Dow Shaken by Greek Debt Fears, Stronger Dollar

By

Published May 20, 2011

| FOXBusiness

FOX Business: The Power to Prosper

Concerns over the sovereign debt crisis in Greece, coupled with a strengthening greenback, pushed the blue chips into the red for the third straight week. 

Today's Markets

The Dow Jones Industrial Average was down 93.2 points, or 0.74%, to 12,512, the S&P 500 was off 10.3 points, or 0.77%, to 1,333 and the Nasdaq Composite fell 20 points, or 0.71%, to 2,803. The FOX 50 was off 8.8 points to 932. 

All three major market averages were lower on the week: the Dow was down 0.67%, the S&P 500 edged 0.34% lower and the Nasdaq shed 0.89%. Volatility was quite high, with the VIX, a gauge of tumult spiking 11% Friday alone. 

Markets have been closely-tied to moves in currencies in recent sessions, trading inversely with the U.S. dollar. The euro traded lower by 1.1% against the dollar and the greenback climbed 0.61% against a basket of world currencies. 

Yields on Greek treasury bonds were up markedly higher Friday, pointing to increased concern about the situation there, after Fitch downgraded the country's debt further into junk territory to "B+." The ratings firm also warned of the potential for further cuts going forward. 

Greece has been struggling to pay nearly half a trillion dollars in public debt.  While many plans have circulated about how the country might solve the problem, including privatizing companies and pushing back maturity dates on bonds, no firm plans have been floated. 

Also adding to euro weakness, Germany's Bundesbank said the economic recovery in the country could be slowing down in a report Friday, leading currency traders to question the speed at which the European Central Bank can raise its benchmark interest rates.  

Generally, currencies gain strength when interest rates increase because investors tend to seek the highest possible rates, boosting demand for money, and the exchange rate. The inflation-hawkish European Central Bank is expected to begin hiking rates much more quickly than the U.S., giving the euro a boost in recent weeks. 

In energy markets, light, sweet crude gained $1.05, or 1.2%, to $99.49 a barrel. Crude prices are off 13% for the month, but are still up 9% for the year. 

The recent selloff comes as many analysts are beginning to point to signs of high prices causing demand destruction. 

Wholesale RBOB gasoline was up a penny, or 0.33%, to $2.94 a gallon. Consumer gasoline prices continue to be on a downtrend.  A gallon of regular gas cost $3.89 on average nationwide, down from $3.98 last week, but up from $2.84 last year. 

In metals, gold was up $16.50, or 1.1%, to $1,509 a troy ounce. Gold, generally seen as a safe-haven asset, got a significant boost on the news about Greece. 

Silver was up 16 cents, or 0.44%, to $35.08 a troy ounce. 

Gap (GPS) posted earnings of 39 cents a share, beating analysts' expectations by a penny, after the bell Thursday.  However, high cotton costs prompted the retailer that owns brands like Banana Republic and Old Navy to lower its guidance to $1.40 to $1.50 a share from $1.88 to $1.93 a share.  The move sparked a flurry downgrades, and pushed shares deep into negative territory.

The Gap news weighed on consumer discretionary names more broadly, indeed the ETF (XLY) that tracks such companies as Bed Bath and Beyond (BBBY) was down 0.8% on the day. 

Also on the corporate front, Liberty Media unveiled a proposal to acquire Barnes and Noble (BKS) for $ 1 billion, or $17 a share -- a 21% premium to Thursday's closing price. 

Goldman Sachs (GS) is expecting to receive subpoenas from prosecutors probing its practices regarding mortgage related securities, according to a report by The Wall Street Journal. Securities linked to mortgages were a major component in financial crisis in 2008 and have been the subject of heavy scrutiny. 

Increasing scrutiny on lending practices has put pressure on many big-name financial pressures, like Goldman, JPMorgan Chase (JPM) and Bank of America (BAC). 

On the heels of a day with several economic reports, Friday is quiet on the economic front. 

Corporate News

Amgen's (AMGN) bone drug, Xgeva, which is already approved in the U.S., garnered a recommendation from a European committee that will bolster its chances of getting approval by European Commission regulators. 

Mitsui -- which owned a 10% stake in the blown-out Macondo well --  will pay BP (BP) nearly $1.1 billion its role in the disaster in the Gulf of Mexico. 

Foreign Markets

The English FTSE 100 was down 0.15% to 5,947, the French CAC 40 was down 0.83% to 3,994 and the German DAX was lower by 1.3% to 7,260. 

In Asia, the Japanese Nikkei 225 fell 0.14% to 9,607 and the Chinese Hang Seng edged higher by 0.16% to 23,199. 

URL

http://www.foxbusiness.com/markets/2011/05/20/gap-outlook-cut-weighs-futures/