Russell plagued by global credit fears
The Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) are continuing to trade lower as trepidation of credit insolvency burgeoning across global credit markets ensues.
At 2:00 p.m. ET the Russell 2000 had shed 6.65 points, or 0.84%, to 789.01. The Dow had lost 164.61 points, or 1.21%, to 13,493.35.
The mayhem began just after the opening bell this morning after it was reported that France’s largest bank, BNP Paribas, suspended withdrawals from three of its asset-backed securities funds due to a lack of liquidity. Subprime loans comprised roughly one third of the French bank's $2.76 billion in investment funds.
After the French bank suspended its funds, the European Central Bank poured liquidity into European markets for the first time since 2001 by loaning $130.2 billion. The U.S. Federal Reserve followed suit by pouring more cash than usual into U.S. markets to absorb the European overrun.
Following the Fed’s actions, treasuries -- including short-maturity notes and money market rates -- rose. Ten-year note yields exceeded two-year yields by the widest margin since September 2005. The yield on the 10-year-note rose to 4.8%, while the yield on the two-year note rose to 4.5%.
Traders at the Chicago Board of Trade priced in a 100% chance that U.S. Federal Reserve would cut rates in September. This expectation comes on the heels of Wednesday’s sentiment, in which federal funds futures contracts priced in only a 25% chance of a rate cut.
In the U.S., as the credit fears reverberated through the markets, stocks in the financial sector, such as Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co led declines.
Home Depot Inc. (NYSE: HD) fell 5% after the home improvement retailer said it may have to reduce the $10.3 billion price tag of its contractor-supply unit that buyout firms agreed to pay, forcing the Atlanta, Ga.-based company to cut the price on its tender offer to $37-$42 from $39-$44.
In economic news, U.S. retailers posted weaker-than-expected July same-store sales.
The U.S. Labor Department reported jobless claims for the week ended Aug. 4 increased 7,000 to 316,000 from 309,000 a week ago.
A barrel of crude oil has fallen $0.12 to a level of slightly above $72 a barrel, as traders priced in expectations that economic weakness could cause demand to wane.
The greenback was mixed. The euro was at $1.37 compared with a level of $1.379 Wednesday, while the dollar was at 118.61 yen, from 119.69 yen Wednesday.
