A selling wave in global stock markets is sweeping futures lower this morning as subprime and credit woes once more rise to the surface. A new disclosure about a third troubled hedge fund at Bear Stearns is rattling investors.
European stock markets are all lower, down more than 1% or more. Asian stock markets fell sharply overnight with Japan's Nikkei 225 Average down 2.2%; South Korea lost 4% and Hong Kong lost 3%. Australia closed 3.3% lower, its biggest one-day drop in six years. Macquarie Bank led the decline in that market after warning that it faces big losses in two funds because of U.S. subprime losses.
U.S. stock futures have come off their lowest levels of the morning as the market moves closer to the open, but there's fear around the edges and financial stocks are once more being eyed suspiciously. Reuters says comments by Treasury Secretary Hank Paulson this morning that the subprime fallout is mostly contained soothed the market, but we could see nothing new in those comments.
Another flight-to-quality buying spree in Treasuries yesterday pushed the yield on the 10-year to 4.771% and the buying continues this morning. The yield on the 10-year was 4.74%.
Today's data includes ADP's employment report for July -- with payrolls up by just 48,000, much lower than expected -- ISM manufacturing data and pending home sales.
Monthly auto sales are also reported today. "This could be the month when Toyota finally tops (GM's ) Chevy and Ford to become the top-selling brand in the U.S. It would be a watershed moment," says CNBC's Phil Lebeau, adding it would give Toyota new bragging rights and marketing clout.
Earnings news is also making headlines. Time Warner reported a second-quarter profit of $1.07 billion, up 5.2% from last year. Time Warner CEO Richard Parsons will appear on "Closing Bell" today. Kraft Foods reported profits of $707 million. Disney and Starbucks report after the bell today.
News Corp. Scores
It's official. As CNBC's David Faber first reported, News Corp succeeded in striking a deal to buy Dow Jones for $5 billion, after the conflicted Bancroft family gave support to the deal.
CNBC's Melissa Lee reported from China this morning that talks between Paulson and Chinese officials focused on currency reform and product safety. China did agree to lift a moratorium on U.S.-China joint securities ventures a few months earlier than expected, but Paulson basically returns home empty handed, says Lee.
July ended with a bang, setting a record price for crude oil on its final day and closing with another sloppy down day for stocks. The Dow ended off 146 points yesterday, after being up as much as 140 points earlier in the day. Negative news from American Home Mortgage stung the market in the afternoon when traders saw the company's stock indicated about 90% below its closing level.
"There are persistent efforts to sell into any rally and twice it failed, but the AHM (American Home Mortgage) news was so crappy," said CNBC's Bob Pisani. "When they saw that, the whole market essentially dropped and they started saying others are going to be in trouble, and there was no new news." American Home confirmed it is facing a liquidity crunch and hired outside advisers to study its options.
Worries about the mortgage market spread into the financials and ignited a rash of rumors about hedge funds being in trouble. Traders viewed most of the talk as rumor mongering, but after the close the Wall Street Journal reported that a third Bear Stearns hedge fund was facing big losses. That fund has about $900 million in mortgage investments.
Oil closed yesterday at a record $78.21 per barrel, just shy of its intraday high of $78.40, but above the closing high set in July, 2006. Oil was up 11% for the July and up 28% year to date. Oil is slightly weaker today as traders look ahead to weekly inventory data at 10:30 am New York time.
The Dow lost 1.5% for July, but not without a wild climb up to a new high of 14,000 and a violent slide back down. The Nasdaq lost 2.2% for July and is up 5.4% for the year. The S&P 500, finishing at 1,455, lost 3.2% for July and is up 2.6% year to date.
The dollar fell 1.1% against the euro for the month, giving it a 3.5% decline for the year so far. The dollar ended July down 3.8% against the yen, but it is off only 0.5% against the yen for the year.
We heard Goldman Sachs market strategist Abby Joseph Cohen say yesterday she still thinks the S&P 500 will make it to 1,600 by year end. She warned there would be some more chop along the way and noted we've yet to see how some portfolios have come through the rough ride in markets so far.
CNBC's Maria Bartiromo spoke with Robert Doll, global chief investment officer at Blackrock, on Closing Bell yesterday. He said there's a ways to go before the market pulls out of its current correcting phase.
"From the high, as you know, the broad averages of the U.S. are down 5 plus ... percent ... Our guess - We're more than halfway done in terms of price, but less than half done in terms of time," said Doll. "So we don't think this is a double digit one but that assumes there's not a lot of contagion. If there is, we'll have worse than that.
"So we will continue to have a lot of sloppiness back and forth. We're going to have more rally attempts ... more selloffs until we get more confidence about what we know. There's more we don't know than do know. We get these corporate earnings that are pretty good, but we're always concerned about what's around the corner, and we won't know that for some time," he said.
Doll discussed some strategies for stock groups. On the financials, "we think it's too soon. We're overweight things that are exposed to non U.S. growth ... some of the global cyclicals," he said.
CNBC's Rick Santelli watches bonds and the futures markets and is a technician in his own right. So, when he says a signal is important, we take note. Yesterday, he pointed to signs of a key reversal.
"For the month of July, the S&P 500 index and the Dow Jones average both had a higher high and lower low than in June. That's one of the high profile indicators as to trend reversal, which in this case would signal selling," said Santelli.
"If it closes lower on the month, that means a reversal. If it closes lower than the previous month's low, that's a key reversal. To technicians, this is evidence of a momentum switch. That means in stocks, they think the momentum has gone from pushing stocks higher to pushing stocks lower," Santelli said.
To technicians, this means that there's now evidence that equities prices may have peaked for the time being and could be in for more trading on the downside. "The last big reversal in the outside month was in 2003. That was one of the great signals. It gave you the signal to buy," said Santelli, noting that there had been other signals since then but they didn't hold the trend. Technicals, of course, are not fool proof and a lot of things go into the making of a market move.