U.S. Indexes Plunge 4.5% on French Bank Worries

Bikram Pandey
10 Aug, 2011
New York City

U.S. indexes plunged more than 4% erasing all the gains of one-day rally. Nervous market dragged stocks lower on the growing belief that the economy may be sliding towards recession. Banks in Europe and the U.S. declined on the worries that France may have to bailout its banks. Gold gained 3%.

[R]4:30 PM New York – U.S. indexes plunged more than 4% erasing all the gains of one-day rally. Nervous market dragged stocks lower on the growing belief that the economy may be sliding towards recession. Banks in Europe and the U.S. declined on the worries that France may have to bailout its banks. Gold gained 3%.[/R]

U.S. indexes plunged more than 4% after Fed guided low rates for two years and announced no new measures to lift the economic growth. Investors were also unnerved by the worries that France may have to support its banks and face a downgrade of its credit rating.

The fears of French banks was first manifested in the sharp fall in French bank stocks today with Societe Generale plunging more than 18% and BNP Paribas dropping 10% and Credit Agricole descending 12%.

The spread of the yield on French bonds rose to 90 points to on the German bunds compared to the average of 34 basis points in all of 2010.

U.S. investors overlooked the rise in mortgage applications. U.S. mortgage applications surged to 21.7%.

In earnings news, Capital One agreed to acquire HSBC’s domestic credit card business for $2.6 billion. Macy''s earnings soared 64%. Liberty Media quarterly net income soared to $271 million. Polo Ralph first quarter net income rose to $184 million. Walt Disney third quarter net income rose 11% to $1.48 billion.

European indexes rebounded after a week of chaotic trading. The IEA lowered its 2011 global oil demand growth forecast. The SNB lifted banks'' sight deposits to curb franc appreciation. E.ON planned slashing about 11,000 jobs and Nestle first-half net fell 16%.

French industrial output fell and current account deficit narrowed in June. German annual inflation was at 2.4% and Portugal inflation eased to 7-month low in July. Norwegian factory price inflation was 16.1% in July.

The UK indexes slumped after the Bank of England trimmed its growth outlook and inflation forecast. UK riots expand to three more cities on the fourth day. Ireland industrial production declined in June and new car registrations fell in July. Standard Life first-half net revenues rose 7.4% to £5.24 billion.

Stocks in Japan traded higher after the U.S. Federal Reserve left its key lending rate near zero and guided low rates for another two years. Exports linked stocks were lower as the yen firmed up. Sony confirmed that rioters burned down one of its warehouses in London.

Australian stocks soared following a strong rebound in Asian markets tracking gains in overnight trading in New York. The broad rally lifted resources linked stocks, banks and retailers. China trade surplus rose to a record high in 30 months.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield decreased to 2.11% and 30-year U.S. bond closed down at 3.50%.

The U.S. dollar increased at $1.4189 to one euro and fell against the Japanese yen to 76.85 yen.

Immediate delivery futures of Texas crude oil increased $2.41 to $81.76 a barrel and futures of natural gas increased 0.008 cents to $4.001 per mbtu and gasoline price increased 9.14 cents to 275.90 cents a gallon.

In metals trading, copper decreased 7.50 cents to $3.89 per pound, gold increased $54.00 to $1,797.00 per ounce and silver increased $1.47 to $39.36.

Gold traded above platinum for the second day since December 2008.