Futures Drop Amid Global Rout as China Data Add to Fed Gloom


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U.S. markets were poised to extend a global selloff Thursday as concerns about an end to the Fed's bond buying, the world economy and the strength of corporate America sent traders racing out of risky assets.

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Today's Markets

As of 8:34 a.m. ET, Dow Jones Industrial Average futures skidded 85 points to 14961, S&P 500 futures dropped 12.5 points to 1612 and Nasdaq 100 futures slumped 22.8 points to 2933.

It's been a manic week for Wall Street. Stocks rallied on Monday and Tuesday ahead of the Federal Reserve's monetary-policy decision, but then skidded sharply lower Wednesday after Chairman Ben Bernanke's press conference. That move to the downside ricocheted into global markets, where market participants ditched nearly every manner of risky asset Thursday.

Benchmark stock-market indexes in Japan, China, the UK, Australia and Germany -- some of the world's biggest exchanges -- tumbled more than 2% overnight. Gold was crushed, recently plummeting $71.60, or 5.2%, to $1,302 a troy ounce. Oil slumped $1.37, or 1.4%, to $96.87 a barrel. Even U.S. Treasury bonds, which are generally seen as a safe haven, continued falling, with the 10-year yield rising 0.052 percentage point to 2.418%.

Traders said the dramatic moves were sparked by commentary from the Fed suggesting it will begin paring back its bond purchases later this year, and could halt the buying altogether by the middle of 2014.

"You can't find one Wall Street trader who thinks the economy can stand on its own without Fed bond buying measures, so what should we expect without QE?" said Todd Schoenberger, Managing Partner at LandColt Capital in New York.

Schoenberger also noted that many companies have gotten a free pass on mediocre earnings because stocks would likely remain strong investments in a near 0% interest rate environment. However, as rates start to rise, and those equities become less desirable, corporate fundamentals look "weak and bleak for the coming quarters."

Adding to the gloomy sentiment was a closely-watched report from HSBC that showed China's manufacturing sector contracting in June as output and new orders fell. The gauge slumped to 48.3 for the month from 49.2 in May -- striking a nine-month low. Readings above 50 point to expansion, while those below indicate contraction for the factory sector in the world's No. 2 economy.

"The fall in the HSBC flash PMI reinforces our concerns over the downside risks to the economy," Zhiwei Zhang, an economist at Japan-based Nomura, wrote to clients. "We believe the government is committed to tolerating short-term pain to achieve its policy objectives – containing financial risks and secure sustainable growth in the long term."

There are a slew of U.S. economic reports on tap for later in the day as well.

The Labor Department said new claims for unemployment benefits increased to 354,000 last week from an upwardly-revised 336,000 the week prior. Claims were expected to rise to 340,000 from an initially reported 334,000.

Data due at 10:00 a.m. ET from the National Association of Realtors are expected to show sales of existing, single-family homes having climbed to an annual rate of 5 million units in May from 4.97 million the month before. The recovery in the housing sector has been seen as a significant brightspot in the overall economic rebound.

Another report at the same time from the Philadelphia Federal Reserve is expected to indicate the manufacturing sector in the mid-Atlantic region shrunk at a slower pace in June than the month prior, with the gauge rising to -2 from -5.2.

Foreign Markets

The Euro Stoxx 50 slid 2.7% to 2613, the English FTSE 100 dropped 2.3% to 6201 and the German DAX sold off by 2.6% to 7986.

In Asia, the Japanese Nikkei 225 fell 1.7% to 13015 and the Chinese Hang Seng plummeted 2.9% to 20283.

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