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Stocks May See Further Downside In Early Trading - U.S. Commentary

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After showing a significant downward move last week, stocks could see some further downside in early trading on Monday. The major index futures are currently pointing to a sharply lower open for the markets, with the Dow futures down by 112 points.

The downward momentum for the markets reflects continued concerns about the outlook for the Federal Reserve's stimulus program following last week's monetary policy announcement.

Last Wednesday, the Fed left its monetary policy unchanged but made some relatively upbeat comments about the economy that raised concerns that the central back could scale back its asset purchases in the near future.

Fed Chairman Ben Bernanke noted that the central bank may start tapering its stimulus program later this year, although he stressed that any move would be conditional on sustained economic growth.

Worries about a potential liquidity crunch in China may also weigh on U.S. stocks after the People's Bank of China declined to inject money into the financial system even though bank-to-bank lending rates hit record highs last week.

The Bank of China insisted that there was ample cash in the banking system, although the central bank urged banks to improve their risk and liquidity management procedures.

Peter Boockvar of Morgan Stanley said, "Unlike with the Fed, Chinese officials have had enough of the rampant credit growth that has so distorted their economy."

Amid concerns about downside risks to the Chinese economy, Goldman Sachs lowered its outlook for Chinese GDP growth in the second quarter to 7.5 percent from 7.8 percent. The firm also downwardly revised its forecasts for growth in 2013 and 2014.

Nonetheless, trading activity may be somewhat subdued amid a lack of major U.S. economic data. The economic calendar will pick up on Tuesday with the release of reports on durable goods orders, new home sales, and consumer confidence.

Stocks showed a lack of direction throughout much of the trading day on Friday after moving sharply lower over the course of the two previous sessions. The major averages bounced back and forth across the unchanged line before ending the day mixed.

While the Dow and the S&P 500 managed to close in positive territory, the Nasdaq finished the day in the red. The Nasdaq edged down 7.39 points or 0.2 percent to 3,357.25, while the Dow rose 41.08 points or 0.3 percent to 14,799.40 and the S&P 500 climbed 4.24 points or 0.3 percent to 1,592.43.

The major averages all showed notable losses for the week, however, with the Dow tumbling by 1.8 percent and the Nasdaq and the S&P 500 plunging by 1.9 percent and 2.1 percent, respectively.

In overseas trading, stock markets across the Asia-Pacific region came under pressure amid concerns about the situation in China. Japan's Nikkei 225 Index fell by 1.3 percent, while Hong Kong's Hang Seng Index tumbled by 2.2 percent.

The major European markets have also shown significant moves to the downside on the day. While the French CAC 40 Index has plummeted by 2 percent, the German DAX Index and the U.K.'s FTSE 100 Index are both down by 1.3 percent.

In commodities trading, crude oil futures are slipping $0.20 to $93.49 a barrel after falling $4.16 or 4.3 percent to $93.69 a barrel in the week ended June 21st. Gold futures, which slumped $88.30 or 6.4 percent to $1,292 an ounce last week, are sliding $7.80 to $1,284.20 an ounce.

On the currency front, the U.S. dollar some saw some strength last week, climbing 1.7 percent against the euro before ending the week at $1.3122. Meanwhile the greenback fell 3.0 percent against the Japanese yen to 97.92 yen. The dollar is currently trading at 97.68 yen and is valued at $1.3091 versus the euro.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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