European Banks in Trouble

Includes: DIA, QQQ, SPY, XLE, XLI, XLU
by: Bill Cara

[Excerpted from Bill Cara's Daily Report]

Bad news in the European banking and financial services sector Wednesday morning has caused a reversal from the enthusiasm that had been building overnight. At 8:05am ET, there were reports that Deutsche Bank, HSBC and Man Financial Group were ailing.

Tuesday, in listless trading, the DJIA was down a bit, and the S&P and NASDAQ were up a bit. The DJIA (-25.41 -0.30% to 8448.56), S&P 500 (+1.53 +0.18% to 871.79) and NASDAQ Composite (+7.67 +0.50% to 1546.46) all were quiet on low volume.

The $USD strengthened further to 84.20 at the close, down a tad during the day. This morning the $USD was up to 85.45 and the Euro at 131.58, down from yesterday’s close of 131.84. The Pound closed down yesterday -2.01% at 145.08.

Europe is in trouble with the expectations that the European Central Bank and the Bank of England are going to have to produce their own version of TARP in order to save the biggest banks there. That is freezing the interest in risk-taking among traders and weakening trading volumes. Frankly, the S&P 850 support is what everybody is watching.

Up until this week, it was clear that traders were ignoring bad news and trading prices were holding up, slightly above support. With the problems in these European-based banks now, that situation has changed.

Earlier Wednesday morning (8:05am ET), the European bourses were significantly lower: French CAC -1.71%; German DAX -1.78%; and UK FTSE -2.11%. By 9:15am, the numbers had worsened to: French CAC -3.08%; German DAX -3.55%; and UK FTSE -4.19%. It’s been a tough week for European equities and the Euro and Pound.

In Asia-Pacific equity markets today, Tokyo (+0.29% to 8438.5), Australia (+0.85% to 3624.3), Shanghai (+3.52% to 1928.9), Hong Kong (+0.27% to 13704.6), and India (+3.30% to 9370.5) were stronger. That will likely not be the case tomorrow.

In NY yesterday, only the Energy (XLE +2.5%) was a clear winner. The losers were Utilities (XLU -1.9%), and Industrials (XLI -1.7%).

Ahead of Wednesday’s headlines that December US retail sales “plunged” almost -3%, the Retailers ($RLX) dropped -1.0%. Oil Services ($OSX +3.3%) and Goldminers ($XAU +2.7%) were winners.

In the Cara 100, the winners were Korea’s KB +7.3% and India’s CTSH +7.0% and INFY +5.9%. The losers were ADBE -7.0%, FSLR -5.9%, and GE -5.6%.

The US long bond ($USB) was completely flat at 134.83.

In the rush of currencies moving from Europe to the US, the $USD gained again, up +1.35% to 84.20. It’s even stronger this morning against all the major currencies.

Crude Oil futures closed up +$1.12/bbl yesterday to 44.77, and were trading at 44.95 at 8:25am ET.

Gold futures ($GOLD) lost just $0.30/oz to close at 820.70.

The DJIA just opened down over -100 points.

Nortel Networks (NT), trading now at $0.25 after declaring Chapter 11 bankruptcy, used to be the largest component of the Toronto 300 Composite Index. My, how the mighty have fallen.