US markets tumbled for the third consecutive time this week after Germany’s auction of 10 year government bonds received a weak response from the markets. Indices deteriorated further on news of a fall in China’s manufacturing activity.
The Dow Jones Industrial average (DJIA) declined 2.05% to end at 11,257.55. The Standard & Poor 500 (S&P 500) was down by 2.21% to close at 1,161.80 while the Nasdaq Composite Index dropped 2.43% to end at 2,460.08. The fear-gauge CBOE Volatility Index (VIX) ended at 33.98. Consolidated volumes on the New York Stock Exchange (NYSE), Amex and Nasdaq were 6.9 billion shares, lower than the current daily average of 8 billion shares. The Dow Jones has relinquished more than half of the gains made during a rally in October and is now at a six week low. The S&P 500 has also been declining steadily for six trading days.
While Germany failed to raise the capital it had planned through its new 10 year bonds, the situation became worse after news came in that Belgium would be unable to pay its agreed share for the rescue of French-Belgian bank Dexia. This would bring additional financial pressure to bear on France though both the French and Belgian authorities have denied renegotiating the dismantling of Dexia. The situation created uncertainty among investors as US markets deteriorated before the Thanksgiving holiday on Thursday.
Meanwhile there is increasing speculation that the US may experience a further downgrading of its credit rating. Investors are already disappointed by lower than expected growth in the US economy which came in below expectations in the third quarter. To add on to the woes of the markets, data from China saw HSBC manufacturing Purchasing Managers Index, which keeps track of the country’s manufacturing activity, fall to 48.0 in November. This created a stir in the markets as a figure below 50 indicates a contraction in manufacturing activity.
The financial sector was among the worst sufferers on Wednesday with stocks of Bank of America (NYSE:BAC) decreasing by 4.28% while Citigroup (NYSE:C), Wells Fargo & Company (NYSE:WFC), JP Morgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) decline by 3.88%, 3.01%, 3.50% and 3.62% respectively. The energy sector was badly hit as well and stocks of Chevron (NYSE:CVX) and Suncor Energy (NYSE:SU) fell by 2.77% and 5.60% respectively.
With fears that a recession was close at hand due to the lingering European debt crisis, investors received no respite from the initial jobless claims report by the US labor department which showed that the figure increased by 2,000 for the week ending Nov 19. At 393,000, the figure is slightly above the expected figure of 390,000 but well below 400,000. There are signs that firing has slowed down and is now stabilizing.
Meanwhile, a report from the Commerce department shows a decrease in demand for durable goods by 0.7% for the month of October, compared to the September decline of 1.5%. Meanwhile, consumer spending has gone up slightly by 0.1% last month, lower than the expected increase. Incomes however, have been more responsive and are up 0.4%.