The lingering European debt crisis dented the markets once again as borrowing prices in the region kept mounting. Fresh warnings about the continent’s worsening debt scenario outweighed news that the European Central Bank (ECB) would intervene to provide some relief. A volatile session of trading saw benchmarks recovering some of the losses in the afternoon following the ECB’s intervention, but a late sell-off dragged the markets lower. Additionally, an encouraging domestic industrial production report provided little impetus on a day when the investors were burdened by European concerns.
The Dow Jones Industrial Average (DJIA) slumped 191 points or 1.6% to settle at 11,905.59. The Standard & Poor 500 (S&P 500) dropped 1.7% and closed the day at 1,236.91. The tech-laden Nasdaq Composite Index plunged 1.7% and finished yesterday’s trading at 2,639.61. The fear-gauge CBOE Volatility Index hovered over 33, reflecting heightened market concerns. On the New York Stock Exchange, Amex and Nasdaq, consolidated volumes were 7.4 billion shares, lower than the year’s daily average of 8 billion shares. On the NYSE, decliners outshined the advancers by a ratio of 16 to 5.
European concerns showed no sign of receding even the ECB intervened to ease tensions and support Italian, Portuguese and Spanish bond costs. The intervention was considered to be only short term, and fears are widespread with the borrowing costs escalating in France and Spain. Italian bond prices eased marginally from a key-level of 7% to 6.99%, which is still a highly unsustainable level. 10-year bond prices for France and Spain were recorded at 3.7% and 6.4%, both of which are considerably high. Investors are concerned that existing debt woes may spread to the continent’s larger economies.
Meanwhile, Moody’s Investors Service downgraded almost all of Germany’s public-sector lenders, which concluded a review that had started in July this year. Moody’s said that the downgrade indicates that “future government (or systemic) support for German public-sector banks has become less certain, partly owing to the new bank resolution regime that enables the government to impose losses on creditors outside of liquidation”.
The financial sector, which had been adversely affected almost through the year, suffered another major decline yesterday. The Financial Select Sector SPDR (XLF) fund declined 2.5% and the KBW Bank Index (^BKX) receded 1.9%. Among the bellwethers, Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), Deutsche Bank AG (NYSE:DB), The Goldman Sachs Group, Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) declined 3.8%, 4.1%, 2.6%, 4.2% and 8.0%, respectively.
U.S. crude-oil futures jumped to a five-month high of $102.59 per barrel. Among energy shares, Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP) and Marathon Oil Corporation (NYSE:MRO) dropped 1.4%, 1.1%, 3.1% and 0.5%, respectively.
In economic news, data from the Board of Governors of the Federal Reserve showed that industrial production had increased 0.7% in October. The expansion of the measure of physical output on factories, mines and utilities comes after a 0.1% drop in September and was better than the expected 0.4% increase. The industrial production is a key economic indicator and a positive result obviously hints at a better economic scenario. However, with European concerns weighing down sentiment, the report failed to generate sufficient optimism among investors.
Separately, the U.S. Bureau of Labor Statistics reported that Consumer Price Index for All Urban Consumers (CPI-U) had dropped 0.1% in October. The report also stated: “The index for all items less food and energy increased 0.1 percent in October; this was the same increase as last month and matches its smallest increase of the year”.
