Debt-Talks-Stall Saps Market Confidence; World Markets Cautious

Arjun Dave
25 Jul, 2011
New York City

U.S. indexes trended lower as the lack of progress in debt talks sapped market confidence. Any agreement of debt ceiling increase less than $2.4 trillion may lower world markets. Research In Motion Ltd announced to cut 2,000 jobs. Oil flirted near $100 a barrel.

[R]10:50 AM New York – U.S. indexes trended lower as the lack of progress in debt talks sapped market confidence. Any agreement of debt ceiling increase less than $2.4 trillion may lower world markets. Research In Motion Ltd announced to cut 2,000 jobs. Oil flirted near $100 a barrel.[/R]

U.S. indexes opened sharply lower tracking losses in Asia and Europe on the lack of progress in the U.S. debt talks.

The White House and Republican controlled House remained far apart in their agenda and in raising debt ceiling of $1.43 trillion. However, at least for now markets are anticipating some kind of compromise in the last hour to avoid a government shutdown that looms on August 2.

The Dow declined as much as 1% or 123.90 to 12,557, the S&P 500 index fell 0.9% or 12.70 to 1,332 and the Nasdaq index dropped 0.4% to 2,847.80.

The indexes recovered after first thirty minutes of trading but the lack of progress has shaken investors’ confidence in the government to act decisively and not focus on getting the economy back on track and cut the high unemployment.

White House Chief of Staff Bill Daley in an interview with NBC said any debt ceiling increase less than $2.4 trillion will be received poorly by world markets. U.S. Treasury Secretary Timothy F. Geithner also urged lawmakers to reach an agreement as early as today so that the U.S. House can finish the debate before August 2.

In Asian, the benchmark indexes in China dropped after a rail accident that killed 38 people. The fast expansion of rail network may be put on hold and the index in Shanghai plunged 3%, the largest one day fall in six months.

In Europe, markets looked at the U.S. for the direction after ministers in the euro-zone approved second bailout on Friday that will also share loan losses with banks of as much as 50 billion euros.

The compromise struck on the last minute by German, France, the European Central Bank and other regulatory agency will provide at least $200 billion of new loans to Greece for a period of as long as 30 years at a rate of 3.5%.

The last minute deal also expanded the authority of the European rescue fund to buy sovereign bonds of other troubled nations and expanded its purchasing authority to 440 billion euros. The move is expected to lower the rising yields of various countries including Italy and Spain.

Stocks in Focus

The maker of BlackBerry, Research In Motion Ltd. ((RIMM)) plans to cut 2,000 jobs and announced appointment of new executives. The job cut represents about 10% of work force and is part of the cost savings plan announced a month ago.

Kimberly Clark declined more than 0.3% after the maker of consumer products said quarter earnings fell 18% to $408 million or $1.03 a share from $498 million or $1.20 a share a year ago. Net income was $1.18 a share without the one-time restructuring charges.

E*Trade Financial Corp added 2.4% to $15.99 after the online broker plans to engage Morgan Stanley to explore its sale according to its largest shareholder Citadel LLC.