From Morrison Securities Pty Ltd.
A negative reaction to last week's European sovereign-debt summit by credit-ratings firms sent U.S. stocks sharply lower Monday, erasing all of the stock-market gains that followed the summit Friday.
U.S. Stock Markets
The Dow Jones Industrial Average was off 211 points, or 1.7%, at 11974 in Monday afternoon trading. The measure was also stung by a profit warning at blue-chip bellwether Intel, which shed 4.5% and was the steepest Dow decliner.
Stocks were already well into the red for the session but tumbled further after Fitch Ratings said that last week's summit does little to ease pressure on the sovereign-debt crisis and predicted a significant economic downturn in Europe in the short term.
Major indexes were lower after Moody's Investors Service said it would review European countries' sovereign ratings. The Standard & Poor's 500-stock index shed 24 points, or 1.9%, to 1231. The technology-oriented Nasdaq Composite slid 45 points, or 1.7%, to 2602.
Energy and materials were the steepest decliners in the S&P 500. Financial stocks were also weak. Bank of America lost 4.4% and was one of the Dow's biggest decliners. Intel's profit warning was another factor weighing on the Dow. The technology company's stock dropped 4.5% after it warned that fourth-quarter revenue will fall about $1 billion short of its previous guidance, due to shortages of hard-disk drives that are expected to hurt its core personal computer market.
European Stock Markets
European stocks fell sharply Monday, hit by fresh doubts over whether the measures agreed at last week's European Union summit would be enough to tackle the sovereign debt crisis.
The Stoxx Europe 600 index dropped 1.9% to 236.05. Damping sentiment, Moody's Investors Service said Monday that policy makers offered few new measures at their summit last week. Moody's will still review the ratings of all European Union countries during the first quarter of next year. Italian stocks were among the worst performers, with the FTSE MIB index down 3.8% at 14,896.73.
UniCredit SpA fell 5.8% and utility Terna Rete Elettrica Nazionale SpA fell 5.7%. Investors weren't particularly reassured by a successful Italian bond auction. The Treasury sold EUR7 billion of 12-month bills at an average yield of 5.95%, down from 6.09% at a previous sale.
Notably, the benchmark 10-year Italian bond yield rose 30 basis points to 6.53% in late Monday trade, according to FactSet Research data. The German DAX 30 index fell 3.4% to 5,785.43, as banking group Commerzbank AG slumped 7.8% and insurer Allianz SE dropped 6.5%. German utilities E.ON AG and RWE AG fell 4.6% and 4.3%, respectively. Bank of America Merrill Lynch downgraded E.ON to neutral from buy and cut its price objective on RWE to EUR27 from EUR29, citing the weak European economy.
Shares of RWE traded at EUR26.75. Greek banks were also off sharply, with Alpha Bank AE down nearly 12% and National Bank of Greece down 12.6%. Greece kicked off a new round of talks Monday with inspectors from the International Monetary Fund, European Union and the European Central Bank about a new bailout plan to help it repay debt. The Greek ASE Composite Index fell 2.1% to 661.77.
In London, shares of Royal Bank of Scotland Group PLC fell 6.5% after the U.K. Financial Services Authority said a multitude of factors led to the bank's near collapse during the financial crisis. Also in the U.K. financial sector, HSBC Holdings PLC and Standard Chartered PLC fell 3.2% and 2.7%, respectively.
Shares of Lloyds Banking Group PLC fell 8.6%. The FTSE 100 index fell 1.8% to 5,427.86. Shares of Societe Generale SA fell 4.9% in Paris, while BNP Paribas SA fell 5.1%, helping drag the French CAC 40 index down 2.6% to 3,089.59. ING Groep NV fell 8.1%, while shares of Dexia SA slumped nearly 13% in Brussels.
Most Asian markets advanced Monday, with exporters and commodity-linked stocks among the notable gainers, as an agreement by European leaders Friday to overcome the region's debt woes lifted investor sentiment.
Japan's Nikkei Stock Average climbed 1.4% to finish at 8653.82 and South Korea's Kospi added 1.3% to 1899.76. China's Shanghai Composite lost 1% to 2291.54 on worries about the nation's slowing economy and, in particular, weakening exports to Europe.
That weighed on Chinese shares listed in Hong Kong, sending the Hang Seng Index 0.1% lower to 18575.66 after it spent most of the session in positive territory. Gains in most Asian bourses followed an advance in U.S. stocks Friday, after European leaders agreed on steps toward creating a tighter fiscal union, and after an improvement in U.S. consumer confidence.
Exporting firms climbed, with Toshiba up 3.3% and Sony 1.3% higher in Tokyo; in Seoul, LG Electronics gained 4.5%, while Samsung Electronics added 2.9%. Chinese property developers were hurt by concerns about the nation's slowing economy, with Poly Real Estate Group losing 3.6% and Gemdale falling 5%. Resource sector stocks also declined, with Aluminum Corp. of China dropping 1.6% and PetroChina dropping 1.1%.
In Hong Kong, shares of China Overseas Land & Investment fell 0.9%, while Ping An Insurance Group gave up solid morning gains to finish 0.6% lower.
Base metals closed lower on the London Metal Exchange Monday after sliding in line with broader risk markets on fresh worries over Europe.
Commodities and equities moved into the red as investors digested the outcome of last week's European Union summit, and a weak euro soured the appeal of dollar-denominated assets.
LME three-month copper ended at $7,606 a metric ton, down 2.7% on Friday's close. Crude futures declined Monday along with other risky assets, as markets grow worried that last week's actions by European leaders won't be able to prevent the euro zone's slide towards recession.
Light, sweet crude for January delivery closed $1.64 lower at $97.77 a barrel on the New York Mercantile Exchange. Gold futures tumbled nearly 3%, cut down by a stronger U.S. dollar and by ratings companies' negative comments about last week's European sovereign-debt summit.
Gold for February delivery, the most-actively traded contract, fell $48.60, or 2.8%, to settle at $1,668.20 a troy ounce on the Comex division of the New York Mercantile Exchange. This was the lowest settlement price since Oct. 24. December-delivery gold fell $48.60, or 2.8%, to settle at $1,664.20 a troy ounce.