S&P 500 Index Down 2%; Berlusconi Struggles to Hold Coalition

Bikram Pandey
25 Oct, 2011
New York City

U.S. indexes pulled back 2% after investors turned cautious on weak confidence data and earnings outlook. Netflix, Inc stocks plunged 35% after customers defect. European leaders postponed a meeting of finance minister as leaders struggle to finalize Greek bonds loss. India lifts rates by 0.25%.

[R]4:10 PM New York – U.S. indexes pulled back 2% after investors turned cautious on weak confidence data and earnings outlook. European leaders postponed a meeting of finance minister tomorrow as leaders struggle to finalize Greek bonds loss shared by banks. Netflix, Inc stocks plunged 35% after customers defect and the company forecast losses in 2012.[/R]

U.S. indexes edged lower after disappointing earnings and a drop in consumer confidence. U.S. metropolitan home prices rose in August and consumer confidence deteriorated in October.

Investors were unnerved after consumer confidence dropped to the level last seen in March 2009 and European leaders postponed the meeting of finance ministers tomorrow to finalize the details of the bank bailout agreement.

Italian Prime Minister faced more pressure from the EU leaders to put growth plan in place and put a credible plan to trim debt in the next few years. German Chancellor asked Italy to increase retirement age for pensioners to 67 from 65 and German voters are expected to approve a similar measure for all workers born after 1964.

Special meeting of Italian Cabinet failed to approve much talked about plans to increase taxes and trim government and reduce pension benefits and also pass measures that will increase investment and encourage growth.

Northern League, the coalition partner in the Italian government did not agree with the age increase and the party’s leader Umberto Rossi said his constituents will not like the increase and may leave the coalition.

Italy’s debt has grown to €1.9 trillion or nearly 120% of GDP trailing only Greek debt in the euro zone.

Prime Minister Silvio Berlusconi’s government has survived scandals, legal threats and confidence vote but if Northern League leaves, the government will not survive another confidence vote.

European indexes traded sideways ahead of the summit tomorrow. Spain issued €3.47 billion of bonds at higher yields.

In corporate news, Novartis planned to eliminate 2,000 jobs to cut operating costs and UBS net slumps 39%. Netflix plunged 35% after it forecasted loss in 2012 on expansion in South America and UK and Ireland. UPS, the parcel delivery company declined 3% after it confirmed that air shipments to the U.S. from Asia were weaker than expected in the recent quarter.

Germany's consumer confidence is set to rise in November. Consumer confidence in France improved in October. Hungary's central bank left rate unchanged at 6%. Sweden lowered budget surplus outlook for this year and next.

The UK indexes dropped after European finance ministers postponed their meeting. The UK current account deficit narrowed in the second quarter and mortgage approvals dropped unexpectedly in September. U.S.-based Hain Celestial agreed to acquire Daniels Group for $230 million.

Stocks in Japan declined and Canon lowered its fiscal year operating earnings outlook on Thai floods. Flood waters are expected to hit Bangkok tomorrow and domestic airport cancelled all flights and death toll was revised higher to 366.

Markets in Mumbai traded higher 2% in a light trading ahead of Diwali and New Year celebration. Separately, Reserve Bank of India increased interest rate by 25 basis points to 8.50% and lowered economic growth outlook in the current fiscal year to 7.6% from 8%.

Market interpreted the central banks assessment of the inflation outlook suggested that rate hike cycle may come to an end at the end of December meeting.

The central bank also highlighted slowing industrial production and weakening international demand and cautioned high food prices and inflation may hamper future growth. Real estate developers are facing credit crunch, higher building costs and weak demand in metropolitan markets for the first time in three years.

Australian indexes declined and resource prices gained on the optimism that the European leaders will announce details of the bank recapitalization plan. Australian dollar edged higher and copper and crude oil prices gained.

Commodities, Bonds and Currencies

The yield on 10-year U.S. bond closed down to 2.12% and 30-year bond fell to 3.13%.

The U.S. dollar decreased to $1.392 to one euro and closed lower against the Japanese yen to 75.91 yen. The yen climbed back near a 25-year high.

Immediate delivery futures of Texas crude oil increased $1.86 to $93.13 a barrel and futures of natural gas increased 0.05 cents to $3.65 per mbtu and gasoline prices rose 1.46 cents to 270.34 cents a gallon.

In metals trading, copper decreased 31.50 cents to $3.41 per pound, gold added $54.60 to $1,706.90 per ounce and silver rose $1.62 to $33.27.