Markets Catching Up With Reality

Current Futures: Dow +97.00, S&P +14.50, NASDAQ +11.00  

European Trade: Last week the equity markets posted record gains, now the major indexes are “catching up” with reality, and are, once again, pricing in a prolonged slowdown, led by weak consumption.

The declines are led by financial institutions and commodity stocks, as the raw material market plunges. In tonight’s sessions, the Nikkei fell 533.53 points (6.35%) to 7,863.69, while the Australian S&P/Asx slipped 153.00 points (4.16%) to 3,528.20. In Europe, the German Dax fell 40.62 points (0.92%) while the U.K. Ftse declined 50.37 points (1.24%). Both the Asian and the European markets have declined, on average, 50% from the beginning of the year.

Today, the U.S. car manufacturers take the next step in their fight to avoid bankruptcy. Soon, hearings for the $25-billion rescue package will start, and the three car manufacturers must convince Congress on the necessity for the money, and on their capacity to repay the loan. These hearings are an extension of the hearings held in November, when the top executives from the three manufacturers failed to come up with any serious plan to cut spending and increase profitability. Both GM and Ford are planning to sell some of their in-house brands, but the big question is ‘who is going to buy them in the current conditions, when it is almost impossible to access a credit line?’ In the business environment, the three car manufacturers are notorious for their inability to develop a long-term plan.

Crude oil made a new low during the European session, after OPEC failed to cut production. Crude oil for December delivery slipped $1.10 to $47.50.

Gold extended the declines seen one day earlier. Bullion for immediate delivery fell $9.20 to $764.50.

Previous Asian trade: The equity markets saw some strong declines in the last trading sessions, as it seems the world’s recession will last much longer than expected. 

On Monday, another set of data hit the wires, re-confirming the poor state of the developed economies. In Europe, the manufacturing PMI fell to the lowest level on record, showing that the sector is contracting at a very high speed. The same could be seen in the U.K. report, which showed the manufacturing sector contracted at the highest rate since 1992, when the index was first started. The same report for the U.S. manufacturing industry which fell to the worst read since 1981 recession, while the inflation gauge fell to the lowest level in the last six decades, 25.5. In June this year, the inflation gauge topped at 91.5, the highest read on record.