U.S., European Markets Plunge 5%; Budget Cuts Worries Reality

Bikram Pandey
04 Aug, 2011
New York City

The U.S. indexes plunged 4.8% as the reality of the Republican Party demanded budget cuts sets in. European markets also plunged as much as 5% as the debt contagion spreads to bigger nations, Span and Italy. Crude oil dropped 5% and gold and silver eased. Yields on 10-year Treasury declined to 2.6%.

[R]4:00 PM New York – The U.S. indexes dropped as much as 4.8% as the reality of the Republican Party demanded budget cuts sets in. European markets also plunged as much as 5% as the debt contagion spreads to bigger nations Span and Italy. Crude oil dropped 5% and gold and silver eased. Yields on 10-year Treasury declined to 2.6%.[/R]

The U.S. indexes accelerated decline and dropped at their lows to 4.5% as investors begin to add up the damage from the budget cuts demanded by the Republican Party.

The budget cuts that are forced on the fragile economy and heavy war expenditures are now almost certain to keep unemployment above 10% so much as the economy may slip into a recession as early as this year.

The U.S. debt agreement is likely make to employment crisis worse.

The Dow, S&P 500 and the Nasdaq are now in a two week correction with at least 10% decline. Market indexes in Spain, Italy and Switzerland are 20% below from the peak. In emerging markets, the benchmark index in Brazil has plunged more than 25% and in India has dropped 13% for the year.

In company news, Kraft Foods decided to split into two and General Motors reported its sixth quarterly profit in a row.

Apache second quarter income rose to $1.24 billion. BCE second quarter income fell 2.5%. General Motors reported its profit for the sixth quarter in a row. Kraft Foods second quarter earnings rose 4.2% and decided to split the company into two. Sotheby’s second quarter income rose to $127.2 million.

European markets jitters dragged indexes lower for the third week in a row as Spain completed the sale of €3.3 billion of short term bonds. The yields on Italian and Spanish bonds declined after the auction. The ECB left its key lending rate at 1.5%. Swiss Re and Munich Re reported better than expected earnings.

Stocks in Tokyo trading gained after two days of steep losses. The finance ministry intervened to weaken the yen and the Bank of Japan planned to increase its asset buying program. Toshiba Ltd and Mitsubishi Heavy Industries Ltd entered in merger talks that may create one of the largest conglomerates with $150 billion in revenues.

Australian stocks declined to the lowest last seen in July 2009 and dropped 14% from its peak in April. Resource linked stocks and banks led the decliners for the second week in a row. Rio Tinto said first half net soared 30% and left its outlook for the rest of the year intact. The Australian dollar declined 1.8%.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 2.6% and 30-year U.S. bond closed down at 3.87%.

The U.S. dollar decreased at $1.4317 to one euro and fell against the Japanese yen to 76.85 yen.

Immediate delivery futures of Texas crude oil decreased $5.14 to $86.79 a barrel and futures of natural gas decreased 0.14 cents to $3.95 per mbtu and gasoline price decreased 18.38 cents to 274.75 cents a gallon.

In metals trading, copper decreased 8.70 cents to $4.23 per pound, gold added $8.10 to $1,658.20 per ounce and silver decreased $2.70 to $39.05.