The stock market is taking it on the chin today after multiple earnings disappointed investors. DuPont saw one of the biggest drop today after reporting their earnings. DuPont saw its profit fall short of estimates and announced they will be cutting 1,500 jobs as part of a cost cutting move. DuPont shares have been down as much as 9% today. 3M reported earnings that met expectations, but revenue was a bit lighter than expected sending shares down more than 3%. [Read more...]
The Spanish government will approve even more deficit-reduction measures this week on top of the 15 billion euro package of tax hikes and spending cuts they announced last week. Last week Spain’s government announced the budget deficit for 2011 would be 8% of GDP. This figure was higher than the 6% previously forecasted. Now the government is saying the deficit could be even higher.
The newest deficit reduction measures will be passed on Thursday according to Treasury Minister Cristobal Montoro. No details were given on what kind of measures would be passed, but Montoro did tell reporters that these measures would show the rest of the EU that Spain is serious about acting quickly to shore up public finances.
Luis de Guindos, Spain’s Finance Minister, said once the government found out how serious the deficit number were they had no option but to raise taxes despite pledging not to during the campaign.
Spain’s government is attempting to stay ahead of their economic events by announcing these new measures and cautioning that their deficit may be higher.
“It was an act of responsibility and political initiative to keep the Spanish economy from reaching a situation that would have been practically unsustainable,” de Guindos told Cadena Ser radio.
De Guindos also said that the Spain couldn’t afford to announced a deficit two points higher than expected without also taking measures such as raising taxes. He also implied the EU would have stepped in somehow if they didn’t enact new measures, “If we had not, others would have done it for us,” said Luis de Guindos.
The sovereign debt crisis in Europe will continue to take center stage as investors all around the world wait and see if Europe can solve their problem.
Today, Germany continued to deny reports of a plan to float bonds together with other AAA rated euro countries and use the proceeds to provide assistance to struggling euro members like Italy and Spain.
The IMF also denied reports it was planning a 600 billion euro bailout for Italy. Moody’s, the credit rating agency, warned the credit worthiness of all eurozone governments are threatened by the “rapid escalation” of Europe’s financial crisis. Even AAA rated countries are not safe from ratings downgrades anymore.
The markets continue to rally however despite the denials. The global market is being propped up today by good news from holiday sales in the U.S. Now investors are hoping since the crisis in Europe is becoming so bad, this will force European leaders to act.
Many believe the best way to fix the crisis is with eurobonds, but Germany has continued to strongly refuse this because it would expose their tax payers to the bad debt from the weaker countries. Germany already funds most of the bailouts as it is anyways.
Economists think that the idea of ‘elite bonds’ may help ease some of Germany’s concerns, but the German Finance Minister denied reports that they will go along with this.
Moody’s added on Monday the euro zone “is approaching a junction, leading either to closer integration or greater fragmentation.” Last week they cut Hungary’s rating to junk status and said more countries could receive downgrades if the debt crisis continues.
The euro zone debt crisis continues to weigh heavily on investors today and has sent the markets down again. Each of the major indexes are off about 0.5% in midday trading. Another thing weighing on the markets, is the revised GDP numbers for the third quarter. It had been previously estimated GDP would see growth of 2.5%, but it has now been revised down to 2%. This is the Commerce Department’s second estimate, let’s hope they don’t revise it again later. If this growth holds true, it will be a step-up from last quarter’s growth of 1.3%.
The debt crisis in Europe is a huge problem that needs to be fixed and fixed sooner rather than later. Every day this crisis goes on is just more uncertainty in the markets and more risk of the crisis spreading even more. Many investors believe the ECB needs to take more action and try things until they find something that works.
Short term yields in Spain jumped this morning to over 5%. These same yields were at 2.3% last month. The markets were hoping to get some details on the new prime minister’s austerity plans, but Mariano Rajoy will not give details until he is sworn in right before Christmas. These levels on the yields are worrisome as Greece and Portugal were at these same levels before being bailed out by the rest of the eurozone. The problem here, is that Spain maybe to big to save.
Euro zone banks’ demand for funding surged to a two-year high today as U.S. funds cut their lending. The sovereign debt crisis has left credit markets frozen and the ECB as the only available funding for most banks.
The equities and financial markets are going to remain very volatile in the near future as the euro zone debt crisis adds a lot of uncertainty to the markets. The question is, can they fix it? They’ve been trying for a while now, and if any more countries need bailouts investors will start wondering if the entire euro zone is on the brink of collapse.
In today’s forex trading roundup, the EUR/USD pair traded in the euro’s favor while the dollar slid against the Yen. The Euro rose today as traders speculated that the IMF would help with Europe’s debt crisis. Rumor has it, the ECB will loan money to the IMF to help bail out debt-ridden nations. Germany has expressly denied this rumor, but that hasn’t stopped it from gaining traction. The EUR/USD pair is currently trading at $1.3521, an increase of $0.0056.
The USD/JPY pair fell to 76.7935 Yen per $1 dollar. The dollar showed weakness across the board in the forex markets today after the New York Fed President, William Dudley, said they will do ‘everything’ they can to stimulate the economy. He also said the economy faces ‘significant downside risk.’
Here’s what traders should keep an eye on next week. As always Europe will take center stage as traders hope for good news on the handling of the debt crisis. In particular, PMI indices for November will be something to look too as an indication of how the overall EU economy is doing. The elections in Spain this weekend will also be something to watch. And finally, the upcoming deadline for the ‘supercommittee’ to get something done could add a lot of uncertainty in the markets should they not decide on how to deal with the U.S. debt.
Stocks are trading flat today with the major indexes moving only slightly. The Dow is up 28 points right now, the Nasdaq is down 11 and the S&P is unchanged. Friday’s are notorious for being slow days as investors take a break for the weekend. Not a lot going on news wise today as Europe continues to be on investors’ minds. The ECB purchased Italian and Spanish debt today which gave the markets some comfort.
People in Spain are heading to the polls this weekend as they vote for their government leaders. Spain is becoming the new focal point for the European debt crisis and if they don’t get their debt under control they may need a bailout as well. The center-right opposition party is favored to win Sunday’s election, but will have little time to bask in their victory as they will need to begin implementing austerity measures immediately.
News closer to home is good today as data is suggesting the risk of recession is low. An index of leading economic indicators grew by 0.9% in October the largest such growth since February. Across the 10 indicators that make up leading economic indicators, 9 of them were positive. These include building permits, the interest-rate spread, average weekly manufacturing hours, stock prices, the real money supply, average weekly claims for unemployment-insurance benefits, consumer expectations, manufacturers’ new orders for consumer goods and materials, and manufacturers’ new orders for nondefense capital goods.
Overall, expect the rest of the day to be slow unless there is breaking news. Next week should also be slow with Thanksgiving holidays later in the week.
While the markets are focused on Italy and Greece as the main problems of the euro zone, there is another country just as bad, Spain.
Here’s what Roubini said in a recent interview in Moscow after being asked if Italy will be the last stop or will the debt crisis spread to bigger countries, “Well right now, the worries in the market are about Italy, but Spain is as much of a disaster as Italy. There debt as a share of GDP is lower, but their deficit is higher. Unemployment 20% including young people 40%.” He goes on to say that you can’t rule out contagion spreading to France because of French bank exposure to Italy and Spain. There may even be a downgrading of France’s credit rating from AAA to AA.
Roubini doesn’t think there will be bank failures, but their could possibly be temporary government takeovers of banks in trouble.
When asked about how many countries will exit the euro zone, Roubini believes that Greece and Portugal will be kicked out. He doesn’t think Italy or Spain will be kicked out in the next 12 to 18 months, but could happen in the next 3 years if they don’t get their debt under control.
You can watch the full interview here.