Market Snapshot October 24, 2008, 8:43AM EST

Global equity markets plunged, and key U.S. futures traded limit down Friday amid signs that the financial crisis was worsening

courtesy of  AFP/Getty Images

U.S. stocks were indicated to open sharply lower Friday as S&P and Nasdaq 100 futures were down the limit in premarket trading as a banking crisis that began in the U.S. and Europe spreads to Asia.

Bonds were soaring in a flight to safety from the global stock market meltdown. European markets were down big, and Asian stock markets plunged across the board as the global banking crisis is likely to contribute to a lengthy worldwide recession. Investors were liquidating risky assets and moving into cash.

Gold futures were falling. Oil futures were also skidding even as OPEC cut output 1.5 million barrels but struggles with fact of slowing global economies.

In Thursday’s U.S. market action, the Dow Jones industrial average ended higher by 172.04 points, or 2.02%, at 8,691.25. The S&P 500 index added 11.33 points, or 1.26%, to 908.11. But the Nasdaq composite index fell 11.84 points, or 0.73%, to 1,603.91.

But Friday’s early action promised to be brutal. If the DJIA cash goes down 10%, the NYSE will declare a one-hour trading halt at which point all of the futures will suspend trading as well, according to Jay Collins at DT Trading in Chicago. “It is important to realize that this DJIA number is based off of last night’s close, not the quarter end which was much higher so the futures can theoretically close before they hit their limit as this DJIA number is far more easily reachable than the futures limit prices,” he wrote in a note Friday.

On Friday, the U.K. reported its economy shrank 0.5% in the third quarter, the first decline since 1992, bringing England to brink of recession.

British and European stocks were sharply lower in the early going Friday as European central bankers signaled rates are likely to head lower soon as Western Europe nears recession. The U.K.’s FTSE 100 Index dropped 6.3% after the economy shrank for the first time since 1992. The German DAX was off 7.68% amid reports German banks could face a large tax bill as a result of heavy exposure to Iceland.

Asian stocks plunged overnight as the banking crisis that started in the U.S. and Europe spread to the Far East. Tokyo stocks fell 9.60%, Hong Kong stocks fell 8.30%, and Shanghai stocks fell 1.92%, Korean stocks plunged 10.57% as the country’s economy grew at the slowest pace in four years. Investors have not responded favorably to the Korean central bank’s move earlier this week made funds available to small businesses, while the state-backed National Pension Service said it would buy 8 trillion won ($5.6 billion) more of domestic bonds this year.

Sterling was down at $1.5539 in early trading as England neared recession. The euro was off at $1.2595 amid reports German banks could face a large tax bill as a result of heavy exposure to Iceland. The dollar was down to 92.44 yen, a 13-year low, as the prospect of a global recession prompted investors to dump higher-yielding assets funded in Japan.

Bloomberg said the Japanese currency also surged to the strongest in six years against the euro after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. Standard Chartered analyst Robert Minikin in London told Bloomberg there is “a powerful de-leveraging and risk aversion dynamic globally across all financial markets and that’s helping prompt the strengthening of the yen. We’re seeing a lot of weakness in higher-yielding currencies and the yen is performing well. As balance sheets shrink and assets are repatriated, that can help the U.S. dollar.”

Fed funds futures were surging higher, reports Action Economics, a reflection of both the flight to safety flows, as well as expectations for an emergency Fed rate cut. But, with the Fed already having eased the funds rate by injecting massive amounts of liquidity, the of a drop in the target rate won’t have that much real effect at this point, says Action Economics.

com/AIG/’ rel=’topic’>American International Group (AIG) has borrowed $90.3 billion from the U.S. government as of Wednesday, three-quarters of the emergency funds made available to it under a federal rescue plan. On Thursday, AIG Chief Executive Edward Liddy warned that the $120 billion-plus in emergency federal cash extended to the insurer may not be enough. AIG, once the world’s largest insurer before it was hammered by bad bets on mortgages, borrowed a further $7.4 billion from a government loan facility in the last week, the paper said on its website. The move marked the first time the insurer had borrowed more than the government’s original $85 billion rescue loan, announced on Sept. 16. Earlier this month, the government gave AIG nearly $38 billion more in fresh cash.

The International Monetary Fund, which is in negotiations with several countries to provide emergency loans, is also working to arrange a huge credit line that would allow other countries desperate for foreign capital to borrow dollars, according to several officials cited in a New York Times report. The list of countries under threat is growing by the day, and now includes On the list of endangered countries, economists put: Hungary, Russia, Ukraine, Pakistan, Turkey, South Africa, Argentina, Iceland, Estonia, Latvia, Lithuania, Romania and Bulgaria. Details of the arrangement are still being worked out, but it could be supported by Japan and several oil-producing countries, a fund official said. The fund has not yet approached the Federal Reserve, according to officials, although the Treasury Department has expressed interest.

There is speculation the U.S. Treasury Secretary Henry Paulson will shortly announce the second round of capital injections into the US banking system, this time into regional banks, wrote Daiwa Securities analyst Nichola Sanders in a note Friday. “Some $125 billion has already been lavished on the largest institutions, and the same amount again is available for injection into smaller lenders,” she wrote. “Clearly this news would boost sentiment and provide the more solid regional banks with the capital strength to take over struggling institutions, bringing some much-needed consolidation to the US banking sector.”

In other U.S. markets Friday, the 10-year Treasury note was higher at 104-03/32 for a yield of 3.508%, while the 30-year bond was higher at 110-11/32 for a yield of 3.914%.

The dollar index was up 1.66 to 86.43.

Energy futures were tumbling as OPEC ministers cut daily crude oil output 1.5 million barrels effective Nov. 1. The cartel said it was not responsible for the global economic slowdown and financial crisis, which have reduced demand for oil. Those factors are behind today’s global stock market plunges, which are likely to make consumer buy less, says S&P MarketScope. Many OPEC nations are heavily dependent on oil revenue to subsidize social programs. Dec. WTI crude oil futures were off $4.85 to $62.99.

December gold futures were off $21.70 to $693.00. The break below $700 might have triggered some sell stops, says S&P MarketScope. Traders apparently were raising cash for the future with a severe global recession beginning. The dollar index was higher in a flight to safety from a banking crisis that seems destined to deepen and lengthen the budding recession.

Among Friday’s stocks in the news, Microsoft (MSFT) posted first-quarter EPS of 48 cents, vs. 45 cents one year earlier, on a 9% revenue rise. The company said trends seen late in the first quarter are now forecasted to continue, whereas previous expectations were for the economy to improve in the second half of fiscal 2009. Microsoft sees second-quarter revenue of $17.3-$17.8 billion and EPS of 51-53 cents. It sees fiscal 2009 revenue of $64.9-$66.4 billion and EPS of $2.00-$2.10. Wall Street is looking for $2.11.

Ingersoll-Rand (IR) posted third quarter EPS from continuing operations of 70 cents, vs. 92 cents one year earlier, as higher expenses offset a 2% revenue rise. IR sees fourth quarter EPS from continuing operations of 55-75 cents, excluding restructuring charges. The company expects flat year-over-year pro forma revenues for the fourth quarter, declining performance in North America and Western Europe and continued moderate growth in developing economies of Eastern Europe, Asia and Latin America.

Timken Co. (TKR) posted third quarter EPS from continuing operations of $1.35, vs. 43 cents one year earlier, on an 18% revenue rise. The company cut its fourth-quarter EPS forecast to 16-26 cents, citing timing of raw-material cost recovery in the Steel Group, which benefited the third quarter, and weaker automotive demand for both Steel and Mobile Industries. The company reaffirmed its 2008 EPS forecast of $3.35-$3.45.

source: Businessweek

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