Stocks Slammed as Draghi Says Germany Slowing
U.S. stock futures initially traded higher after it was officially revealed that President Obama had won his bid to be reelected, but quickly reversed direction and headed lower after European Central Bank Chair Mario Draghi made comments on the state of the German economy.
Draghi noted that the ongoing European crisis was starting to affect Germany.
Recent data out of Germany supports Draghi's prognosis, as the Service PMI, Industrial Orders and Factory Orders data all missed expectations. Industrial Production, released on Wednesday, came in at -1.8 percent, lower than the -0.5 percent that was anticipated. German Service PMI and Industrial Orders, released on Tuesday, came in at 48.4 and -3.3 percent, respectively. Expectations were for 49.3 and -0.5 percent.
The ECB will meet tomorrow to decide the interest rate for the Eurozone. The central bank may also take steps to further explain (or expand) its OMT program -- a program designed to allow the ECB to purchase the short-term bonds of indebted nations.
Economists expect the ECB to do little, leaving rates at 0.75 percent and keep the terms of the OMT program intact. However, given recent German weakness, traders might be in for a surprise tomorrow.
Shortly after open, the Dow was down nearly 180 points. Financial stocks were hard hit, with the Financial Select Sector SPDR (NYSE: XLF) down nearly 2 percent.
Obama's election might have contributed to the selloff, as traders anticipate further financial regulation. However, U.S. financials remain largely exposed to the Eurozone, and further weakness in Europe could have a detrimental effect on American banks.
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