Steep slide on tap after global rout, soft data
Small-cap stocks are expected to open sharply lower, pulled down by a global rout in equities overnight fueled by fears of global financial systemic risk. In addition, a plunging U.S. dollar will weigh on stocks, and a fresh batch of economic data this morning presented a sour picture on the inflation and retail sales front. The Russell 2000 (NYSE:IWM) is expected to open down more than 1%, suggesting an open near 657.
Speaking of this morning’s batch of data, the Producer Price Index came in at +1.8%, which was well above the forecast for a rise of 1.3%. Meanwhile, June retail sales were up only 0.1%, which was far worse than the projection for a rise of 0.4%. The figure ex-autos was up 0.8%, but even that figure was below the 1% rise that was anticipated. The last piece of the data puzzle this morning (and by far the least important from a short-term trading perspective) was the N.Y. Manufacturing Survey, which was down 4.92, better than the forecast for minus 8. The immediate market impact of the numbers this morning was that stock index futures dipped another couple of handles, while the U.S. dollar plumbed new lows.
In overseas trading, stock market bears were on a rampage. Equity markets in Europe were down 2.5%, Hong Kong off 3.8%, China down 4.1%, Taiwan down 4.5%, Australia down 2.1%, Singapore down 2.5%, South Korea down 3% and India down 4.9%, as global investors feared financial instability in America spreading like a virus throughout the global system.
Large caps in the news overnight included Kimberly-Clark Corp. (NYSE:KMB). Shares in the maker of Kleenex tissues and Huggies diaper products were down about 7% after sloppy second-quarter earnings and as the firm slashed its yearly outlook. Johnson & Johnson (NYSE:JNJ) quarterly results topped the Street estimates on strong demand for the firm’s medical and consumer products, and JNJ stock was up 1.8% in after-hours trading.
Crude oil futures were higher overnight, climbing to the $146 dollars a barrel level on a steep slide in the U.S. dollar, new storms brewing in the Atlantic and percolating geopolitical tension in the Middle East.
Ahead of all the data this morning, the U.S. dollar hit all-time lows against the euro, and after the economic reports the greenback was still down 0.5% against the euro and off 1.4% versus the yen. The rout in the buck lifted gold, as some investors around the world turned to the yellow metal as a safe-haven amid financial stability fears.
Now that the economic reports are out of the way, the market will anxiously await testimony from Federal Reserve Chairman Ben Bernanke, who will speak about the economy and monetary policy before the Senate at 10:00 a.m. ET.
