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Sharp Drop in Greek, Chinese Markets Spur Panic


Today's financial recap and tomorrow's financial outlook.

US equities opened the day for their worst since early October. Early on in the day, due to snap presidential elections in Greece, the country's stock exchange fell more than 11% for its worst day in 2011. The takeaway was that if the ruling party did not win the new election it would lead to the more radical Syriza party taking control. They wish to default on their existing debts and leave the eurozone, which could be damaging. Separately, Chinese equities had a vicious snapback with the Shanghai Composite (SHCOMP) falling by 5.43%. The index had risen by 23% over the prior 12 days, so a volatile pullback is not to be unexpected given the magnitude of the rally.

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.

Twitter: @Minyanville

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