Wall Street takes a hit from ECB disappointment

NEW YORK Thu Aug 2, 2012 5:24pm EDT

Traders work on the floor of the New York Stock Exchange, July 26, 2012. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange, July 26, 2012.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Stocks fell for a fourth day on Thursday after European Central Bank President Mario Draghi disappointed investors hoping for immediate action to contain the euro zone debt crisis.

One of Wall Street's top market makers, Knight Capital Group (KCG.N), was fighting for its survival after a trading glitch that roiled markets on Wednesday wiped out $440 million of the firm's capital.

However, the market focused mostly on the ECB, though traders were also looking ahead to Friday's closely watched U.S. jobs report which could bring a volatile end to an eventful week.

Draghi said the ECB would gear up to buy Italian and Spanish bonds on the open market but would only act after euro zone governments have activated bailout funds to do the same, disappointing traders after his pledge last week to do "whatever it takes" to save the euro left many thinking action was imminent.

"Today people were looking for concrete steps and an outline of exactly what path the ECB would take to do that, and there weren't any," said Brian Gendreau, market strategist with Cetera Financial Group in Gainesville, Florida.

"Just as the market went up on the 'whatever it takes' comments it is coming down on the lack of specificity."

Markets rallied late last week in part on hopes for stimulus from the Federal Reserve but mostly as expectations grew the ECB would take action to protect the euro. Friday's jobs report could give a stronger indication whether the Fed, which has a freer hand than the ECB, will act shortly.

Data showed the number of Americans filing new claims for jobless benefits rose last week and manufacturers suffered an unexpected drop in orders in June, suggesting the economy is struggling to break out of a soft patch.

The Dow Jones industrial average .DJI fell 92.18 points, or 0.71 percent, to 12,878.88. The S&P 500 Index .SPX dropped 10.14 points, or 0.74 percent, to 1,365.00. The Nasdaq Composite .IXIC lost 10.44 points, or 0.36 percent, to 2,909.77.

Major indexes fell for a fourth day running, totaling weekly losses so far of more than 1.5 percent.

Knight Capital shares fell after Wednesday's trading error forced the company to seek new funding. The stock closed down 62.8 percent at $2.58, their lowest since early October 1998.

According to Thomson Reuters data, 67 percent of the 385 S&P 500 components that have reported results so far this quarter have beat earnings estimates. In the past four quarters, the average beat rate has been 68 percent.

General Motors Co (GM.N) posted a smaller-than-expected loss in Europe that helped the No. 1 U.S. automaker post a better-than-expected second-quarter profit. Shares slipped 2.6 percent to $19.14.

Gap Inc (GPS.N) jumped 12.8 percent to $33.17 after the clothing retailer posted its July and second-quarter sales, but rival Aeropostale (ARO.N) plummeted 32.8 percent to $13.08 after cutting its second-quarter forecast.

U.S. retailers reported stronger-than-expected sales for July but the gains were largely due to discounting and do not necessarily signal vigorous consumer spending for the rest of the year.

About 7.1 billion shares exchanged hands on the New York Stock Exchange, NYSE MKT and Nasdaq, above the year-to-date daily average of 6.75 billion.

About 8 issues fell for every 5 that rose on the NYSE and on Nasdaq the decline/advance ratio was roughly 7 to 5.

(Additional reporting by Anna Louie Sussman; Editing by James Dalgleish)

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Comments (6)
mixup wrote:
One has to question the intelligence of these “investors” when they believe that a prominent banker, or any politician, is going to take the decisive action needed.

Aug 02, 2012 10:00am EDT  --  Report as abuse
gmaffeo wrote:
These guys are indeed in a room full of suckers and clearly show a complete ignorance of the situation in Europe – Draghi and the ECB do not have the ability to pull this off single-handedly.

Aug 02, 2012 11:10am EDT  --  Report as abuse
Hewson wrote:
“Draghi said he would do whatever it takes, and that may be the case, but we were all expecting a shock and awe moment.”

Aww! Poor lambs. Daddy didn’t bring home any pressies for you.

While it’s reasonable to toss the odd swear word in the direction of the ECB and Europe’s dopey inept, politicians the idea that policy has to be moulded around the expectations of market players is hilarious. The world is bigger than the inside of your greedy little heads, boys. Policy should be (but isn’t) guided by what’s best for society, and that includes those who have least and those who have nothing but large amounts of debt.

‘The Markets’ are a consideration, but should be well down the list of priorities when it comes to deciding what’s best.

Draghi is an ex-Goldman Sachs executive. Hopefully the contamination will have been rinsed out of him at this stage.

Aug 02, 2012 11:13am EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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