U.S. Indexes Drop 3% on Recession Fears, Euro Crisis Deepen

Arjun Dave
09 Sep, 2011
New York City

The U.S. and European indexes dropped more than 3%. President Obama proposed $447 billion jobs stimulus package that was quickly opposed by the Republican lawmakers. German bonds yields dropped to record low since 1999.

[R]12:20 PM New York – The U.S. and European indexes dropped more than 3%. President Obama proposed $447 billion jobs stimulus package that was quickly opposed by the Republican lawmakers. German bonds yields dropped to record low since 1999.[/R]

U.S. stocks declined sharply after markets in Europe dropped more than 3% and U.S. President proposed a jobs stimulus plan that may face Republican lawmakers’ opposition.

U.S. President Barack Obama proposed a jobs plan that will amount to spending $447 billion. The package includes $240 billion in payroll tax cuts for small companies till 2012 and $140 billion in infrastructure improvement.

The plan amounts to about 3% of the gross domestic product of the U.S. and if enacted will lift the economy in the next few quarters.

Stocks in Europe were on the defensive after banks gained center stage and the prospect of mild recession increased in the U.S. the German and Dutch bond yields dropped to the record low since the creation of the euro in 1999.

Banks plunged on the worries that new capital may be required as early as this year and the top 20 European banks may need more than 90 billion euros.

Banks in Italy are now relying for more than 50% of its needs on the European Central Bank and banks in Ireland, Portugal and Greece are completely shut out from the public markets.

French banks are now looking at alternative source of funding as the U.S. based money market funds are lowering their lending to French and other European banks.

FTSE 100 index decreased 1.6% or 86.55 to 5,253.83, DAX 30 index fell 3.3% or 176.76 or 3.3% to 5,231.70 and CAC 40 index dropped 3.2% or 9.9 to 2,986.77.

German bond yields on 10-year declined to record low to 1.75% and Italian bonds extended losses and yields rose to 4.22%. Greek 2-year bond yields fell 1.24 percentage points to 56.29%.

China’s annualized inflation declined 6.2% in August after surging to a 3-year high in July. The decline in inflation was expected and matched economists’ estimates.

Stock Movers

The Kroger Co. ((KR)) decreased 6.9% or $1.62 to $21.73 after the grocery retailer reported second quarter total sales increased 11.5% to $20.9 billion compared to $18.8 billion in the same quarter last year. Net earnings in the quarter increased 1.3% to $280.8 million or 46 cents per diluted share compared to $261.6 million or 41 cents per share a year ago.

Texas Instruments Incorporated ((TXN)) increased 1.2% or 31 cents to $26.11 after the analog chip maker said third-quarter revenue may fall in the range of $3.23 to 3.37 billion compared to earlier forecast of $3.40 to 3.70 billion and earnings per share between $0.56 and 0.60 compared to prior range of $0.55 to 0.65.