Markets suffered heavy battering on Thursday as European Central Bank President Mario Draghi hinted at not providing broad support to the troubled European nations. Concerns from the cross-Atlantic region also completely overshadowed reports of the initial jobless claims falling to a 9-months low.
The benchmarks enjoyed a seat in the green throughout this week till it hit a roadblock yesterday. Suffering a three-digit slump, the Dow Jones Industrial Average (DJIA) declined 1.6% to close the day at 11,997.70. The Standard & Poor 500 (S&P500) plunged 2.1% to finish the day sharply lower at 1,234.35. The Nasdaq Composite Index settled at 2,596.38, dropping almost 2.0%. The fear-gauge CBOE Volatility Index (VIX) jumped over 6% to close at 30.59. Just a day after we reported that the fear-gauge index is creeping gradually toward the key level of 30, it finally did cross that level, displaying heightened fears. On the New York Stock Exchange, the decliners enjoyed an upper hand over the advancing stocks. For 84% of the declining stocks, merely 13% of the stocks could end higher. The remaining 2% of the stocks remained unchanged.
It was yet again the cross-Atlantic concerns that took a toll on the markets. Responding to a question at a news conference in Frankfurt, Mario Draghi said that the European Union treaty forbids “monetary financing” and thus the central bank cannot boost up the bond-buying plan. In relation to the central bank hinting at additional liquidity measures, Draghi said “the outlook remains subject to high uncertainty and substantial downside risks”.
Additionally, pressures also build up as a hint of contradiction was reported to exist in the European Union Summit. Reuters reported a German official saying that the nation had opposed to certain measures in the draft conclusions. Also reportedly, the strict fiscal measures that found strong support from the German Chancellor Angela Merkel was opposed by certain European Union members.
The markets had been trading higher this week. However, the sessions were not entirely devoid of concerns. On Monday, it was Standard & Poor’s announcement that it will put euro-using nations, along with economies like Germany and France, under “creditwatch negative”. On Tuesday, concerns lingered in the background, with the possibility of the European Financial Stability Facility (EFSF) losing its credit rating. A possibility, if, according to Standard & Poor’s (S&P’s), any of the six ‘AAA’ rated European country face a downgrade. Also on Wednesday afternoon, Standard & Poor’s had put the European Union’s ‘AAA’ rating on negative watch.
The financial sectors were heavily hit by the concerns yesterday. The Financial Select Sector SPDR (XLF) fund declined 3.9% and stocks including Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), Deutsche Bank AG (NYSE:DB), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC) slumped 5.1%, 7.0%, 7.8%, 5.0%, 8.4%, 5.2% and 3.2%, respectively.
Investors were so bogged down by the European concerns that strong jobs report on the domestic front could hardly reduce the losses. The U.S. department of Labor reported the advance figure for seasonally adjusted initial claims to have declined 23,000 from previous week to 381,000 for the week ending December 3. This is a great drop in the number of first-time jobless claims and the level moved below the key 400, 000 once again. For the past few consecutive weeks, the initial claims had been trending up and thus spelled a negative outlook for the jobs market. This time, the data was also below the consensus estimates of 394, 000.
