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Friday, October 24, 2008

Futures Plummet, Ugly Day On Street Expected

Ken Sweet
U.S. stock futures are pointing toward an ugly open in stock markets for Friday's trading session after Asian and European markets broadly sold off overnight on worldwide earnings and recession fears.

The Dow Jones Industrial Average futures were down 550 points, or 6.27%, to 8224 as of 8:45 a.m. here in New York. The S&P 500 futures were down 60 points, or 6.56%, to 855.20 while the Nasdaq 100 futures dropped 83.50 points, or 6.66%, to 1170. They have not moved from those levels since 5:00 this morning.

All the futures of the major indices have hit "limit down" - where market regulations will not allow traders to sell the futures off more. They can trade above those levels, but cannot trade below those levels. It's similar to the New York Stock Exchange's circuit breakers, which were put into place to keep panic selling from destroying the stock market. In a piece of ominous trivia, today's trading session marks the 79th anniversary of the 1929 stock market crash.

With fair value calculated into the futures, the Dow is expected to fall about 450 points at the 9:30 a.m. open, but with limit down affecting futures, the opening will most likely be considerably worse.

“We’re all going to hold our breath and see what happens when they ring the opening bell,” NYSE trader Ben Willis of VDM Institutional Brokerage told FOX Business.

The prices on all categories of bonds - from short-term Treasury bills to 30-year Treasury bonds - were all sharply higher this morning as investors piled in to the safety of U.S. government-backed bonds.

As has been the issue in several trading sessions, U.S. is taking their trading cues from Asia and Europe. In Tokyo, the Nikkei dropped 811.90 points, or 9.6%, to 7649.08. Hong Kong's market plummeted 1142.11 points, or 8.3%, to 12618.38. South Korea's Kospi fell 10.6%.

In the first hours of trading in Europe, London's market was down 8.3%, Germany's market fell a little more than 9% while France's market slipped a little less than 9%.

Japanese markets partially reacted to a profit warning from Sony (SNE: 21.46, -1.92, -8.21%), which came after the Japanese markets closed on Thursday, where the company said it would see a 50% drop in profit because of a strengthening Japanese Yen and the almost-imminent global economic slowdown. Sony shares fell more than 10% in U.S. based trading yesterday.

Japan's economy is heavily dependent on a weak Yen to fuel their economy, which makes their exports cheaper on the global market. Because Japan's financial system is not in as dire straits as the rest of the world, the Yen has reached levels against the Dollar and European currencies not seen in years.

In the U.K., the government said that the nation's gross domestic product fell 0.5% in the third quarter. That's the first major economic power that has reported a contraction in their economy as a result of the credit crunch and subprime mortgage mess.

Economists interviewed by Thomson Reuters expected the U.K. GDP to fall 0.2%. According to Dow Jones, the U.K's economic contraction is the biggest since the fourth quarter of 1990. All segments of the nation's economy shrank this quarter.

The euro fell to a two-year low of $1.2525 overnight while the euro fell to a six-year low against the Japanese Yen to 117.20. The British Pound fell 6% to $1.5272 against the U.S. Dollar. A 6% move in any currency is nearly unheard of historically.

In the U.S., if it even matters at this point, traders will be reacting to Microsoft's (MSFT: 22.32, +0.79, +3.66%) earnings, which came out after the closing bell Thursday. The Dow member reported a profit of $4.37 billion, or 48 cents a share, up from 46 cents a share a year earlier.

Analysts were looking for one cent more out of Microsoft's earnings this quarter, according to Thomson Reuters.

The only economic report out today is the important existing home sales monthly update at 10 a.m. Economists are looking for 4.95 million contracts for September. Existing home sales have become a one of the more important reports each month because Wall Street and government officials have said that the U.S. economy will not recover until home sales recover.

In the commodity markets, oil was down $4.42 to $63.45 a barrel after the Organization of Petroleum Exporting Nations, commonly known as OPEC, said it would cut production by 1.5 million barrels a day effective immediately. The announcement did nothing to step losses in the commodity.

Gold was down $22.20 to $692.50 as traders pulled out of all markets, including solid assets.

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