U.S. stock futures took a tumble on Wednesday amidst a sharp spike in Italian borrowing costs. Investors are worried the European sovereign-debt crisis is going to spiral out of control. S&P 500 futures slumped 28.5 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. The Dow Jones Industrial average futures lost 213 points while Nasdaq 100 futures dropped 41.25 points.
Italian bond yields were clearly the focus after LCH.Clearnet Group raised its margin requirements for Italy’s government debt. The 10-year yield spiked above 7%. Most analysts believe that is an unsustainable level for borrowing costs. According to some economists, the yield jump literally pushes Italy to the edge of the cliff. It presents a deja vu scenario. This is exactly what happened to Greece and Portugal earlier in the debt-crisis.
The problem with Italy is it is simply too large to bail out. Italy is Europe’s third largest economy and if it fails, the repercussions around the entire global financial system will be devastating.
The slump in stock futures appears to have wiped out Tuesday’s gain. The Dow Jones Industrial Average rose 101.79 points on Tuesday to close at 12170.18. The S&P 500 gained 14.8 points to end at 1275.92, while the Nasdaq Composite Index rose 32.24 points to 2727.49.
On the economic front for Wednesday in the United States, the Commerce Department releases wholesale inventories for September at 10 a.m. EST (1500 GMT). Economists forecast inventories to rise 0.5 percent versus a 0.4 percent increase in August.
Also today,Federal Reserve Chairman Ben Bernanke will speak at a small business and entrepreneurship conference at 9:30 a.m. EST (1430 GMT).
Some companies having pre-market declines included: Adobe Systems (NASDAQ:ADBE) at -9.24%, Suntrust Banks Inc. (NYSE:STI) at -6.34%, AK Steel Holding Corporation (NYSE:AKS) at -5.88% and Morgan Stanley (NYSE:MS) at -4.73%.