Judging by the movement of futures indices, stock prices on Wall Street are expected to fall significantly at the start of today’s trading due to investor concerns regarding the financial system in the U.S. and Europe.
The Dow Jones futures index is currently down 264 points, while the Nasdaq index is down 33 points. The S&P futures index is down 30 points and is below fair value, a mathematical formula that determines prices taking into account interest rates, dividends, and the maturity of the futures contract. Stock prices have sharply fallen today on Asian and European exchanges due to the spread of the credit crisis from the U.S. to Europe. The bailout of the German mortgage bank Hypo Real Estate over the weekend and the problems of Italy’s second-largest bank, UniCredit, have worried investors, although European governments claim that the situation is not critical. Investors are even more concerned as there are no signs that liquidity in the interbank money market is improving, so interest rates remain very high.
Although the U.S. Congress passed a $700 billion bank rescue bill on Friday, it seems that confidence in the interbank market is still not returning. "We still do not see any movement in interbank market prices, which essentially means that the credit market is still frozen. It seems that we are facing a sharp decline in stock prices at the start of trading on Wall Street as investors fear the spread of financial contagion," says Peter Cardillo, an economist at Avalon Partners. Last week, leading indices on Wall Street recorded a decline not seen in seven years, and this week also appears to be very uncertain. On European exchanges, stock prices have fallen sharply today. The London FTSE, Paris CAC, and Frankfurt DAX indices are currently down more than 5 percent. (H)
