Before the bell: Futures decline as Bear sold, Fed acts

Posted Mar 17th 2008 7:45AM by Melly Alazraki
Filed under: Before the Bell, Major Movement, International Markets, Deals, Market Matters, JPMorgan Chase (JPM), Economic Data, Commodities, Oil, Bear Stearns Cos (BSC), Federal Reserve

Looks like it's going to be ugly out there today according to global markets and U.S. stock futures. The Dow Jones Industrial Average futures are down about 200 points (two and half hours before the markets open). A fire sale of Bear Stearns to JP Morgan caused a chain reaction all over with the Federal Reserve taking emergency action and cutting the discount rate by a quarter point.

Already on Friday U.S. markets have reacted to news that Bear Stearns required assistance from JP Morgan Chase and the New York Fed. The Dow industrials fell 194 points, or 1.6%, the S&P 500 lost 27 points, or 2.08%, and the Nasdaq Composite dropped 51 points, 2.26%.

When a deal was finally struck Sunday, the magnitude of the credit crisis and its potential dangers have become more apparent. JPMorgan Chase & Co. (NYSE: JPM) has bought its once biggest rival on Wall Street, Bear Stearns Cos (NYSE: BSC) "for the shockingly low price of $2 per share, or $236.2 million," as the AP put it. Bear Stearns shares dropped over 47% on Friday to close at $30 per share. They are now plummeting over 86% to $4.10 and will likely decline further. With analysts saying that the broker's headquarter alone was worth over a $1 billion, the losses Bear Stearns may have must be staggering.
And indeed, investors will want to know how much Bear Stearns bet on mortgage-backed investments and what was its financial situation as a result, hoping to get better insight into the credit crisis caused by the subprime meltdown.

The reactions didn't come fast enough. Despite meeting Tuesday, the Federal Reserve cut the discount rate, the rate that applies only to the short-term loans that financial institutions get directly from the Federal Reserve, by a quarter point to 3.25%. The key rate remains unchanged at 3%, but most expect the Fed to lower it by at least half a percentage point when the FOMC meets Tuesday.

But that didn't alleviate the feelings of concerns about the financial markets and global stocks plunged Monday. In Asia stocks tumbled with Japan's benchmark 225 index sinking 3.7% to close at 11,787.51 points, its lowest in more than 2 1/2 years. Hong Kong's Hang Seng index fell 5.2%. Meanwhile in Europe, the French CAC 40 and London's FTSE 100 both dropped some 2.4%, while German's DAX declined 3.2%.

And of course, the "usual suspects" kept the trends set the past while: The dollar continued its free fall, declining to a record low against the euro and to its lowest level in 12 1/2 years against the yen, oil prices jumped to an all-time trading high near $112 a barrel and gold soared above the $1,000 an ounce mark once again.

Also today there are several economic reports starting at 8:30 a.m. with March New York area manufacturing activity. Then, later, current account data for the fourth quarter is due. Industrial production and utilization for February will also be released today.

Tags: bsc, featured, jpm