Markets Tumble on Contagion Fears

Asian markets rose, lifted by hopes that the announced resignation of Italy’s Prime Minister would help in stabilizing the country’s debt crisis.  The Nikkei rallied 1.2% to 8755, but Olympus shares continued their freefall, dropping by 20%.  In Korea, the Kospi ticked up .2%, despite losses of more than 4% in market heavyweights, LG Display and Hynix Memory.  Around the region, the ASX 200 gained 1.2%, the Shanghai Composite rose .8%, and the Hang Seng shined, jumping 1.7%.

In contrast, European markets dropped, as concern over Italy took center stage.  Yields on Italy’s 10-year notes crossed above 7%, signaling the market has little confidence in the country’s ability to pay its debts.  The DAX and CAC40 both fell 2.2% and the FTSE shed 1.9%.

The selling pressure intensified in the US with the Dow tumbling 389 points to 11780.  The S&P 500 plunged 3.7% and the Nasdaq dropped 3.8%, as the VIX rocketed up 31% to 36.16.  News that Greece’s government had failed to agree on a new prime minister added to the European debt fears.



The Dow Tumbles Nearly 400 Points

HSBC shares fell 8.7% after posting a 36% drop in profits.  Macy’s shares sank 5.3%, and GM shares tumbled 10.9% even though both companies beat profit estimates.

Currencies

The Dollar soared as fears of contagion sent the Euro down 2.1% to 1.3546.  The Australian Dollar, representative of the risk-trade tumbled 2.3% to 1.0150.  The Swiss Franc shed 1.6% to 1.1001, and the Pound fell 1.1% to 1.5920.

Economic Outlook

Political instability in Europe is threatening to make solving the debt problems even more challenging, and is raising the likelihood of a global recession due to contagion.

Wednesday’s economic data was positive, but buyers failed to notice.  Wholesale inventories fell last month for the first time in nearly 2 years, and weekly mortgage applications rose.