Stocks opened sharply lower today after a robust rally in the prior session (with the S&P 500 ending within two points of its all-time closing high), as soft demand at an Italian debt auction sparked concerns over the financial health of the euro zone.
As of 10:25AM, the broader indices are down roughly -0.6%, with the S&P 500 at 1,555. On the technical front, the S&P 500 continues to trade within a tight 20 point range (1,545 -1,565), which it’s been in for most of March. A drop below critical support, such as Monday’s low of 1,546 for the blue chip index, could precipitate additional selling that accelerates today’s slide.
Areas Of Focus Today:
Flight To Safety/Risk-Off – Soft demand at an Italian debt auction sparked fresh jitters over the financial health of the euro zone, while Pier Luigi Bersani, the leader of a leftist alliance scrambling to secure enough support to form a government in recession-hit Italy, declared that there is no possibility of a “broad coalition” in resolving the Italian election stalemate. Meanwhile, Spanish 10-year yields surged above 5%, and the US 10-year yield fell through 1.90%. The euro continues to drop, falling below 1.28 for the first time since November. The rising dollar, which now sits at levels last seen over the summer (currently at 83.25), may crimp future earnings for many multinational corporations. With that in mind, investors will be listening closely to any further policy action hints from four Federal Reserve presidents later today. Chicago Fed President Charles Evans is up first at 11 AM ET, followed by Boston Fed President Eric Rosengren at 11:30. At 12:15 PM, Cleveland Fed President Sandra Pianalto speaks, and Minneapolis Fed President Narayana Kocherlakota finishes things up with a speech at 1 PM.
Continued Weak Economic Data Out Of The Euro-Zone – The final estimate for French fourth-quarter GDP came in at -0.3%, matching previous estimates as well as expectations. The French economy is dealing with a contracting manufacturing sector and rising unemployment at a time when the broader euro zone is feeling the pressures of a deepening recession. The final estimate for British fourth-quarter GDP also came in at -0.3%, matching previous estimates and expectations. However, year over year, GDP growth was only 0.2%, slightly below the 0.3% growth expected by economists. Euro zone economic confidence fell to 90.0 in March from last month’s 91.1 index reading, marking the first decline in sentiment since October. Economists had predicted a smaller tick down on the index to 90.5. The survey was largely completed before the crisis in Cyprus unfolded, which will likely weigh further on confidence going forward.
Cyprus Update – Cypriot officials are moving forward with the wind-down of the country’s two largest banks following a bailout deal made with the EU on Sunday night. Cypriot central bank chief Panicos Demetriades told reporters at a press conference that although they could not give specific numbers yet, 40% of uninsured deposits at Bank of Cyprus could be lost, and 80% of uninsured deposits at Laiki could be wiped out.
Home Sales to Barely Budge in Spring – The U.S. housing market will see no surge at the start of spring, as fewer buyers signed contracts to purchase existing homes in February. An industry index of so-called pending home sales fell 0.4% from January but is up 8.4% from February of 2012. While the number of for-sale listings increased more than the seasonal norm, Realtors still say a lack of supply is keeping many potential buyers from desired deals. Pending home sales are a one to two month forward indicator of closed sales.