European leaders today gamely promised to keep tackling the continent’s debt crisis – but the markets wanted much more.
Stocks sank across the US and Europe, the euro fell against the dollar and investors dumped bonds issued by the governments of Spain and Italy. Investors had been expecting more immediate action from the European Central Bank and were disappointed by the plan’s lack of details, especially considering the ECB president’s pledge last week to do “whatever it takes” to keep the euro intact.
It was the second day in a row that markets were disappointed by a lack of decisive action from a major central bank. Yesterday stocks closed lower after the Federal Reserve made only vague promises about its plans for trying to revive the US economy.
The Dow Jones industrial average fell 92.18 points to 12,878.88. The Dow had been down as much as 192 shortly after noon.
The Standard & Poor’s 500 index fell 10.32 to 1,365. The Nasdaq composite index lost 10.44 to 2,909.77.
It was the fourth day in a row of losses; US stocks have not risen since ECB President Mario Draghi’s now-famous three-word promise a week ago.
Investors had been hoping for clear action from the ECB, such as a cut in interest rates or clear plans to buy more European government bonds, which could lower borrowing costs for troubled countries like Spain and Italy.
But Germany’s central bank, which has footed much of the bill for bailing out other European countries, declined to go along. And so Draghi had to tell a highly anticipated news conference that the ECB “may” intervene in the bond market. He promised the ECB would consider other emergency measures in coming weeks.
The yield, or interest rate, on Spain’s benchmark 10-year bond jumped to 7.06 % from 6.68 % last night, making it more expensive for the country to borrow money. The yield on Italy’s 10-year bond rose to 6.30% from 5.85 %. Other countries have been forced to seek bailouts once their rates rose above 7 %.
In the US, thoughts of Europe were close at hand. General Motors and Kellogg reported lower quarterly profits and put some of the blame on Europe.
In other trading:
:: Knight Capital Group, the trading firm whose technical glitch sent trading of dozens of stocks into chaos early Wednesday, lost 63 % of its value, plunging 4.36 dollars to 2.58 dollars . In two days, it has lost 75 % of its value.
:: Abercrombie & Fitch dropped 15 % and Aeropostale dropped 33 % after both companies warned of weak second-quarter sales. Abercrombie lost 4.96 dollars to 29.06 dollars . Aeropostale lost 6.37 dollars to 13.08 dollars.
:: A smattering of positive signs about the economy got lost in the greater maelstrom. Retailers including Target, Limited Brands and Gap announced that July sales beat expectations. Shares of all three companies climbed, with the biggest increase at Gap. It rose 13 %, gaining 3.75 dollars to 33.17 dollars.