Traders May Shy Away as Credit Crisis Spreads

(RTTNews) - The major U.S. index futures are pointing to a markedly lower opening on Monday. Fears of a marked slowdown in the global economies after the credit crisis assumed pandemic proportion is likely to send shivers down the spine of traders and in turn should trigger a massive sell-off. Weakness in the commodity space should also weigh down on the markets.

U.S. stocks receded in the week ended October 3rd, as the fate of the $700 billion rescue package hung in the balance before the House passed it on Friday. Additionally, economic reports also pointed to sluggishness in the economy, leading to a massive sell-off in stocks. On Monday, the major averages tumbled, with the Dow Industrials dropping close to 7% after the House initially failed to approve the rescue package.

However, the major averages snapped back some of their losses on Tuesday, as investors sought bargains. Stocks declined on Wednesday amid lingering concerns over the crisis at the financial firms and the results of a manufacturing survey that showed a sharp contraction in manufacturing activity. The major averages continued to decline on Thursday even after the Senate approved the financial bailout package. A dismal employment report and apprehensions that the rescue package is inadequate to stem the rot in the financial space led to a late hour sell-off Friday. The Dow Industrials declined 7.34% during the week, while the S&P 500 Index and the Nasdaq Composite plummeted 9.4% and 10.81%, respectively. The Philadelphia Housing Sector Index posted a weekly loss of 13.76%, while the Dow Jones Transportation Average lost 12.97%. The S&P Retail Index and the Philadelphia Housing Sector declined over 11% each.

The Amex Airline Index, the Amex Biotechnology Index and the KBW Bank Index receded over 8% each, while the Amex Securities Broker/Dealer Index fell 9.32% for the week.

Currency, Commodity Markets

Crude oil futures are seeing more weakness after showing a significant decline in the previous week. In the week ended October 3rd, the commodity declined $13.01 or 12.17% to $93.88 a barrel. Currently, oil is trading down $4.23 at $89.65 a barrel.

The commodity began last week on a significantly weak note, slumping over $10 on Monday. However, oil regained some of the lost ground on Tuesday, only to recede over $2 on Wednesday in reaction to the weekly oil inventory report that showed an increase in crude oil stockpiles.

Oil receded in the next two trading sessions of the week on expectations that demand for oil will decline in response to slowing global economic growth.

Meanwhile, gold futures are rising $34.50 to $867.70 an ounce after the precious metal plummeted $55.30 or 6.22% to $833.20 an ounce in the previous week.

Among the currencies, the U.S. dollar finished mixed in the week ended October 3rd. The dollar declined about 0.8% for the week against the yen to 105.315. On the other hand, the dollar rose 5.6% against the euro to $1.3772 a euro, as demand for the greenback surged up on funding needs.

Currently, a dollar is worth 103.245 yen and is valued at $1.3598 versus the euro.

Asia

Stock markets across the Asia-Pacific region tumbled on Monday on fears that the U.S. bailout plan might not stem the financial crisis that has spread to Europe. Oil prices fell by around $4 a barrel on Monday on concerns that a global recession will reduce demand for oil. Meanwhile, the yen strengthened against the dollar, as investors unwound risky assets. Japan's Nikkei 225 average opened lower and declined steadily throughout the session, with the average closing down 465.05 points or 4.25% at 10,473. The index plunged to its lowest levels in nearly five years.

On the economic front, the Bank of Japan kicked off its two-day monetary policy meeting on Monday in Tokyo. The central bank will announce its interest rate decision on Tuesday. The bank is widely expected to keep interest rates on hold at 0.50% for the 23rd consecutive month.

Stocks declined almost across the board, led by sea transport, brokerages and steel stocks. The mining sector was the only gainer. Bucking the trend, oil giant Inpex Holdings jumped 2.3%.

South Korea's Kospi languished below the unchanged line throughout the session before closing down 60.9 points or 4.29% at 1,359, its lowest level since January 2007.

Machinery and construction stocks led the way lower. Doosan Heavy Industries tumbled 8.0% and Hyundai Engineering & Construction plummeted 6.6%. Top steel maker POSCO plunged 7.7%, while shipyard Hyundai Heavy Industries fell 7.7%.

The Chinese stock market closed sharply lower amid worries that the U.S. financial sector rescue plan approved by the House of Representatives may not prevent the U.S. economy from sliding into a recession. The market opened Monday after a weeklong holiday. Banks and resource stocks led the losers. The benchmark Shanghai Composite Index closed down 120.05 points or 5.23% at 2,174.

Hong Kong's Hang Seng Index opened significantly lower and moved sideways for the rest of the session. The index plunged 878.64 points or 4.97% to 16,804. Steep drops across the region, including Shanghai, dented investor sentiment. Resource stocks tumbled amid ongoing fears that demand for energy and raw materials will drop due to a deteriorating global macro-environment. Macau gaming operators slumped as Beijing imposed further travel restrictions to the gambling haven. Australia's All Ordinaries gap-opened notably lower and declined steadily for the rest of the session. The All Ordinaries index shed 158.1 points or 3.4% to 4,545..

Financial, mining and retail stocks came under significant selling pressure. However, banking and insurance group Suncorp-Metway jumped 3.8% after the company confirmed that parties were talking of buying its banking and wealth management operations. QBE Insurance Group edged up 0.3%, but AMP gave away 2.3% and AXA Asia Pacific tumbled 6.3%.

Europe

The major European markets are tumbling on Monday in reaction to the problems at the region's banks. Fortis announced today an investment from French banking giant BNP Paribas after a Belgian-Luxembourg government-led bailout plan did not effectively stall the damage. German real estate financing company Hypo Real Estate announced that the German central bank and financial regulator BaFin have agreed to extend an additional secured credit line of 15 billion euros in addition to the 35 billion euros promised earlier.

The French CAC 40 Index and the German DAX Index are receding 4.93% and 4.65%, respectively, while the U.K.'s FTSE 100 Index is slipping 2.54%.

U.S. Economic Reports

The unfolding week's economic calendar is fairly light, with only a few economic reports of significance scheduled to be released during the week. Traders may closely watch the minutes of the September 16th FOMC meeting, the Commerce Department's trade balance report for August and the National Association of Realtors' pending home sales index.

Additionally, market participants will also sift through the Federal Reserve's consumer credit report for August, the Labor Department's import and export prices report for September, the Commerce Department's wholesale inventories report for August and the regularly scheduled weekly jobless claims and oil inventories reports.

The Fed minutes are likely to be analyzed to find out the probability of either an inter-meeting cut or the likely monetary policy stance at the October 29th FOMC meeting. Although the policy statement of the meeting had a neutral bias, most Fed officials have of late toned down their rhetoric on inflation. However, the minutes are unlikely to reflect the developments over the past two weeks.

Economists expect the trade deficit to have narrowed in August due to a pullback in oil prices and a reduction in demand for oil in reaction to the economic slowdown. However, the trade deficit, excluding petroleum, is likely to have widened, given the slowdown in exports, especially those of motor vehicles and parts.

The pending home sales index is likely to show another month of decline, although the rate of decline in August is likely to be slower than in July. Sales have picked up to some extent due to the availability of heavily discounted foreclosures that have hit the market.

Import prices are likely to have declined again in September, although at a slower rate than in August. In August, energy prices experienced sharp declines and the dollar was firmer against most other currencies.

Chicago Federal Reserve Bank President Charles Evans and Dallas Federal Reserve Bank President Richard Fisher are scheduled to make public appearances at 12 PM ET and 1:30 PM ET, respectively on Monday.

Stocks in Focus

Citigroup (C), Wells Fargo (WFC | Quote | Chart | News | PowerRating) and Wachovia (WB | Quote | Chart | News | PowerRating) may be in the spotlight on the wrangling over Wachovia. Citi announced late Saturday that New York State Supreme Court Justice Charles Ramos issued an order unconditionally barring Wachovia from negotiating or entering into a merger agreement with any other party other than Citi. However, Wells Fargo said on Sunday that its merger deal with Wachovia would go after an appellate court overruled Ramos.

AIG (AIG | Quote | Chart | News | PowerRating) is likely to react to an announcement that the insurer will sell its consumer finance business in Thailand, including the AIG Retail Bank and AIG Card. Earlier, the company had announced that it would focus on its core insurance business and sell the rest of its businesses to repay the $85 billion loan it borrowed from the Treasury.

UAL Corp. (UAUA | Quote | Chart | News | PowerRating) is likely to react to its announcement that its passenger load factor was 79.7% in September compared to 80.2% in the year-ago period, as traffic and capacity declined 9.2% and 8.6%, respectively.

Google (GOOG | Quote | Chart | News | PowerRating) and Yahoo (YHOO | Quote | Chart | News | PowerRating) could also be in focus after the companies agreed to delay their previously announced advertising partnership. The delay was attributed to the need to give additional time for anti-trust regulators to review the details of the deal. Eli Lilly (LLY | Quote | Chart | News | PowerRating) is likely come under selling pressure after it said it would acquire Imclone Systems (IMCL | Quote | Chart | News | PowerRating) for $70 per share.

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