The three major U.S. stock market indices declined in early morning trading Wednesday, as the Dow Jones Industrial Average lost 81 points, or 0.66 percent, to 12,210 by 11:00am Eastern Time. An overall drop in tech stocks on the NASDAQ Composite caused that index to lose nearly 1 percent of its value by midday to 2,600 points while the S&P 500 retreated 0.83% to 1,254.
Energy and financial stocks led the early morning decline Wednesday amid news out of Europe that banks will need to step up their effort to capitalize by June 2012. Petroleum refining and marketing company Tesoro Corporation (NYSE:TSO) was down 3.5% to $23.25 per share while Regions Financial Corporation (NYSE:RF) was trading at $4.22 per share – down 3.2 percent – at 11:00am Eastern Time.
Below is the intraday stock chart for the Dow Jones Industrial Average index, which is comprised of 30 component stocks.
Successful Italian Bond Auction
The Euro fell in early trading Wednesday to $1.296 versus the U.S. Dollar despite a successful bond auction in Italy, in which the country was able to raise well over €10 billion from banks and private investors. The influx of capital has reduced Italy’s temporary borrowing costs on six-month notes from 6.5% in November to 3.25 percent this month. The country will hold another auction tomorrow to sell ten-year debt notes.
Italy’s interim government led by Prime Minister Mario Monti approved a new round of parliamentary austerity measures last week that will affect the pension funds of federal workers. Monti replaced former head of state Silvio Berlusconi who resigned last month after the country agreed to budget cuts in order to secure rescue funds from the ECB and other central banks.
It remains unclear whether the European Central Bank will ultimately step up its purchase of sovereign bonds for troubled EU nations. Earlier this month, ECB President Mario Draghi announced €489 billion in emergency loan funds that would be provided to struggling regional financial institutions at 1% interest. However, the same credit line was not extended to sovereign governments, which may be expected to pass further austerity measures in order to receive liquidity; especially if banks are not inclined to purchase sovereign bonds with the emergency funds received from the ECB.
Even if central banks come to the rescue in Europe, it is uncertain how investors will react. An article published by Bloomberg.com Wednesday morning cited the fact that the European Central Bank’s balance sheet has eclipsed $3.55 trillion. Eric Wand of Lloyds Bank Corporate Markets in London told Bloomberg, “Nobody who’s following the ECB should be surprised that the balance sheet is at that level as it has been continuously adding liquidity. Almost three trillion is a relatively elevated level, but it is collateralized lending, so it’s not a huge concern at the moment.”
Crude Oil Rises Above $100 Per Barrel
Crude oil price futures surpassed $100 per barrel this week but are still well off their Year To Date highs from April. At 11:00am Eastern Time on Wednesday, light crude oil was trading at $100.43 per barrel – down 0.7% from yesterday’s close.
Precious metals were also down slightly in early morning Wednesday trading with gold falling 1.2% to $1,577.50 per ounce while silver had declined over a dollar to $27.68 per ounce by 11:00am Eastern Time.
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