Daily Analysis – Markets Continue to Fall, Dollar Rallies

Asian markets fell on Monday as once again the week started with significant losses.  The biggest loser was the Hang Seng, which tumbled 4.4% to 16882, as property shares saw double digit declines.  In Japan, the Nikkei fell 1.8% to 8546, and Sony shares slumped 4.5%, touching their lowest level since the 1980’s.  Australia’s ASX 200 skidded 2.8%, while markets in Korea and mainland China were closed for a holiday.

European markets closed lower, but were well off the session lows.  The DAX fell 2.3% to 5376, but had fallen to 5289 at the open.  France’s CAC40 lost 1.9%, and the FTSE declined 1%.  Greek officials announced that they would miss deficit targets for the next year, suggesting recent austerity measures are insufficient.

US markets dropped sharply, as the Nasdaq plunged 3.3%, the S&P 500 fell 2.9% and the Dow lost 258 points, closing at 10655.  The VIX jumped nearly 6% to 45.45, indicating a high level of investor fear.

Airline stocks tumbled after analysts raised the possibility of a bankruptcy for AMR, parent of American Airlines.  The shares dropped 33% to 1.98 and weighed on the sector.  US Airways dropped 16%, while Delta and Continental skidded 11%.

Eastman Kodak shares soared 72% to 1.34 after denying that the company is planning a bankruptcy filing.

Apple is expected to announce the iPhone 5 on Tuesday.

Currencies

The US Dollar continued to soar, as investors dumped European currencies.  The Euro fell 1.6% to 1.3178, down more than 2 cents.  The Swiss Franc slumped 1.4% to .9208, and the Pound declined .9% to 1.5444.  The Australian Dollar continued to fall, dropping 1.3% to .9574, and is now hovering just above its 52-week low of .9537.  The only gainer was the Japanese Yen, which rose .6% to 76.65.

Economic Outlook

Monday’s economic data was surprisingly upbeat, but investors ignored the data, which is a very bearish indicator.  ISM manufacturing PMI data came in slightly stronger than expected, rising to 51.6 from last month’s 50.6.  Construction spending unexpectedly rose by 1.4%, reversing last month’s decline of 1.4%, and auto sales climbed to 13.1M, significantly higher than last month’s 12.1M.

Tuesday’s sole US report will be factory orders.  Bernanke will be speaking to Congress.