Investors were handed a harsh dose of reality yesterday.
Stocks plunged as the realization set in that Fed Chairman Ben Bernake won’t be firing the QE3 bazooka anytime soon.
That led traders to actually trade on fundamentals. And when they peeled the layers off the proverbial economic onion, they didn’t like what they saw.
The U.S. economy is growing at a snail’s pace, evidenced by yesterday’s bleak Philly Fed data. The housing market’s recovery remains anemic at best. And jobless claims are hovering dangerously close to the key 400,000 threshold, which is typically considered the dividing line between job gains and losses.
With Europe’s debt crisis has reached a boiling point, the ECB is poised to relax its collateral rules for central-bank loans. The hope is to ease strains on commercial banks in Spain and the rest of Southern Europe. Time will tell what sort of lasting impact this could have. For now, Spanish bond yields have moved off euro-era record highs hit earlier this week. But it won’t take much to get them rising again.
The cost to protect Morgan Stanley’s debt against losses dropped, and the shares rallied as much as 4.6 percent in extended trading yesterday after the ratings firm cut the bank by two levels rather than a threatened three grades. Credit- default swaps tied to Bank of America Corp., which was lowered to within two levels of junk along with Citigroup Inc. (C), also improved, along with those of Goldman Sachs Group Inc. (GS)…
…The prospect of downgrades had weighed on banks since Moody’s said Feb. 15 it was reviewing 17 banks with capital- markets operations because of fragile confidence and tighter regulations that pinched revenue. Pressure mounted as Europe’s sovereign-debt crisis intensified and cast doubt on the health of some of the continent’s lenders.
The leaders of Germany, France, Italy and Spain will try to find common ground in Rome on Friday to restore confidence in the euro zone ahead of a full EU summit next week, with German Chancellor Angela Merkel likely to be outnumbered.
Dangerously high borrowing costs for Spain and Italy have eased a little on market hopes for policy initiatives at the Brussels summit on June 28/29. If it falls short, both countries may be pushed closer to eventually needing sovereign bailouts.
Friday’s meeting will search for ways to achieve fiscal and banking union in the euro zone and, more urgently, it may also be the occasion for Spain to formally request assistance of up to 100 billion euros for its struggling banks.
Marketwatch
The nation is increasingly dotted with unsightly boxes that used to be Circuit City, Borders and Best Buy stores. Nobody has written a book called “101 Uses For A Used Blockbuster.” And there are only so many churches, tanning salons and “We Buy Gold” stores to fill these deteriorating spaces.
Gainers
Alexza Pharmaceuticals ALXA +1.48% rose 31% on Friday, rallying after the company said that it has resubmitted a new drug application for its Adasuve candidate with the Food and Drug Administration.
Harvest Natural Resources Inc. HNR -7.58% shares jumped 92% in preopen trade. Late Thursday, the energy company reached an agreement to sell some Venezuelan assets for about $725 million.
NPS Pharmaceuticals Inc. NPSP +2.56% shares added 7% in preopen trade on Friday. The company said it and partner Takeda Pharmaceutical have won support from a European regulatory committee recommending the companies’ treatment for short bowel syndrome.
U.S.-listed shares of Sony Corp. SNE -3.01% climbed 5.7%. The media and entertainment conglomerate reportedly is considering making an investment in fellow Japanese company Olympus.
Decliners
Protalix Biotherapeutics PLX -2.65% shares shed 14% in preopen trade on Friday. The company said that European medical authorities have ruled against recommending taliglucerase alfa, a treatment for Gaucher disease that Pfizer Inc. PFE -0.31% and Protalix have partnered on.
Repligen RGEN -0.23% shares fell 25% on Friday. Earlier, the company said that the FDA has requested more data on one of its drugs used for the treatment of pancreatitis.
Ryder System Inc. R -3.91% shares fell 10%. On Thursday the company issued a lowered outlook for its fiscal second quarter and full-year earnings.