Investor expectations were dashed after the ECB's President
Mario Draghi failed to live up to his commitment last week to do
"whatever it takes" to keep the Euro-zone intact. Mr. Draghi said
the central bank would purchase Spanish and Italian bonds, though
subject to governments activating the European bailout funds in the
bond market. Eventually, the benchmarks slipped for the
fourth-consecutive day.
The Dow Jones Industrial Average (DJI) lost 0.7% to end over 92
points lower at 12,878.88. The Standard & Poor 500 (S&P
500) declined 0.8% and finished yesterday's trading session at
1,365.00. The tech-laden Nasdaq Composite Index dropped 0.4% and
ended at 2,909.77. While the markets ended lower, the fear-gauge
CBOE Volatility Index (VIX) reflected easing fears in the market,
losing 7.3% to settle at 17.57. It was a busy session as
consolidated volumes on the New York Stock Exchange, NYSE MKT and
the Nasdaq were roughly 7.1 billion shares, higher than the
year-to-date daily average of 6.75 billion. Decliners outpaced the
advancers on the NYSE; as for 60% stocks that declined, 36% stocks
moved up.
Markets were down for the fourth-straight day and the
disappointment from the other side of the Atlantic dented markets
yesterday. In summary, Mr. Draghi fell far short of his words.
After the ECB meet he announced that the central bank is ready to
purchase Italian and Spanish bonds. However, this needs the
activation of the European bailout funds. Draghi said: "As
implementation takes time and financial markets often only adjust
once success becomes clearly visible, governments must stand ready
to activate the EFSF/ESM in the bond market when exceptional
financial market circumstances and risks to financial stability
exist - with strict and effective conditionality in line with the
established guidelines".
Mr. Draghi has not shut the door altogether, but hinted that the
banks might make their move after September. He said: "The
Governing Council, within its mandate to maintain price stability
over the medium term and in observance of its independence in
determining monetary policy, may undertake outright open market
operations of a size adequate to reach its objective". He also said
that the ECB has decided to keep the benchmark interest rates at
0.75 percent.
Nonetheless, these were not exactly comments that investors were
hoping for. Market strategists noted that investors, riding high on
hopes following Mr. Draghi's pledge last week, were eyeing stronger
and more concrete action from the central bank. Meanwhile,
according to a Bloomberg report Mr. Draghi had said Germany's
Bundesbank had reservations about the bond purchase. As for the
broader economy he commented: "Economic growth in the euro area
remains weak".
Thus, things were far from bright on the other side of the pool
and its effects were felt in the US domestic markets as well. The
financial sector took a beating with the Financial Select Sector
SPDR (ETF) (XLF) dropping 0.8%. Among financial stocks, Bank of
America Corp (NYSE:
BAC
), Goldman Sachs Group, Inc. (NYSE:
GS
), JPMorgan Chase & Co. (NYSE:
JPM
), PNC Financial Services (NYSE:
PNC
), U.S. Bancorp (NYSE:
USB
), Wells Fargo & Company (NYSE:
WFC
) slumped 0.6%, 2.3%, 2.3%, 1.0%, 1.3% and 1.7%, respectively.
Meanwhile, initial claims showed an increasing trend while
factory orders declined. As per the data released by the U.S.
Department of Labor, the advance figure for seasonally adjusted
initial claims for the week ending July 28 were 365,000, up 8,000
from previous week's revised figure of 357,000. Initial claims data
failed to match expectations as consensus estimates were 371, 000.
Separately, the U.S. Census Bureau reported that new orders for
manufactured goods declined 0.5% in June to $465.8 billion. This
was contrary to expectations of a 0.5% rise and the earlier month's
increase of 0.5%.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
PNC FINL SVC CP (PNC): Free Stock Analysis
Report
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis
Report
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