Daily Analysis – Call for Greek Referendum Sends Markets in Tailspin

Global markets continued to fall on Tuesday, as call for a referendum by Greek’s Prime Minister threw into question that state of the country’s bailout deal.  In Asia, the Nikkei dropped 1.7% to 8835, and the ASX 200 fell 1.5%, despite an interest rate cut byAustralia’s central bank.  In greater China, the Hang Seng sank 2.5%, while the Shanghai Composite inched up .1%.  InSouth Korea, the Kospi overcame morning weakness to close flat, as gains in automakers offset losses in financials.

European markets plunged, with the CAC40 closing down 5.4%, the DAX dropping 5%, and the FTSE shedding 2.2%.  The possibility that a referendum would reject the latest bailout weighed especially hard on financials, sending banks and insurers down more than 6%.

In the US, the Dow dropped 297 points to 11658, the Nasdaq fell 2.9%, and the S&P 500 lost 2.8%.  The VIX jumped more than 15% to 34.77, and nearly reached 38 earlier in the day.



Volatile Swings in the VIX over the Past Week

GM tumbled 9.75% and Ford sank 5.1% despite reporting sales growth in October.

BB&T said it will purchase BankAtlantic for $3.3 billion, sending BankAtlantic shares up an astonishing 111%.

Currencies

The shift to “risk-off” sent the Dollar sharply higher.  The Canadian Dollar and Australian Dollar both suffered 2 % losses, dropping to 1.0197 and 1.0331 respectively.  The Euro slumped 1.1% to 1.3697, and the Pound skidded .8% to 1.5948.  The Yen settled down .1% at 78.33, a day after the BOJ intervened in the currency markets in an attempt to weaken the Yen.

Economic Outlook

Tuesday’s economic data was mostly negative.  The ISM’s manufacturing report was weaker than expecting, unexpectedly declining from last month.  Construction spending rose by just .2%, significantly lower than last month’s 1.6% gain, and slightly below forecasts.  On the upside, monthly auto sales were 200K more than expected.

Wednesday’s reports will include the ADP employment report, the Challenger job-cut report, and the Fed will release a statement in the afternoon, at the close of the FOMC meeting.