Mid-Day Recap: Markets To End Week 2-3% Lower

Markets opened higher on Friday after the Trade Balance for May hit a ten-year low, but when a Consumer Confidence report wiped away the previous three months of gains, all three markets fell into the red. Treasury Secretary Tim Geithner didn’t appear to have eased concerns as he called for increase regulation.

Four hours into the trading session, the Dow is leading the way down with a 0.73% fall to 8182, followed by a 0.58% decline in the S&P 500 to 877. The NASDAQ bounced off an intraday low and is now 0.26% higher at 1418. If markets were to close now, each index would be down more than 2% on the week.

Before the bell sounded, a smaller-than-anticipated gap in the US Trade Balance buoyed markets, as the deficit in May came in at $26.0 billion, a fair bit lower than expectations.

Exports jumped nearly $2 billion in the month, led by aircraft orders from Boeing but allied with broad-based gains. Imports, which are a subtraction to GDP, fell nearly $1 billion in the month even as prices for petroleum shot up a fifth.

“Exports bounced up after a big decline in April, while imports declined as oil import volumes plunged,” said Nigel Gault from IHS Global Insight. “The improvement in exports combined with stability in non-oil imports is a welcome sign that the headlong decline in world trade volumes has come to an end.”

Such optimism faded quickly in the markets though when the first monthly look at Consumer Confidence fell more than 6 points to 64.6, the lowest score since April, according to preliminary results from Reuters and the University of Michigan.

The Expectations component, which rose rapidly in recent months, tumbled 8.3 points in July, while Current Conditions edged down 2.8 points.

“Until we see a notable turnaround in economic conditions, confidence will remain shaky, at best,” said Jennifer Lee from BMO Capital Markets, who characterized the figures as a “swan-dive.”

The report also showed one-year inflation expectations erase one-tenth to 3.0%, while five-year expectations made the opposite move from 3.0% to 3.1%.

Also at 10:00, Tim Geithner said greater government regulation was “crucial,” as the complexity of derivative contracts played a key role in sending financial markets into crisis.

“The complexity of the instruments overwhelmed the checks and balances of risk management and supervision,” he said to the House Financial Services Committee and the Agriculture Committee.

“The reforms proposed by the president, and the reforms that your two committees are discussing, would substantially alter the ability of financial institutions to choose their regulator, to shape the content of future regulation and to continue the financial practices that were lucrative for parts of the industry for a time but that ultimately proved so damaging,” Geithner said, urging reform.

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