EmailThe negative sentiment that sent U.S. and European markets sharply lower Thursday is carrying over into today's session.
Global equity markets appeared to be stabilizing this week following last week's extreme volatility. Unfortunately, concerns regarding economic growth and the eurozone debt crisis -- specifically capital constraints for European banks -- returned with vigor yesterday.
These risks had not receded from the marketplace, but apparently they had from the minds of investors. Market participants were given just enough reminders yesterday to flee risk assets, including:
- Morgan Stanley lowered its global economic outlook
- New York Federal Reserve reportedly intensified its scrutiny of the U.S. operations of Europe's largest banks
- A European bank accessed the European Central Bank's 7-day liquidity program for the first time since February
- The Philadelphia Federal Reserve Business Outlook plummeted
Asian markets played catch-up overnight. South Korea's export-heavy market experienced the worst sell-off, as the Kospi plunged 6.2%.
European markets opened with modest declines this morning, but sold off aggressively just after the open, led once again by banks.
U.S. futures followed, and currently point to another lower open, though they have rebounded off of their worst levels. S&P futures are trading 1.3% lower.
The rebound off of the lows was aided by a sell-off in the dollar. While gold and silver continue their advance this morning, the other safety assets have not joined in. The 10-year Treasury yield, which briefly traded below 2.00% yesterday, has added a few basis points.
A busy earnings week for retailers actually ended about an hour before the close Thursday.
HP (HPQ) released its results early after it was leaked that the company is in talks to sell its PC business and is acquiring enterprise information management software company Autonomy. HP issued disappointing guidance, though. The stock lost 6% yesterday, and is trading down another 18% this morning.
It will be interesting to see how today's session plays out. Last Friday's session, amid the market turmoil, turned out to be a slow one more typical of the summer doldrums. There is that possibility today with a very thin calendar that includes no economic data.
At the same time, today is an options expiration Friday, which should lead to strong volume. And with the annual Jackson Hole economic symposium next week (August 26-28), we would expect speculation about Federal Reserve activity to intensify in the coming week. There have already been rumors today.
--David M. Campione, CFA
Dave is an analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
