US stock futures edge up after steep declines
May 24, 2011, 8:44 a.m. EDT Associated Press
Journal By Calvin Lee Ledsome Sr.,
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NEW YORK (AP) — Stock futures rose Tuesday, a day after fears about European debt sparked steep declines in financial markets around the world.
Ahead of the opening bell, Dow Jones industrial average futures are up 39, or 0.3 percent, at 12,401. Standard & Poor’s 500 futures are up 5, or 0.4 percent, at 1,319. Nasdaq 100 futures are up 7, or 0.3, at 2,322.
The modest advance in futures trading came despite more troubling news about the state of European debt management.
Greece‘s main opposition party said it opposed the government’s new austerity measures. The announcement dashed hopes that the country might be able to repair its finances enough to get another loan package from the International Monetary Fund.
Ratings agency Moody’s warned that a Greek restructuring of its debt would constitute a default. Moody’s said such a move would hurt the credit ratings of Greece and other debt-laden European countries. The ratings agency also said it would review 14 British financial institutions for a possible downgrade.
Nonetheless, European stocks recovered Tuesday after Monday’s declines.
The FTSE 100 index of leading British shares rose 0.4 percent in midday trading. Germany’s DAX rose 0.7 percent and the CAC-40 in France was 0.2 percent higher. The euro also rose slightly against the dollar after falling to a two-month low Monday.
In economic news, the Commerce Department is expected to report at 10 a.m. Eastern on how many new homes were bought in April, offering traders a glimpse at the housing market.
Analysts expect sales to have been roughly flat, rising slightly to an annual rate of 303,000 from 300,000 in March. That is still far below the 700,000 in annual sales seen as representing a healthy market.
New homes are unappealing to budget-conscious families because their median price is nearly 31 percent higher than previously-occupied homes. That’s twice the price difference typical of a healthy economy. At their current rate, new-home sales are on track to experience a sixth straight year of declines.
The Dow fell as much as 180 points Monday before paring back some of its losses after Greece, Italy and Spain suffered weekend setbacks in their attempts to control their debt. The Dow fell 130.78 points, or 1 percent, to close at 12,381.26.The S&P 500 index lost 15.90, or 1.2 percent, to 1,317.37. The Nasdaq dropped 44.42, or 1.6 percent, to 2,758.90.
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NEW YORK (AP) — Stocks opened slightly higher Thursday, extending Wednesday’s gains, after a government report showed a sharp drop in new claims for unemployment benefits. Weaker reports on home sales and economic expectations kept the gains in check.
Shares of social-networking company LinkedIn Corp. jumped 81 percent to $81.76 on their first day of trading. It is the largest U.S. Internet IPO since Google Inc.
The Department of Labor reported that applications for unemployment dropped 29,000 last week, more than expected, to 409,000.
Two other reports raised doubts about the strength of the housing recovery and the overall direction of U.S. growth.
The National Association of Realtors said fewer people purchased previously occupied homes in April. The number of homes sold in foreclosure also declined.
The Conference Board reported that expectations for future economic activity decreased, based on its index of leading indicators. The private research group said the index fell 0.3 percent in April, the first decline since June 2010.
In a sign that the U.S. consumer recovery remains uneven, Big Lots Inc. fell 9 percent to $34.31 after news reports that it decided not to sell itself. The Wall Street Journal said late Wednesday that the company received bids from two private-equity groups that were lower than it had hoped.
Sears Holding Corp. reported softer sales at its Kmart and Sears stores, causing a first-quarter loss of $1.58 per share, worse than analysts expected. The stock fell 3.2 percent to $73.31.
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BANGKOK (AP) — A strong rebound on Wall Street spurred by strong earnings reports and better-than-expected housing starts sent Asian stocks higher in early trading Wednesday.
The Nikkei rose 1.4 percent to 9,572.25 despite a government report showing that exports for March dropped for the first time in 16 months — one of many consequences to be felt from the mammoth earthquake and tsunami that devastated the country’s industrial northeast last month.
South Korea’s Kospi was 1.6 percent higher to 2,157.70, and Hong Kong’sHang Seng index rose 0.9 percent to 23,735.65. Benchmarks in Singapore, Taiwan and Australia were also higher. Mainland Chinese shares were mixed, with the Shanghai Composite Index gaining 0.3 percent while the smaller Shenzhen Composite Index dropped marginally.
In New York on Tuesday, health care giant Johnson & Johnson rose 3.7 percent, leading the 30 companies in the Dow Jones industrial average, with earnings that beat Wall Street’s expectations.
In Washington, the Commerce Department reported that builders broke ground in March on more new homes than analysts expected. Home construction rose 7.2 percent from February.
The Dow Jones industrial average rose 0.5 percent to close at 12,266.75. The Standard & Poor’s 500 index rose 0.6 percent to 1,312.62. The Nasdaq composite rose 0.4 percent to 2,744.97.
Major stock indexes posted their largest one-day drop in over a month Monday after S&P said it might lower its rating on U.S. government bonds if Washington failed to tackle its mounting debts. While the rating agency kept its U.S. debt rating at AAA, the highest possible, it warned that there was a one-in-three chance it would downgrade U.S. debt within two years.
After the market closed, tech heavyweight Intel Corp. said earnings jumped 29 percent, surpassing estimates. Business spending on new computers offset a design error in one of its chips. Intel rose 6.2 percent in extended trading.
The dollar strengthened to 82.91 yen from 82.37 yen late Tuesday in New York. The euro rose against the greenback to $1.4388 from $1.4340.
Benchmark crude for June delivery rose 17 cents a barrel to $108.45 on the New York Mercantile Exchange. The contract settled at $108.28 per barrel late Tuesday
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WASHINGTON (AP) — A key credit agency issued an unprecedented warning to the United States government Monday, urging Washington to get a grip on its finances or risk losing the nation’s sterling credit rating.
For the first time, Standard & Poor’s lowered its long-term outlook for the federal government’s fiscal health from “stable” to “negative,” and warned of serious consequences if lawmakers fail to reach a deal to control the massive federal deficit.
An impasse could prompt the agency to strip the government of its top investment rating in the next two years, S&P said. A loss of the triple-A rating would ripple through the American economy, making loans more expensive and credit more difficult to obtain.
The downgrade was interpreted as a rebuke to President Barack Obama and congressional Republicans, admonishing them to put politics aside and come up with a long-term financial plan as soon as possible.
“This is a warning: Don’t mess around,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that is pushing for deficit reduction.
Analysts at S&P have never before used the outlook to cast doubt on the nation’s credit worthiness.
In response, stocks suffered their worst slide in a month. The Dow Jones industrial average plunged 245 points before recovering to close down 140 points for the day.
“The credit quality of U.S. debt is sacrosanct, and legislators will do everything within their power to avoid a downgrade,” said Jack Ablin, chief investment officer at Harris Private Bank.
The government is on pace to run a record $1.5 trillion deficit this year, the third consecutive deficit exceeding $1 trillion.
But so far, S&P sees little chance that the White House and Congress will agree on a deficit-reduction plan before the November 2012 elections, and the rating agency doubts that any plan would be in place until 2014 or later.
Obama and congressional Republicans are sparring over how to reduce the nation’s red ink. If Congress refuses to raise the nation’s debt limit this spring, and the U.S. Treasury lost authority to borrow additional money, the government would not be able to pay its bills and would default on its debt.
Although it’s a worst-case scenario that’s highly unlikely, default by the government means anyone owning federal debt of any kind — bills, notes, bonds — could go unpaid.
Both sides have proposed cutting $4 trillion from future deficits over the next 10 to 12 years.
The White House wants to reduce the deficit through spending cuts and by ending the Bush-era tax cuts for the wealthy. Republicans reject that, calling it a tax increase. They seek instead to narrow the deficit largely by overhauling Medicare and cutting spending elsewhere.
The credit report called the two proposals a “starting point” of the process, but warned that the gap between the parties remained wide.
S&P took no position about how to reduce the deficit or how to change spending and revenue plans.
“But for any plan to be credible, we believe that it would need to secure support from a cross-section of leaders in both parties,” S&P said in its report.
A lower credit rating would drive up the government’s borrowing costs. It could lead to higher interest rates on everything from mortgages to car loans and threaten to slow U.S. economic growth.
Ablin said the credit worthiness of the country is the underpinning on which all other asset classes are valued.
“If all of a sudden the credit quality of U.S. Treasurys isn’t as high as people perceive, we could see erosion of confidence,” he said.
For now, S&P continues to give the U.S. government its top investment ranking. That means S&P believes that the U.S. government can and will repay its debts and that Treasury investments are virtually risk-free. But the agency says the U.S. faces a one in three chance of a downgrade in the next two years. That would likely happen if the White House and Congress could not come up with a credible plan for reducing debt.
The other major credit agencies — Moody’s and Fitch Ratings — did not match S&P’s outlook warning.
S&P gives its top investment rating to just 19 of the 127 countries it analyzes. But it says Britain, France and Germany moved much faster to contain deficits after the 2008 financial crisis and 2007-2009 recession, which cut tax revenues and forced governments to spend more on unemployment benefits, aid to the poor and bailouts of the banking system. Those countries also have top-notch investment ratings.
S&P noted that the U.S. deficit grew to 11 percent of economic activity in 2009, a risky percentage. The deficit averaged less than half that percentage in the previous six years.
The government was beginning to run surpluses at the end of the Clinton administration. But deficits returned after President George W. Bush’s tax cuts, a 2001 recession, wars in Afghanistan and Iraq, and a massive expansion of Medicare’s drug coverage.
The deficit widened even more after the Great Recession started in 2007, depleting tax revenue and raising spending to stimulate the economy and provide benefits for the unemployed and the poor.
In the past, credit warnings have jolted politicians into action.
In May 2009, Standard & Poor’s downgraded its long-term outlook on the United Kingdom to negative, saying that the country’s debt could double in four years.
Prime Minister David Cameron and his Conservative-Liberal coalition government laid out plans to cut nearly 500,000 jobs and reduce welfare spending. Britain’s economy also posted modest gains, and the ratings agency changed its outlook in October back to “stable,” noting the government’s “political resolve.”
In recent months, at least two countries — Portugal and Greece — have had their credit ratings downgraded as they endured financial woes of their own.
The Obama administration embraced Monday’s warning as a welcome call for cooperation among the two political parties. Press secretary Jay Carney said the White House believes the political process will outperform the agency’s expectations because the president and Congress recognize the problem.
A budget showdown is likely in the next few weeks. Treasury Secretary Timothy Geithner has said the government will reach its debt limit no later than May 16. He can juggle funds to keep the government running until about July 8, after which the government could not pay its bills.
On Sunday, Geithner said Republican leaders have privately assured the Obama administration that Congress will raise the government’s borrowing limit in time to avoid an unprecedented default on the nation’s debt.
But Rep. Eric Cantor, the No. 2 Republican in the House, took a hard line Monday, calling the S&P announcement “a wake-up call to those in Washington asking Congress to blindly increase the debt limit.” He said Republicans would only agree to raise the debt ceiling if the White House agrees to “serious reforms that immediately reduce federal spending and to end the culture of debt in Washington.”
A bipartisan deficit-reduction commission appointed by Obama recommended late last year that about $4 trillion be slashed from budget deficits during the coming decade.
Under the commission’s plan, roughly two-thirds of the savings would come through spending cuts and one-third through increased tax revenue. Although overall tax rates would decline, dozens of popular tax breaks would be scaled back or eliminated, including the child tax credit, mortgage interest deductions and deductions claimed by employers who provide health insurance.
Obama praised the panel for its work, but embraced few of its recommendations, and none of the major ones on new taxes.
For now, U.S. politicians are at a stalemate. “There is bipartisan agreement on the need to reduce the debt by $4 trillion over roughly the next decade,” said Sen. Charles Schumer, D-N.Y. “Now we just need to resolve how to do it.”
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Associated Press writers Pallavi Gogoi and Janna Herron in New York and Derek Kravitz, Andrew Taylor, Jeannine Aversa and Ben Feller in Washington contributed to this report.
