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Tuesday, November 1, 2011

NYSE Invokes ‘Rule 48’ To Control Sell-off

NYSE Invokes ‘Rule 48’ To Control Sell-off

Traders Across The Globe Rushed Out Of Equity Markets

By Dell Hill

Publishers Note:  This blog does not give investment advice.  Consult your broker.

All eyes are on the New York Stock Exchange today as worries over the debt crisis in Europe has investors making major changes to their portfolios.

“Traders across the globe rushed out of equity markets and piled into safe havens after a move by Greece put a plan forged by European leaders to avert the heightening debt crisis into question.

Today's Markets

As of 10:10 a.m. ET, the Dow Jones Industrial Average slid 255 points, or 2.1%, to 11,698, the S&P 500 dropped 28.2 points, or 2.3%, to 1,225 and the Nasdaq Composite fell 78.6 points, or 2.9%, to 2,606.

The session on Tuesday was off to a volatile start with the VIX spiking 17.7%.  Indeed, the New York Stock Exchange invoked "Rule 48," which is designed to smooth the opening of trading on particularly tumultuous days.  

European blue chips plunged 5.8%, while the euro was off 1.6% against the U.S. dollar. Euro zone banks, seen to have a particularly large exposure to sovereign debt, took a strong beating.

France's three biggest banks, Societe Generale, BNP Paribas and Credit Agricole, and Germany's Deutsche Bank were all off more than 10% in afternoon trading there.

Meanwhile U.S. investment bank Morgan Stanley (MS: 16.34, -1.30, -7.37%), which has been the subject of concern over its European debt holdings, fell as much as 10%.
Yields on U.S. government bonds fell as traders raced into the perceived safe-haven assets.  The benchmark 10-year Treasury note yielded 2.006% from 2.11%.
The markets capped the best month in years on Monday.  However, the last two sessions have represented a stark contrast as fears over the European debt crisis have once again crept back to the forefront, with the blue chips shedding 500 points in two sessions alone.

Greece Move May Put EU Plan in Jeopardy

Greek Prime Minister George Papandreou unexpectedly called for a referendum of the country's bailout package after the closing bell on Monday.  Citizens would reportedly be asked to either approve or deny the bailout from various international lenders, which the beleaguered nation needs to stave off a default that analysts say could pressure much bigger European economies, like Italy.

The Greek public has vehemently, and sometimes violently, protested the austerity measures lenders have pushed for to cut the country's tremendous public debt load.  Indeed, a recent poll shows more than half of Greek voters are against the measures, according to The Wall Street Journal.

"The latest developments increase the uncertainty around the euro area's response to the crisis," analysts at Nomura wrote in a note to clients. "If the referendum fails it might have wider repercussions, and not only in Greece given the general discontent at the peripheral austerity drive."

European leaders, who are already facing strong political criticism for using public funds to support Greece, may be faced with a difficult decision if the referendum fails.  Analysts say they would have to either ease the bailout terms, or risk an almost certain default that would threaten the entire currency bloc, and potentially global economies.  
At the same time, if the terms of the bailout were lightened, it may signal to other countries seeking bailouts that such measures provide leverage in negotiations.

Still, European leaders remained optimistic following Greece's move: "We fully trust that Greece will honour the commitments undertaken in relation to the euro area and the international community," the European Council and European Commission said in a joint statement.

Global Manufacturing Data Miss Expectations

Also concerning to the markets are fresh data showing the pace of manufacturing expansion in the U.S. and  China -- two of the world's biggest economies -- unexpectedly slowed down to a crawl in October from September.  

The Institute for Supply Management Manufacturing PMI gauge fell to 50.8 in October from 51.6 in September and missing expectations of 52. Readings above 50 point to expansion, while those below indicate contraction.

Meanwhile, construction spending rose 0.2% in September from August, slower than the 0.3% pace economists' had anticipated.

On the corporate front, pharmaceutical giant Pfizer (PFE: 19.53, +0.27, +1.40%) posted quarterly earning and sales that came in well higher than analysts' estimates.

Market participants were also paying close attention to the unfolding MF Global (MF: 1.20, -0.23, -16.08%) situation. The once powerful derivatives player filed for Chapter 11 bankruptcy protection on Monday after a soured bet on European sovereign debt sent investors and customers fleeing, according to several media reports. A last-ditch plan to sell the company fell through in the final hours after discrepancies were found in the New York-based companies books, with regard to customer money, according to a report by The Wall Street Journal.

Energy and metals futures were sharply lower amid concerns over Chinese manufacturing, a rallying dollar and tracking broad selling in equity markets.  The benchmark U.S crude oil contract sunk $2.48, or 2.6%, to $90.73 a barrel.  Wholesale RBOB gasoline fell 4 cents, or 1.5%, to $2.64 a gallon.

Gold slid $21.20, or 1.2%, to $1,704 a troy ounce.  

Foreign Markets

European blue chips plunged 5.8% to 2,248, the English FTSE 100 slid 3.5% to 5,349 and the German DAX plummeted 5.8% to 5,785.

In Asia, the Japanese Nikkei 225 slid 1.7% and the Chinese Hang Seng dipped 2.5% to 19,370.

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