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Market Recap: Basel Committee and ECB Drag Down Stocks

Market Recap: Basel Committee and ECB Drag Down Stocks

Markets closed down on Wall Street today:

  • Dow -0.84 percent
  • S&P -1.17 percent
  • Nasdaq -1.26 percent
  • Oil +0.32 percent
  • Gold -0.18 percent

On the commodities front:

  • Oil (NYSE:USO) climbed slightly to $93.83 a barrel
  • Gold (NYSE:GLD) fell to $1,595.00 an ounce
  • Silver (NYSE:SLV) fell 3.05 percent to settle at $28.77

(Related: Second Month of Capital Outflows Prompts China to Cut Lenders’ Reserve Ratios)

Today’s markets were down because:

1) Draghi: Already trading lower today, U.S. stocks plummeted after European Central Bank President Mario Draghi said the ECB cannot, under its founding piece of legislation, step up government bond purchases.

“The [EU] treaty specifies very closely what our remit is, namely [to] ensure price stability in the medium term,” Draghi said in testimony to the European Parliament on Monday. “The treaty also forbids monetary financing, and we want to act within the treaty,” as breaching the treaty “would also negatively affect the credibility of our institution.”

2) EU: European Union finance ministers have reportedly failed today to agree on raising the joint ceiling for the European Stability Mechanism and European Financial Stability Facility. Germany continued to oppose an early decision to raise the limit of 500 billion euros on overall emergency aid.

Furthermore, while some members and non-members of the single-currency eurozone have agreed to provide 150 billion euros of additional resources to the International Monetary Fund, no details were given as to how much each would contribute, and there was no firm commitment from the U.K.

3) Capital: Banks were the day’s sharpest decliners on a report that large financial institutions will have to boost further their capital reserves. The U.S. Federal Reserve is expected to embrace the Basel Committee on Banking Supervision’s new global framework requiring big banks to hold extra capital.

Bank of America, Citigroup, and Morgan Stanley  all fell more than 4 percent today, while JPMorgan declined 3.73 percent and Goldman Sachs and Wells Fargo each declined more than 2 percent.

Banks might also be required to reveal more data about their financial reserves so they cannot conceal poor management decisions and excessive risk-taking from investors, the Basel Committee said in an e-mailed statement today.

[Editor's note: portions of the above originally appeared on Wall St. Cheat Sheet.]

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