Published March 06, 2012
FOX Business: The Power to Prosper
U.S. stock-index futures fell into negative territory on Tuesday on the back of a pan-European equity selloff as traders reacted to mounting fears the eurozone may be headed back for a recession and lingering uncertainty over the key Greek debt swap.
As of 9:00 a.m. ET, Dow Jones Industrial Average futures fell 114 points to 12847, S&P 500 futures dipped 13.5 points to 1351 and Nasdaq 100 futures slumped 22 points to 2594.
The eurozone's economy shrunk by 0.3% in the final quarter of 2011, Eurostat confirmed on Tuesday, compared with a 0.1% gain in the previous quarter. The currency bloc's economic output expanded at a pace of 1.4% for all of 2011, slower than a previous estimate of 1.5%.
Household spending and investment both took big hits as consumers and companies struggled against strong headwinds from the debt crisis. Economists are expecting another contraction in the first quarter of 2012, meaning the eurozone would officially be back in recession territory for the second time in three years.
"Despite some recent overall improvement in [eurozone] surveys and evidence that Germany is returning to growth, we doubt that the [eurozone] will be able to avoid further contraction in the first quarter of 2012 and very possibly the second," IHS Global Insight Chief European and UK Economist Howard Archer wrote in an e-mail.
All together, the European Union countries make one of the world's biggest economies, meaning a drastic pullback there could lead to weakness abroad. Analysts also worry about the growing divergence between expansion in the core countries, like Germany, and the embattled periphery.
Many European bourses were more than 1% to the downside, with the Europe Dow tumbling close to 2% in afternoon trading there. The euro slid 0.62% to $1.3135, while the U.S. dollar rose 0.45% against a basket of six world currencies tracked by the dollar index.
Analysts also pointed to uncertainty over whether Greece will be able to finish its bond exchange in which private creditors are taking losses of more than half on the face value of their debt as another reason for the negative sentiment.
"It appears the Greece debt swap will go down to the wire," analysts at Barclays Capital wrote in a note to clients on Tuesday.
If the country can't convince bondholders to take the deal, or its rescue with European lenders falls through, it could lead to a chaotic default that could further rattle the financial markets. Greece's next bond payment is due on March 20.
Commodity markets, which have been particularly jittery in recent weeks, were in the red on economic concerns and a stronger U.S. dollar. The benchmark crude oil contract traded in New York fell 60 cents, or 0.55%, to $106.10 a barrel. Wholesale RBOB gasoline dipped 0.21% to $3.251 a gallon. A gallon of regular costs $3.746 on average nationwide, up from $3.478 last month and $3.509 last year, according to the AAA Fuel Gauge Report.
Gold slumped $13.40, or 0.77%, to $1,691 a troy ounce. Treasury yields fell as traders bid up the safe-haven asset. The 10-year note yields 1.977% from 2.023%.
There are no major U.S. economic releases on tap for Tuesday.
Merck (MRK), the pharmaceutical giant, said it expects adjusted first-quarter earnings of between 95 cents and 98 cents a share, weaker than the $1.01 analysts were expecting.
European blue chips fell 1.6%, the English FTSE 100 dipped 0.96% to 5818 and the German DAX slid 1.4% to 6768.
In Asia, the Japanese Nikkei 225 slipped 0.63% to 9634 and the Chinese Hang Seng tumbled 2.2% to 20806.