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New Month, Same Story: Risk Aversion

Bob Pisani is off; this post was written by CNBC producer Robert Hum.

Risk aversion continues to be at the center of attention to kick off June. Following the Dow’s worst May since 1940, U.S. stock futures were notably weaker this morning.

European stocks are down 2 percent, as the Euro once again falls below $1.22 to a new 4-year low. (More: Euro to Go Under $1.20 'Almost Certainly': Gartman) The equity markets in Europe are being led lower by financials, as the ECB warned that there could be a “second wave” of loan losses for European banks. (Opposing view: Worst Over for Europe Banks: Strategist)

Also weighing on the European markets: political instability as Germany’s President Hoerst Koehler resigned and worries over future downgrades of European debt.

Over the weekend, French budget minister François Baroin told the Financial Times that maintaining its AAA debt rating was “challenging and it will in part condition the savings strategies that we want to have.”

As the US dollar continues its rise, commodities are down 1 percent-2 percent in early trade. Gold is the one exception — rising to a 2-week high.

Hurting the risk trade more was a slightly weaker-than-expected PMI report out of China. The China Federation of Logistics and Purchasing Managers Index showed slowing growth, falling from 55.7 to 53.9 last month (vs. 53.9 consensus). On the commodity weakness, commodity stocks are falling 3 percent to 6 percent pre-open.

Elsewhere:

BP drops 14 percent and Transocean falls 7 percent pre-open after BP revealed that its “Top Kill” procedure failed to stop the oil leak in the Gulf of Mexico. This continues the sharp drop in BP’s stock over the past month (shares have gone from about $60 to $37), and the oil company will likely have lost over $60 billion in market cap following today’s losses.

The oil company now turns to a marine riser system in another attempt to stop the leak.

AIG falls 2 percent and UK’s Prudential rises 7 percent after the companies failed to come to terms on a lower offer for AIG’s Asian life insurance unit. The deal may now be in jeopardy, as many Prudential shareholders oppose the $35.5 billion deal, deeming it too pricey. That caused Prudential to seek a $5 billion reduction in price for the U.S. firm’s AIA Group, a price cut AIG announced it was not willing to make.

If the deal fails to be completely, a likely alternative for AIG involves taking its Asian unit public via an IPO in Hong Kong.

Hewlett-Packard (HPQ) is down 1 percent after announcing it is cutting 9,000 jobs (3 percent of its workforce) over the next several years related to the streamlining of its Enterprise Services division. As a result, it will take a $1 billion restructuring charge during that period.

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