August 19, 2022

Markets Tumble on Europe’s Debt Crisis

Monday’s weak start in the financial markets reflected a series of blows, including a hangover of disappointing economic news from the United States over jobs data, debt talks that worked to depress sentiment and lingering worries as European officials met in Brussels to discuss fiscal troubles in the euro zone.

After weeks of uncertainty related to bailouts for Greece, the Italian authorities moved to rein in short-selling on the Milan stock exchange as fears mounted that Italy could become the next victim of the sovereign debt crisis.

A half-hour before the close of trading, the Dow Jones industrial average was down 178.38 points, or 1.41 percent, to 12,478.82. The broader Standard Poor’s 500-stock index fell 25.61 points, or 1.91 percent, to 1,318.26. The Nasdaq composite, heavy with technology shares, lost 62.24 points, or 2.18 percent, to 2,797.57.

“There is so much going on in the world that you almost need a scorecard to keep up,” Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, wrote in a research note.

“If Italy becomes more of a problem, then it could spiral out of control and cause the much-feared contagion that some have predicted,” Mr. Giddis wrote. “If that is the case, then a global economic slowdown will likely hit our shores here and take the legs out of an already wounded U.S. economy.”

As risk aversion stepped up on Monday, United States Treasuries were trading higher. The euro fell 1.4 percent to $1.4017.

“Global issues are still outstanding,” said Jason Arnold, a financial analyst with RBC Capital Markets Corp. “Markets were still digesting the jobs numbers from Friday, so I think that it is also a factor.” Asian markets, in particular, reacted to the United States government report that just 18,000 jobs were added in June.

In Europe, the Milan Stock Exchange fell 3.8 percent on Monday. London’s FTSE was down 1.03 percent, the CAC in Paris was down 2.71 percent and the DAX in Frankfurt was down 2.33 percent.

On the broader market in the United States, financial shares were down more than 2 percent, while energy and materials indexes were lower by nearly that much.

Brian M. Youngberg, an energy analyst for Edward Jones, said the dollar rise connected with the events in the euro zone was putting downward pressure on oil prices, which in turn was affecting energy stocks. “Everything is revolving around Europe right now in some way,” he said.

Another weight on sentiment was the report over the weekend that inflation in China had reached a three-year high.

“It is kind of like this cocktail of disappointing information and data,” said Stephen Wood, chief market strategist for Russell Investments Chief.

William J. Schultz, chief investment officer for McQueen, Ball Associates Inc. , said that the debt ceiling talks and euro zone problems in particular “put this tone” to the market.

But he and other market analysts are pinning their hopes on the coming corporate reporting season for the second quarter.

“Those things are weighing, and now the hope is we are going to get earnings surprises on the positive side,” he said.

Article source:

Speak Your Mind