Equity Markets Decline On Stress-Test Rumors

Current Futures: Dow -137.00, S&P -17.70, NASDAQ -21.25

Overnight equity markets plunged again affected by fresh news coming from the financial sector. The Asian markets closed in the red, erasing the gains made at the beginning of the session, while European equity markets and U.S. futures fell by almost 2%.

The market turned negative after rumors surfaced that the stress test results will show that Bank of America and Citigroup would need additional capital, together with a number of regional banks that have a large exposure to the real-estate market. “Until now, the two banks have been the epicenter of the credit crisis, requiring $95 billion, combined from the Treasury,” TheLFB-Forex.com Trade Team said. “It is still not sure how much money the two banks require, but one would have to assume that it will run into the billions”

“Banks that need additional capital will have 6 months to gather the necessary amount. Banks basically have two options: to sell their assets or to issue new shares.” TheLFB-Forex.com noted. “Eventually, there will be a third option; to convert the government’s preferred shares to common, but this is only a paper-solution, since it will not affect the bank’s real capital base,” they added.

It is not a big surprise that bank stocks declined during the European and Asian trading sessions. To put additional strains on the banking sector, Italy has seized $300 worth of assets from JPMorgan Chase, Deutsche Bank, UBS and Depfa. The four banks are accused of misleading and making false claims in a deal with local municipalities. 

Overnight, the Nikkei plunged 232.57 points (2.67%) to 8,493.77. The Australian S&P/Asx slipped 23.20 points (0.62%) to 3,708.40. The U.K. Ftse declined 70.72 points (1.70%) to 4,096.29, while the German Dax lost 107.99 points (2.30%) to 4,586.08.

Crude oil for May delivery was recently trading at $49.00 per barrel, down $1.15.

Gold for May delivery was recently trading down $9.40 to $898.80.