Sharp Drop in Greek, Chinese Markets Spur Panic
Today's financial recap and tomorrow's financial outlook.
The Fed said that the major US banks may face a capital surcharge of up to 4.5% per year over the next five years. Of the banks, eight did not meet that criteria and may need to raise extra capital. The news did not appear to affect financial stocks.
European equities continued to trade lower with both the Italian and Spanish indices finished down 3% or more. These countries sovereign bond yields all rose as the Greek decision implied the potential for other defaults in the countries with weaker economies. For example, the 10-year Italian bond yield rose by 9bps to 2.04%.
US equities bounced, led by the energy sector, after the S&P 500 (SPX) fell by 25 points near the open. This is diametrically opposed from the 4% drop in energy stocks yesterday as some of the most beaten down names found a bid. Oil managed a 1% rally during the session, which certainly helped. The US dollar dropped by 0.35% led by strength in the Japanese Yen, South Korean Won, and Euro. This helped the precious metals - gold and silver - to a 3% rally. Small caps were the biggest standout as some of the worst energy companies jumped. The Russell 2000 (RUT) closed up 1.79%.
Tomorrow's Financial Outlook
There is only one major economic report scheduled tomorrow - the monthly Treasury budget statement. Additionally, the EIA will release crude oil inventories in the late morning. The API report, released on Tuesday evening, showed a very large uptick in crude oil production. The Treasury will sell $21 billion of 10-year notes.
Chinese consumer and producer price indices will be released. Because of the prolonged drop in commodity prices, especially iron ore, coal, copper, and crude oil, it is likely that their prices continue to drop. Elsewhere, the Japanese consumer confidence index, UK trade balance, and Japan's large manufacturer fourth quarter survey will be released.
Toll Brothers (TOL), Costco (COST), Men's Wearhouse (MW), and Restoration Hardware (RH) are all scheduled to report earnings tomorrow.
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