By Carlos Guillen
After making a rather encouraging bounce yesterday, equity markets are taking a second sharp hit today as concerning comments from the International Monetary Fund (NYSE:IMF) and China coupled with unfavorable financial results from company's here at home are serving to compel investors to take profits.
Perhaps already expected but brushed underneath the carpet is that the European corporate sector, just like its public sector, has taken on more debt than it can handle. With the availably of easy money in the euro zone, corporations have borrowed so much that now that it is time to pay it back, and given the poor economic growth backdrop, they simply cannot handle the payments of their debt. According to the IMF the level of euro zone debt is so large that it can serve to prolong the region's downturn and risk a return to a more acute crisis. In fact, the IMF estimates that as much as a fifth of the corporate bonds and loans issued by major European companies are "unsustainable" and will force the firms to either default or scale back operations, cutting capital expenditures, eliminating shareholder dividends or taking other steps to conserve cash to make debt payments. In essence, there is no easy solution to the problem, and the region's economy will get hit further.
Over in China there was news that a senior Chinese auditor has warned that local government debt is out of control and could spark a bigger financial crisis than that experienced here at home that was sparked by the housing crash. While it is not new that concerns on Chinese debt have been raised by external agencies, it is rare that internal Chinese agencies issue such a stark warning.
Here at home, earnings season is unfolding, and the results are not so encouraging. Shares of Apple are taking an over 5 percent hit, and Cirrus Logic Inc. is plummeting over 14 percent after the chip maker and Apple supplier offered weak first-quarter revenue guidance. And while yesterday there were some bits of good earnings coming from the financial sector, today Bank of America posted disappointing results. Bank of America shares are sliding over 6 percent after the lender reported first-quarter earnings below Wall Street's estimates as its mortgage business weighed.
In all it is simply an ugly day on Wall Street as the economic news from all angles are serving to push stocks lower, with the Dow Jones Industrial Average losing over 150 points so far into the session.
Europe Downshifts on Auto Numbers
By David Urani
As bad as the US markets are today, it's Europe that is really taking the biggest beating today. A lot of the panic is likely related to an auto sales report that's a real disappointment. The European Automobile Manufacturers' Association says March new vehicle registrations were down 10.2% year over year. Estimates for the vehicle registrations had generally been for a decline in the mid-single digits, so it was alarming to see March come in so softly, and the first quarter tally come in with the worst decline since they began reporting in 1990.
In particular though, the results were quite bad from the likes of Germany and France, which of course are core members of the eurozone. Germany's vehicle registrations were down a full 17% and France's were down 16%. This is some telling evidence that demand in a couple of the stronger economies in Europe has now fallen sharply, no doubt exacerbated by the situation in Cyprus.
Meanwhile Jens Weidmann, head of the Bundesbank, is out saying that an ECB rate cut or other methods for cheapening the euro are a possibility. Consequentially, the euro took a hit of around 1% versus a basket of other currencies.
Both Germany's DAX index and France's CAC 40 were down more than 2% on the day.