U.S. Markets Fall Ahead of Long Weekend on Spanish Bank Troubles

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U.S. markets fell on Friday on a relatively uneventful day before the long weekend. The S&P 500 fell 2.86 points or 0.22% to 1,317.82. The Dow dropped 74.92 points or 0.60% to 12,454.83. For the week, the S&P 500 ended higher, breaking the index's streak of consecutive declines at 3 weeks. For the week, the S&P 500 gained 1.7%, while the Dow rose 0.6%. The S&P 500 has fallen 5.7% since the beginning of May, but is still up 4.8% for 2012.

Spanish Bank Bankia Seeks Expanded Bailout

On Saturday, Spanish bank Bankia requested $19 billion euros of additional bailout funding from the Spanish government, which was twice as large as what the market expected. As a result, S&P downgraded Bankia and two other banks to a “junk” rating. On Thursday, the Spanish government had decided to completely nationalize Bankia by injecting $9 billion into the bank. However, that amount was determined to be inadequate by Saturday. In addition, the Spanish government injected $4.5 billion euros into Bankia in early May, which brings the entire bailout to a total of $23.5 billion euros.

EU Leaders Meet But Produce No Results

On Tuesday, EU leaders began to meet for a summit in Brussels to resolve the euro zone debt crisis. French President Hollande pushed for the issuance of Eurobonds, which Germany resisted. The market doubted that the meeting would produce any significant results. In addition, Reuters reported that EU officials were instructing EU member nations in preparing for Greece to exit the euro zone. As a result, the Dow fell around 160 points in early trading on Wednesday. Meanwhile, the euro fell to its 21-month low of US$1.2615. By Friday, Germany and France were unable to come to an agreement on Eurobonds, and simply suggested 3 measures to help economic growth.

Facebook Shares Tumble In Second Week of Trading

On Monday, Facebook shares tumbled 11% after Friday's disappointing IPO. The shares closed down $4.20 at $34.03. By the end of the week, FB closed at $31.91, after losing 3.4% on Friday. It hit a intraday low of $30.94 on Tuesday.

Looking Ahead to Next Week

With elections in Greece to be held on June 17^th, it is likely the situation in the country has stabilized until then. While the possibility of Greece exiting the euro zone will provide a negative overhang for stocks, its effect could be small until the election occurs. Meanwhile, most of the euro zone concerns will be focused on Spain, as a result of the Bankia bailout. Investors will be watching to see whether Spain's other banks also require bailouts.

Next week, investors will be watching a long list of economic data to be released in the U.S. Consumer confidence, GDP and May non-farm payrolls reports will be released. Better-than-expected economic data from the U.S. could send markets higher next week, if few negative news emerge from the euro zone.

U.S. Markets Tumble on Greece Euro Zone Exit Concerns

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The S&P 500 fell for a 6^th consecutive day on Friday on euro zone worries, and posted its worst week since November. On Friday, the S&P 500 fell 9.64 points or 0.74% to 1,295.22. The Dow lost 73.11 points or 0.59% to 12,369.38. For the week, the S&P 500 tumbled 4.3%, while the Dow fell 3.5%. The S&P 500 has fallen 7.3% so far in May.

Facebook Records Lackluster Performance After IPO

After its IPO on Friday, shares of Facebook initially rose 10% in early trading. However, it closed just 0.6% above its issue price of $38, at $38.23. The shares almost fell below the $38 level, but were supported by its underwriters.

16 Spanish Banks Downgraded as Euro Zone Concerns Spread

On Friday, Moody's downgraded 16 Spanish banks by 1 to 3 notches, as concerns about Greece spread to other PIIGS nations. Meanwhile, with the increasing threat of Greece leaving the euro zone, S&P downgraded Greece on Friday, from B- to CCC.

Spanish Debt Yields Hit Record Highs

On Thursday, Spain auctioned $2.5 billion of 3- and 4-year government bonds. The yield on the 4-year bonds was 5.106%, much higher than the 3.374% at the last auction. As a result, the yield on 10-year Spanish bonds rose to 6.38%, and its spread versus German debt rose to 500 basis points.

Greeks Rush To Withdraw Deposits from Banks

With the increasing threat of Greece leaving the euro zone, Greeks have been rushing to withdraw money from banks. On Monday, Greeks withdrew $700 million euros from Greek banks. The situation was similar on Tuesday. This caused the euro to fall to US$1.2688 on Wednesday, and the yield on Spanish 10-year debt to hit 6.51%.

Looking Ahead to Next Week

With the severity of the euro zone crisis increasing, markets will likely continue to fall until the situation in Greece is resolved, either with a temporary solution by the ECB/EU/IMF or through exiting the euro zone. G8 leaders have been meeting this weekend, and investors will look to see if there are any concrete measures announced next week. Meaningful action by the G8 would provide markets with a boost. Investors will also be looking at the German, French and euro zone PMIs to gauge the health of the euro zone economy. In addition, Germany's Ifo for business sentiment will shed light on the strength of Europe's leading economy.

 

U.S. Markets Post Biggest Weekly Drop of 2012

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U.S. markets tumbled on Friday on a weaker-than-expected jobs report, and weak economic data from the euro zone. On Friday, the S&P 500 dropped 22.47 points or 1.61% to 1,369.10. The Dow tumbled 168.32 points or 1.27% to 13,038.27. For the week, the S&P 500 fell 2.4%, for its worst weekly performance in 2012.

Disappointing April Jobs Report

The jobs data responsible for Friday's market tumble was the U.S. April jobs report, which showed a gain of only 115,000 jobs. It was 55,000 less than the 170,000 jobs that economists expected. In addition, job gains decreased for the third month in a row. Even though the unemployment rate fell to 8.1%, it was due to 342,000 people giving up looking for work.

Euro Zone PMI Disappoints

On Friday, the Eurozone Services PMI from Markit showed a reading of 46.9 in April, which was significantly lower than the 49.2 in March. It indicated a deeper recession for the euro zone. In addition, France and Greece were heading into elections in the weekend, which added to the uncertainty in the markets.

Yields on Spanish Debt Remains Elevated

On Thursday, 3-year Spanish debt was auctioned at 4.037%, much higher than the 2.89% in the previous auction. Meanwhile, 5-year debt was auctioned between 4.752% and 4.960%, higher than the 4.319% previously.

ADP Shows Weak Private-Sector Hiring

On Wednesday, the ADP jobs report alluded to the disappointing April jobs numbers. The ADP report showed a gain of only 119,000 private-sector positions, much lower than the 177,000 the market expected. In addition, U.S. factory orders in March fell 1.5%, its biggest fall in 3 years. This caused the U.S. markets to open lower on Wednesday.

ISM Data Better Than Expected

Not all economic data this week was weaker-than-expected. On Tuesday, the April ISM reading was 54.8, better than the 53 the market expected. As a result, the Dow rose almost 100 points in early trading.

Looking Ahead to Next Week

Investors will be watching data from China next week, when the country releases inflation, retail and factory numbers. In addition, investors will pay attention to March readings on industrial output in Germany, France, Italy and Spain for a measure of how deep the euro zone recession will be.

Sunday's election defeat of Nicolas Sarkozy in France and the ruling parties in Greece will cause investors to become concerned about how determined the euro zone is in carrying out austerity measures. These election defeats will add to the uncertainty in the markets. With the disappointing jobs data from Friday continuing to weigh on markets, stocks will likely head lower in the beginning of next week. With earnings season winding down, investors will turn their focus back to the euro zone. With uncertainty in the euro zone increasing and what appears to be a deeper recession, U.S. markets will likely head lower next week.

 

US Markets Rise on Greece Bond Deal and Jobs Data

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On Friday, US markets received a lift from Greece avoiding a hard default and the better-than-expect February jobs number. The S&P 500 gained 4.96 points or 0.36% to 1,370.87. The Dow gained 14.08 points or 0.11% to 12,922.02. For the week, the S&P 500 gained 0.1%.

The Greek government announced on Friday that 83% of bond holders have accepted the bond-swap deal. With the activation of the collective action clause (CAC) the percentage of participants increases to 96%. The deal decreases Greece's debt by about $100 billion euros.

In addition, on Friday the U.S. government announced that 227,000 non-farm jobs were added, which was higher than the 210,000 the market expected. The February unemployment rate remained at 8.3%, meeting market's expectations. The market also received a boost from rumours that the US Federal Reserve is considering a new type of QE.

Greece Debt Classified as in Default

By Saturday, the ISDA has ruled that the bond swap deal is considered a default, while Moody's and Fitch have downgraded Greek debt to selective default. This activates about US$3.2 billion in CDS payments, but was largely brushed aside by markets on Friday.

China Decreases Growth Target

On Sunday, China decreased its 2012 GDP growth target from 8% to 7.5%. It was the first time since 2004 that the growth target had been lowered, and the news weighed on markets early in the week.

Looking Ahead to Next Week

The Fed's FOMC will meet on Tuesday, and issue a statement after. Investors will be looking for any sign of a new round of QE or operation twist (OT). Meanwhile, the Thomson Reuters/University of Michigan consumer sentiment data will be released on Friday. The market expects a reading of 76.0 for March.

The bond swap deal and the resulting triggering of CDS payments could have a negative effect for markets next week. In addition, investors with high hopes for a new type of QE will likely be disappointed Tuesday. Even if the Fed gives a hint about conducting a new type of QE, its size will likely be much smaller than QE2. Finally, markets will likely be pushed lower early in the week by China's weak February export numbers, and its largest monthly trade deficit in 22 years.