U.S. stocks: Futures plunge as Fed minutes sink in
London (July 10) Wall Street was bracing for sharp losses at Thursday’s open as stock futures fell sharply a day after the Federal Reserve revealed key elements of its exit plan for bond-buying and as bank woes crept out of Portugal.
Weekly jobless claims and a speech from a key Federal Reserve member are ahead, while Costco Wholesale Corp. could see action after same-store sales, and as another retailer was poised for more losses.
Fed sets October end for bond buying
Federal Reserve officials agreed to end the central bank's bond-buying program by October.
Losses ramped up for futures through Europe’s morning. Futures for the Dow Jones Industrial Average DJU4 -0.90% sank 144 points, or 0.9%, to 16,769, while those for the S&P 500 index SPU4 -0.92% tumbled 17 points, or 0.9%, to 1,950.20. Futures for the Nasdaq-100 index NDU4 -0.89% dropped 31.50 points, or 0.8%, to 3,854.
Weekly jobless claims are due at 8:30 a.m. Eastern Time, and economists expects claims will rise to 320,000 in the seven days ended July 5, from 315,000 in the prior week. At 10 a.m. Eastern Time, the government will issue wholesale inventories for May. Inventories increased 1.1% in April. Jobless claims likely to stay low, reflect improved labor market
Also Thursday, Stanley Fischer will give his first major speech as vice chairman of the Federal Reserve, on financial reform in Cambridge, Mass. Kansas City Fed President Esther George will speak on the economy and monetary policy in Oklahoma at 1.15 p.m. Eastern Time.
Stocks closed modestly higher on Wednesday, after the minutes of the Federal Open Market Committee meeting revealed policy makers planned to end the Fed’s bond-buying program by October if the economy stays on track. The S&P 500 SPX +0.46% gained 0.5% to 1,972.83.
But markets seem to be having second thoughts on Thursday. Within those minutes, noted James Hughes, chief market analyst at Alpari, were Fed concerns that the recent volatility in financial markets is proof investors aren’t factoring in a more hawkish central-bank approach.
“The complacency point is actually really a key point to these markets at the moment,” said Hughes, who notes that investors aren't facing monetary change only in the U.S., but in Europe and the U.K., as well. “Any rally like this, which has been so strong and built on such low volatility — any kind of surprise will just flip the switch on this, and there will be no foundations to hold it together.”
He said the Dow industrials’ DJIA +0.47% failure to hold on to 17,000 is a sign of a “psychological cap” for markets.
In Europe, the Stoxx Europe 600 index XX:SXXP -1.33% logged a fifth day of losses, dropping 1.4% as banks tumbled. Portugal’s PSI 20 PT:PSI20 -4.35% PT:PSI20 -4.35% down nearly 4% after Espirito Santo Financial Group SA PT:ESF -8.92% , the controlling lender of Banco Espirito Santo SA CA:BES 0.00% , suspended trading its own shares and bonds, citing “ongoing material difficulties.”
Banco Espirito, which was still trading, plunged 15%, while other Portuguese banks and banks across southern Europe fell in tandem.
Bad news on the data side didn’t help. Italy’s industrial production unexpectedly fell 1.2% in May, the biggest decline since November 2012, and French production also surprised with a 1.7% drop, the largest fall in more than 18 months.
Investors were also watching for the latest policy decision from the Bank of England.
The Nikkei 225 index JP:NIK -0.56% fell 0.6%, but other Asian markets were flat or slightly higher. Chinese trade data for June surprised to the downside: up 7.2% in June from a year earlier, which was better than a 7% gain in May, but far below the 10% rise expected from economists surveyed by The Wall Street Journal.
As stock futures fell, gold pushed sharply higher, with August futures GCQ4 +1.47% surging $20.20, or 1.5%, to $1,344.60 an ounce. Oil prices were mostly lower, while the dollar DXY +0.08% also stayed higher.
Source: MarketWatch
