, insurers, and diversified financial services alike. Only a handful of stocks in the sector were able to limit their losses to less than 1%.

All 30 Dow components settled in the red. Alcoa (AA 15.92, -0.46) was one of the poorest performers ahead of its quarterly report, which marks the unofficial start to earnings season. A few other blue chips will report quarterly results later this week, but announcements won't begin in earnest for several more days.

The Dollar Index hit its best level since March as traders dumped the euro in pursuit of the relative safety offered by the greenback. At the end of the day the dollar was quoted with a 1.2% gain against a basket of competing currencies.

Gold had attracted strong buying interest in the early going, but the precious metal had to fight to settle with a gain. After gold prices had been up by about 1%, they retreated to the neutral line. The precious metal was able to rebound to $1549 per ounce for a 0.5% gain on the day.

Advancing Sectors: (None)
Declining Sectors: Financials -2.8%, Materials -2.1%, Energy -2.0%, Consumer Discretionary -2.0%, Industrials -1.8%, Tech -1.8%, Health Care -1.4%, Telecom -1.1%, Utilities -1.1%, Consumer Staples -0.7%DJ30 -151.44 NASDAQ -57.19 NQ100 -1.8% R2K -2.2% SP400 -2.2% SP500 -24.31 NASDAQ Adv/Vol/Dec 456/1.79 bln/2178 NYSE Adv/Vol/Dec 427/829 mln/2594

3:30 pm : The focus in the commodity markets was largely on the ongoing situation in Europe/sovereign debt concerns. With Greece in the so called rear view mirror for the time being, concerns about Italy and Italian banks are now taking center stage. Those concerns caused for the precious metals to trade higher earlier this morning in a flight to safety. Both metals, however, sold off sharply in mid-morning trade. Gold traded back to the flat line but was able to retrace some of its sell-off to close with modest gains; up $7.40 to $1549.00 per ounce. Silver futures fell over a point to lows at $35.54, but bounced modestly into the close to close lower by 2.1% to $35.76 per ounce.

August crude oil finished the session lower by 1.1% to $95.19 per barrel. The concerns about Italy, coupled with the Chinese inflation data, weighed on crude futures throughout the session. Crude notched lows at $94.14, its lowest levels in a week, but managed to bounce modestly off those lows heading into the close. August natural gas finished higher by 2% to $4.29 per MMBtu, helped by higher-than-average temperatures across the country. DJ30 -183.15 NASDAQ -63.59 SP500 -27.19 NASDAQ Adv/Vol/Dec 444/1.4 bln/2163 NYSE Adv/Vol/Dec 417/555.9 mln/2643

3:00 pm : Stocks are gradually descending deeper into negative territory. In turn, the three major equity averages are now at fractionally extended session lows.

Although weakness is widespread, financials continue to come under the most pronounced pressure. Aggressive selling against financials has the sector down 2.7%. Energy, industrials, and consumer discretionary stocks are the next worst performers; they are all down 2.0%. DJ30 -168.77 NASDAQ -60.16 SP500 -25.08 NASDAQ Adv/Vol/Dec 415/1.26 bln/2175 NYSE Adv/Vol/Dec 370/473 mln/2630

2:30 pm : The S&P 500 has slipped back below the 1320 line so that it trades alongside its 50-day moving average. The S&P 500 had pushed up through the key technical line during the final day of June, when it was on its way to recording its best weekly performance in about two years. Even though the 50-day average appears to be offering stocks some semblance of support, the S&P 500 is still on pace for its worst single-session performance by percent lost in more than one month.DJ30 -172.82 NASDAQ -57.51 SP500 -25.54 NASDAQ Adv/Vol/Dec 425/1.17 bln/2160 NYSE Adv/Vol/Dec 370/435 mln/2620

2:00 pm : Stocks are stuck at session lows. There really hasn't been any relief to today's sell-off.

Of the 10 major sectors, only consumer staples has managed to limit its loss to less than 1%. Clorox (CLX 71.74, +3.52) has been a primary source of support for the group. The stock has surged to a gain of more than 5% in the face of this session's weakness, even though there are no headlines or clear catalysts to account for the move. Shares of CL are now within $1 of their 52-week high. DJ30 -145.88 NASDAQ -56.44 SP500 -22.44 NASDAQ Adv/Vol/Dec 434/1.09 bln/2150 NYSE Adv/Vol/Dec 355/405 mln/2615

1:30 pm : The Nasdaq just incrementally extended its descent to notch a new session low. It now trades with a 2% loss. Neither the Dow nor the S&P 500 have confirmed new lows of their own, but both are in line with their worst levels of the day.

The benchmark 10-year Note hasn't been able to move much higher in the past couple of hours of action. Resistance has kept its yield at 2.95%, as a result. DJ30 -168.47 NASDAQ -57.23 SP500 -24.49 NASDAQ Adv/Vol/Dec 430/995 mln/2140 NYSE Adv/Vol/Dec 345/365 mln/2600

1:00 pm : Financially woeful countries in the eurozone periphery continue to account for uncertainty in the stock market. That is driving aggressive selling this session.

Members of the European Union held an emergency meeting during the weekend. Although the topic of the conversation wasn't made public, it has been speculated that a bailout package for the region may need to be structured so that Italy and its ilk are included. Concern that such systemic threats remain unresolved after so long has caused sentiment to sour.

Aggressive selling has all 10 major sectors in the S&P 500 down by about 1% or more. In a similar vein, all 30 Dow components are in the red. Dow component and financial giant JPMorgan Chase (JPM 39.61, -1.13) is one of the poorest performing names this session. Metals and mining giant and fellow blue chip Alcoa (AA 15.92, -0.46) is also down deeply. Its loss precedes the company's quarterly report, which will unofficially start earnings season this evening.

Intolerance for risk has prompted many participants to turn to the dollar, which is currently off of its session high, but still boasting a gain in excess of 1%. Most of the dollar's advance has come against the euro, but the sterling pound is also in weak shape.

Despite a stronger dollar, favor for safety took gold to about a two-week high this morning, but some of that gain was pared in mid-morning action. The yellow metal has since reclaimed some of its gain so that it is now priced at $1549 per ounce, up 0.5% for the session. DJ30 -149.58 NASDAQ -54.31 SP500 -22.35 NASDAQ Adv/Vol/Dec 432/950 mln/2125 NYSE Adv/Vol/Dec 350/350 mln/2600

12:30 pm : Stocks remain depressed as they drift along their lows for the day. This session's slide more than offsets last week's fractional gain, but it only cuts into a small part of the preceding week's 5.6% weekly gain, which was the stock market's best weekly performance in about two years.DJ30 -136.26 NASDAQ -52.18 SP500 -20.68 NASDAQ Adv/Vol/Dec 410/870 mln/2125 NYSE Adv/Vol/Dec 330/320 mln/2605

12:00 pm : All 30 Dow components are currently in the red. Alcoa (AA 15.92, -0.46), which is down almost 3% at the moment, is scheduled to post its latest quarterly report after the close. The occasion is widely considered to mark the unofficial start of earnings season. The Wall Street consensus currently calls for Alcoa to post earnings of $0.33 per share.

Fellow blue chip JPMorgan Chase (JPM 39.44, -1.30) is also down sharply. The diversified bank and financial services giant is scheduled to report its results later this week. Wall Street will be expecting earnings of $1.20 per share. DJ30 -150.76 NASDAQ -48.03 SP500 -21.60 NASDAQ Adv/Vol/Dec 395/780 mln/2115 NYSE Adv/Vol/Dec 320/285 mln/2600

11:30 am : The S&P 500 has slowed its descent. The 1320 line, which is just a few points above the broad market measure's 50-day moving average, helped provide support.

Even though pressure is broad, financials are having the most damaging impact on overall trade, given the group's collective weight and the scope of its loss. As a complete sector, financials have fallen 2.3%. Banks have been some of the hardest hit names in the space; as such, shares of Bank of America (BAC 10.39, -0.31) are down nearly 3% to a new 52-week high, while shares of JPMorgan Chase (JPM 39.47, -1.27) are already down 3% to test the 2011 low that they set about two weeks ago. DJ30 -140.50 NASDAQ -54.00 SP500 -20.51 NASDAQ Adv/Vol/Dec 357/690 mln/2144 NYSE Adv/Vol/Dec 316/250 mln/2576

11:00 am : Stocks have extended their opening slide so that the S&P 500 is now within close reach of its 50-day moving average, which is currently just below 1320.

Meanwhile, the dollar has continued its climb so that it now leads a collection of competing currencies by 1.4%. That puts the Dollar Index at its best level since late March.

Gold has given back a chunk of today's gain, though. The precious metal had been up by almost 1% to a two-week high earlier, but it was last quoted with a gain of only 0.2% at $1544 per ounce. DJ30 -171.65 NASDAQ -43.35 SP500 -23.79 NASDAQ Adv/Vol/Dec 420/512 mln/2026 NYSE Adv/Vol/Dec 340/189 mln/2509

10:35 am : Notable strength in the dollar index, which is currently up 1.2%, just below the 76 area, is hitting the commodity complex this morning.

Crude oil has been in the red all session. About 15 minutes after equity markets opened, crude put in a small rally and broke through the $95 level, but it lost steam and began to trend lower again. In current activity, crude is down 1.0% at $95.22/barrel.

Natural gas has been on an upwards trend since earlier this morning and is currently up 2.1% at $4.29/MMBtu.

Gold futures are showing gains this morning, while silver is right at the unchanged line. Gold rose as high as $1557.60/oz and is currently up 1% at $1556.40/oz. Silver is down two cents at $36.52.DJ30 -141.64 NASDAQ -32.41 SP500 -19.78 NASDAQ Adv/Vol/Dec 423/456 mln/2018 NYSE Adv/Vol/Dec 340/177 mln/2491

10:00 am : The Nasdaq is quickly cutting its opening loss. The move comes amid help from tech stocks, which have managed to work their way higher so that the overall tech sector is now down 0.7% after it had been down by about 1% at the open.

Among tech stocks, Google (GOOG 533.71, +1.72) is a leader. Its strength comes after it suffered an outsized loss last Friday in response to an analyst downgrade. Meanwhile, Apple (AAPL 358.63, -1.08) has made a charge toward the neutral line, but remains in the red with only a narrow loss. DJ30 -101.18 NASDAQ -28.36 SP500 -11.79 NASDAQ Adv/Vol/Dec 350/170 mln/1941 NYSE Adv/Vol/Dec 284/75 mln/2340

09:45 am : Stocks are down sharply in the opening minutes of the session. Weakness is widespread, but materials stocks, energy stocks, and financial stocks are in the worst shape; their losses currently range from 1.5% to 1.7%. Only tech, consumer discretionary, and consumer staples have managed to limit their losses to less than 1%.

Amid such sharp selling pressure, Treasuries have attracted plenty of safety seekers. In turn, the yield on the benchmark 10-year Note is back below 3.0% to trade near its one-week low. DJ30 -127.82 NASDAQ -30.94 SP500 -15.63

09:15 am : S&P futures vs fair value: -17.30. Nasdaq futures vs fair value: -25.00. Fears about the challenge facing the European Union in resolving the fiscal and financial afflictions of Italy and other countries in the eurozone periphery have weighed heavily on Europe's major bourses and imbued U.S. stock futures, which are presently poised to drop precipitously at the open. The want for safety has been particularly beneficial to the dollar, which is up 1.1% against a basket of major foreign currencies. Despite the greenback's gain, safety seekers have pursued gold, which is currently up 0.8% to almost $1554 per ounce. No major economic announcements are on top today and corporate news flow remains slow this morning, although Dow component Alcoa (AA) is scheduled to deliver its latest quarterly report after the close.

09:05 am : S&P futures vs fair value: -17.80. Nasdaq futures vs fair value: -26.00. Europe's major bourses have fallen precipitously in response to renewed concerns about the fiscal health of countries in the eurozone periphery. Collective weakness across the region has the EuroStoxx 50 down 1.0%. Among the most widely watched bourses, Germany's DAX is down 2.0%. Commerzbank is in the worst shape; it was last quoted with a 6% loss. Merck KGAA has managed to remain in strong shape, though. France's CAC has fallen 2.1%. All 40 of its components are in negative territory. As for Britain's FTSE, it is off by 1.0%. Only International Power Plc, Shire Plc, Tullow Oil, and a handful of its components have been able to muster any kind of a gain. The negativity surrounding the region has also put pressure on the euro, which was recently quoted at $1.405 for a 1.1% loss.

Overnight action in Asia saw plenty of selling. Japan's Nikkei fell to a 0.7% loss. Weakness there was widespread, but Tokyo Electric Power was able to put together an impressive performance that made it the session's top performing stock. Hong Kong's Hang Seng sank to a 1.7% loss. Financials weighed heavily on broad market trade. Bank of China was among the poorest performers. Mainland China's Shanghai Composite managed to muster a 0.2% gain. Inflation data from China during the weekend indicated that consumer prices for June increased by 6.4% from the same period one year ago. That was a tad hotter than many had anticipated. China also reported that a surge in exports took its trade balance up to $22.3 billion in June.

08:35 am : S&P futures vs fair value: -16.30. Nasdaq futures vs fair value: -23.80. The Dollar Index is up 1.1% to its best level in more than a month. The move has come mostly because of weakness in the euro, which is now down 1.2% in response to ongoing concerns about financially woeful countries in the eurozone periphery after members of the European Union held an emergency meeting during the weekend. Given that those concerns have caused traders to turn defensive, global equity markets and equity futures are in the red. Commodities like oil are also getting clipped; the energy component is currently down 1.7% to $94.55 per barrel ahead of pit trade's open at 9:00 AM ET. The want for safety has stoked buying in gold, which was last quoted with a 0.9% gain at almost $1556 per ounce, which makes for a new two-week high.

08:05 am : S&P futures vs fair value: -17.40. Nasdaq futures vs fair value: -26.80. Stock futures are under pressure as participants react to renewed concerns about the fiscal health of Italy and its ilk. The notion that Italy and other countries in the eurozone periphery were the reason for an emergency meeting by representatives of the European Union has already cut down Europe's major bourses, most of which are down by at least 1%. The euro has also been hit by heavy selling pressure; it was recently quoted with a 1.0% loss at $1.406. With the dollar up and traders concerned about the implications that financial troubles in Europe may have on the world's developed economies, oil prices are under pressure. Continuous oil contracts are currently pricing the commodity at $94.75 per barrel in electronic trade. That makes for a 1.5% loss. No data are due for release today. Corporate news flow is still sluggish, but Dow component Alcoa (AA) will unofficially kick off earnings season with its latest quarterly report after today's close.

06:36 am : [BRIEFING.COM] S&P futures vs fair value: -10.00. Nasdaq futures vs fair value: -18.00.

06:36 am : Nikkei...10069.53...-68.20...-0.70%. Hang Seng...22347.23...-379.20...-1.70%.

06:36 am : FTSE...5970.08...-20.50...-0.30%. DAX...7324.52...-78.20...-1.10%.

Market summary and commentary provided by Nick Bennenbroek, Head of Currency Strategy, Wells Fargo Bank.
Market Summary Monday, July 11th, 2011
The greenback is stronger and the euro is sharply lower, with financial markets in a very cautious mood at the start of the new week.
The European debt crisis is again front and center, with media reports suggesting European official might now consider a Greek aid
package that incorporates some form of default on Greek government debt. Concerns about Italian political stability are adding to the
unhappy mix, pushing peripheral Eurozone bond yields higher and the euro lower. U.S. developments are hardly better, with
negotiations of a multi-year deficit reduction plan stumbling at the weekend. House Speaker Boehner is now calling for a lesser $2-$2.5
trillion in medium term savings, while the White House continues to push for a large (around $4 trillion) deal. The news is clearly bad
on both sides of the Atlantic, although it is the euro in particular that is suffering today. The cautious mood is also hitting most G10 and
emerging currencies hard. The Scandinavian and emerging European currencies are down sharply. The dollar-bloc and Asian
currencies are also lower, although losses are more moderate.

Regional Highlights - Asia/Pacific
Asian currencies are lower, reflecting caution across global financial markets.
Chinese economic data was firm on balance - the June CPI quickened more
than expected to 6.4% y/y, while the June trade surplus rose to US$22.3B.
However, the trade figures did show exports slowing to 17.9% y/y and imports
slowing to 19.3% y/y. Japan's June M3 money growth was steady at 2.2% y/y,
while June consumer confidence gained to 35.3. Down under, New Zealand's
June card spending rose by 0.8% m/m and retail card spending rose by 1.2%
m/m, while the decline in June house prices slowed to 0.9% y/y. Australian
data was also firm, with May home loans by 4.4% m/m. The main data from
Asia was May industrial output, which fell by a larger than expected 5.1% y/y.
The yen is up given unsettled markets, while the Australian and NZ dollars are
down despite constructive data. The rupee, ringgit and baht are the largest
decliners of the emerging Asian currencies.

Europe
The euro is sharply lower, with concerns about the European debt crisis
dominating today's market moves. The Financial Times reported that
European officials may for the first time be prepared to accept a financial
assistance package for Greece that incorporates some form of default on
Greek government debt. Media reports at weekend also suggested the
European Central Bank is calling for an increase in the size of the Europe's
financial aid funds to E1.5 trillion from the current E750 billion. Political
jitters in Italy are adding to the uncertain mix, prompting a rise in bond yields
across the Eurozone peripheral bond markets. Today's Eurozone data was
strong but of modest relevance, with French May industrial output jumping
by 2% m/m. Norway's June inflation surprised to the downside, with the
headline CPI slowing to 1.3% y/y and the core CPI slowing to 0.7% y/y. The
Scandinavian currencies are also sharply weaker, while the Swiss franc is up
against the greenback. Emerging European currencies are also lower, with
the forint and zloty the largest decliners.

Americas
It is a relatively quiet day for data across the Americas. Canada's June
housing starts rose by 1.7% m/m, while later today the Bank of Canada
releases its Q2 Senior Loan Officer survey and Q2 Business Outlook survey.
The key U.S. theme is the ongoing deficit negotiations aimed at securing an
increase in the U.S. debt ceiling. The talks stumbled at the weekend as House
Speaker Boehner said lawmakers should aim for a ‘medium-sized' $2-$2.5
trillion in cumulative savings, rather than a larger $4 trillion plan. The
Canadian dollar and Latin currencies a re down against the greenback.

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