Markets Crawl Off Their Intraday Lows to Extend Losses

Market Summary Update
Wednesday, August 11, 2010

DJI 10,378 -265.42 -2.49%
NASDAQ 2,208 -68.54 -3.01%
SPX 1,089 -31.59 -2.82%


Commodities:
Crude Oil 77.68 - 0.44%
Natural Gas 4.32 -
Gasoline 1.99 - 0.46%
Heating Oil 2.07 - 0.46%
Gold 1198.34 - 0.44%
Silver 17.90 - 2.24%
Copper 3.24 - 2.02%


World markets:
Shanghai 2,607.50 +12.22 (0.47%)
Nikkei 225 9,292.85 -258.20 (-2.70%)
Hang Seng Index 21,294.54 -179.06 (-0.83%)
TSEC 7,895.03 -81.71 (-1.02%)
FTSE 100 5,245.21 -131.20 (-2.44%)
CAC 40 3,628.29 -102.29 (-2.74%)
S&P TSX 11,582.21 -256.08 (-2.16%)
S&P/ASX 200 4,455.50 -85.20 (-1.88%)
BSE Sensex 18,070.19 -149.80 (-0.82%)

Thursday's Calendar

8:30 a.m.
Aug 7 Unemployment Insurance Claims Report - Initial Claims Weekly Jobless Claims (expected 465K), Net Change (expected -14K), Cont Jobless Claims (prior week) (previous 4537000), Net Chg (prior week) (previous -34K)

8:30 a.m.
July Import & Export Price Indexes Import Prices (expected +0.4%), Non-Petroleum Prices (previous -0.5%), Petroleum Prices (previous -4.4%)

10:00 a.m.
July 31 DJ-BTMU Business Barometer (previous +0.1%), (52 Wk) (previous +5.7%)

10:00 a.m.
Fed Gov Duke gives opening remarks at public hearing on Community Reinvestment Act in Chicago

10:30 a.m.
Aug 6 EIA Natural Gas Storage Report Total Working Gas in Storage (previous 2948B), (Net Change) (previous +29B)

4:30 p.m.
Aug 11 Foreign Central Bank Holdings Foreign US Debt Holdings (previous 3.16T), US Foreign Agency Holdings (previous 829.64B), Foreign Treasury Holdings (previous 2.33T)

4:30 p.m.
Aug 11 Federal Discount Window Borrowings Primary Credit Borrowings (previous 62M), W/E Daily Avg (previous 36M), Discount Window Borrowings (previous 63.77B), W/E Daily Avg (previous 63.89B)

4:30 p.m.
Aug 2 Money Stock Measures

Stocks plunge, Dow below 200-day moving average, on economic worries

The Dow Jones Industrial Average and S&P 500 Index are both below their 200-day moving averages -- and down for the year due to economic worries sparked by the Fed's assessment of the economy.

The Dow primary trend remains down, with a long-term target of 9000*. Another Friday long tail and rising Twiggs Money Flow (21-day) indicates a test of the upper border of the broadening wedge formation. Reversal below short-term support at 10350 would warn of a downward breakout. Upward breakout from the wedge is less likely, but would signal an advance to 11700.

The S&P 500 Twiggs Momentum Oscillator (63-day) holding below zero indicates continuation of the primary down-trend. S&P 500 reversal below its former primary support level at 1050 would confirm continuation of a down trend target of 935.

U.S. stocks were headed for their worst daily decline in almost a month as jittery investors sold off stocks, commodities and riskier currencies amid growing concerns over the flagging U.S. recovery and slowing growth in China and around the world. The Chinese economy showed signs of slowing, heightening investor concerns about any global recovery.

Stocks plunged as the session opened and traded steadily in the red, with the Dow Jones Industrial Average sinking 261 points, or 2.5%, to 10383 in recent trading, led by the energy, industrial and material sectors.

All 30 Dow components declined, with companies with global exposure like Alcoa, Boeing and General Electric weighing most heavily, down 6.2%, 4.7% and 3.7% respectively.

The declines led all three indexes into negative territory for the year, and sets them up for fourth drop in five sessions and their biggest daily declines in nearly a month. Other closely-watched indexes were down even more, with the Dow Jones Transportation Index off 4.3%, the Philadelphia Stock Exchange's Semiconductor Index falling 4.3% and the Russell 2000 Index of small-capitalization stocks declining 3.9%.

The Chicago Board of Options Exchange Volatility Index ($VIX), a measure of market turbulence, spiked as much as 17% as spooked investors headed for cover. The VIX was recently at 13%.

About 85% of stocks on the New York Stock Exchange declined, while volume remained thin, with about 3.6 billion shares trading hands in afternoon trading.

Most of the market's losses occurred early in the day as worries about Asian economies compounded anxiety over the Federal Reserve's acknowledgment that the economic recovery is slowing, echoed later by the Bank of England.

"What we've been through the last couple of years has got everyone conditioned to thinking the worst of bad news and to begin an extrapolation process of 'bad news leads to worse news,'" said Jerry Harris, president of asset management at Sterne Agee.

Commodities fell, with investors selling oil and copper heavily. Oil futures dropped sharply to below $78 a barrel, while copper shed 1.7%. The dollar soared against the euro and most other currencies in a flight to safety. The U.S. Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, jumped 1.9% to 82.305, while the euro plunged more than 2.2% to fall through $1.29, down from $1.3184 late Tuesday in New York.

The commodities-driven Australian and Canadian dollars also declined steeply against the U.S. dollar. The yen rose to a 15-year high against the U.S. dollar following the Fed's latest meeting, with the greenback buying less than 85 yen. The dollar recently traded at 85.22 yen.

The U.S. trade gap in June widened unexpectedly to $49.9 billion, a 21-month high, as imports from its largest trading partners ballooned. The number came in well above economists' expectations of a $42.7 billion deficit. In May, the deficit was a revised $41.98 billion. The data also showed the deficit with China expanded to the widest level since October 2008.

Economists are expecting a significant downward revision in the stated US 2Q GDP. "The markets might face their biggest downside economic surprise of this recent growth slowdown yet in the form of a downward second quarter gross domestic product revision, which today's U.S. trade deficit figures suggest will be a whopper," wrote analysts at Action Economics.

Instead of growing at a 2.4% annualized pace in the second quarter, real gross domestic product will likely be cut almost in half to a 1.3% annual rate, according to economists surveyed by MarketWatch.

Government analysts defended their assumptions, as real GDP figures over time have had an average revision of a half percentage point. "We try to make the best assumptions; we are not always right," said Brent Moulton, associate director for national economic accounts at the Bureau of Economic Analysis.

Moulton said the government economists do not have access to any information that is unavailable to private economists.

The Obama administration announced plans to make an additional $3 billion in aid available to help unemployed homeowners struggling to make their mortgage payments. The administration on Wednesday outlined a plan to add $2 billion to its "Hardest Hit Fund," a fund aimed at supporting housing markets in states that have suffered the most through the recession.

The number of Americans who are receiving food stamps rose to a record 40.8 million in May as the jobless rate hovered near a 27-year high, the government reported last week. Recipients of Supplemental Nutrition Assistance Program subsidies for food purchases jumped 19 percent from a year earlier and increased 0.9 percent from April, the US Department of Agriculture said in a statement on its website.

Americans cut credit-card use a 21st straight time in June as sluggish job growth and a slowing economy. Consumer credit outstanding decreased at a seasonally adjusted annual rate of 0.7%, down $1.3 billion to $2.42 trillion in June, a Federal Reserve report said on Friday.

Souring mortgage bonds that aren't backed by the government, continued to cause heartburn for some of the Federal Home Loan Banks during the second quarter.

A top Treasury Department official said Tuesday that the government must move quickly to implement Dodd-Frank financial legislation for the sake of the economy.

Michael S. Barr, Treasury's assistant secretary for financial institutions, spoke about the recently passed law in remarks prepared for delivery in Chicago.

The sweeping legislation was the most dramatic overhaul of U.S. financial regulations since the 1930s. It is designed to close regulatory gaps and end speculative trading practices that contributed to the 2008 financial market crisis. Among other things, Dodd-Frank gives federal regulators new authority to seize and break up large troubled financial firms without taxpayer bailouts in cases where the firm's collapse could destabilize the financial system.

The Federal Reserve Bank of New York said today that it would buy $18 billion in Treasury securities in operations to take place through mid-September.

The announcement by the New York Fed Wednesday comes after Tuesday's gathering of the Federal Open Market Committee. There, policy makers announced their intention to keep the Fed balance sheet from shrinking, saying they would reinvest the proceeds of maturing mortgage securities back into the Treasury market, seeking to keep the central bank's holdings right around $2 trillion.

The Fed's action has been attended by controversy, with many in financial markets seeing it as insufficient in the face of an economic recovery that appears to be sputtering out. U.S. stock prices were under considerable pressure Wednesday, reflecting the market's anxiety over the economic outlook.

Crude Down 2.9%; Biggest Drop Since July 1, 2010. Growth commodities fell, with investors selling off oil and copper heavily. Oil futures dropped sharply to fall just above $78 a barrel, while the U.S. dollar surged strongly against the euro and other major currencies in a flight to safety.

Canada's trade deficit widened unexpectedly in June, the fourth consecutive shortfall and the largest since August 2009, led by a sharp decline in exports of industrial goods and materials. The trade deficit was C$1.13 billion (US$1.09 billion), expanding from C$695 million in May, which was revised from the originally estimated C$503 million, Statistics Canada said Wednesday. http://www.statcan.gc.ca

Toronto stocks tumble as economic worries resurface. The market had expected the deficit to narrow to C$300 million. "The big story here was a drop in both exports (-2.5%) and imports (-1.2%), which were both a bit deeper than even we expected in our below-consensus calls," Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto, said in a note to clients.

On Thursday, the European Central Bank monthly report is due at 0800 GMT, while euro-zone industrial production data are at 0900 GMT. In the U.S., initial jobless claims and the import price index are at 1230 GMT.

At the time of the European stock markets close, the euro was at $1.2896 from $1.3187 late Tuesday in New York, and sterling last traded at $1.5660 from $1.5886. The dollar was at 85.37 yen from 85.35, having hit its lowest level since July 1995.

Japan's Ministry of Economy, Trade and Industry announced Wednesday it will conduct an emergency survey of approximately 200 companies to assess how the recently strong yen has affected their operations, the Nikkei business daily reported on its online edition Wednesday.

Most Asian stock markets ended lower and European equities posted broad-based losses in afternoon trading. The FTSE 100 index in London fell 2.1% in afternoon trading after the Bank of England said the U.K. economy was likely to expand at a slightly more modest pace than previously forecast, as fiscal tightening takes a bite out of demand. In Japan, the Nikkei Stock Average ended down 2.7% after data on wholesale prices and machinery orders came in weaker than economists expected.

The broader Stoxx Europe 600 was down 1.8%. German and U.S. bond yields fell sharply, as traders sought the perceived safety of government debt. The bailout of Germany's banking sector may swell the country's public debt rate to 90% of gross domestic product, Die Zeit weekly newspaper reports.

Chile's central bank is expected to continue raising interest rates on Thursday, as the economy recovers rapidly from the 2009 financial crisis and a massive February earthquake.

The bank raised the key overnight rate, known locally by the acronym of TPM, for first time in two years to 1% in June, from a record low 0.5%, where it had stood for nine months in response to the slump from the global economic crisis.

Brazil's main ports for sugar exports are seeing damp, overcast weather on Wednesday, says Olivia Nunes, a meteorologist at private weather service Somar. "The weather this week isn't favourable for loading," Nunes says. Rainfall in Brazil--the world's No. 1 sugar exporter--has been frequent since mid-July. Light rain often delays the loading of bulk sugar as the sweetener can be spoiled by damp conditions as it is poured into the holds of vessels. Wet weather is expected to last until next week at Santos and Paranagua ports, Nunes says.