Wall Street finished surprisingly flat during trading yesterday. Both the Dow Jones (0.20 percent, 20.18 points) and the S&P 500 (0.18 percent, 1.97 points) finished lower on the day. The NASDAQ was able to keep its head just above the water with a 0.02 percent (0.36 points) gain.
Markets seemed set for an early jump this morning, but that is no guarantee of a strong finish. Stocks started well during trading Monday, but yet another downgrade of Greece’s debt rating led to an afternoon sell-off.
There is some potential for another flight today after an economy roughly larger and more powerful than Greece – BP – was downgraded. According to CNNMoney.com, Fitch Ratings downgraded BP for the second time in just a month this morning. The oil giant now hovers above junk status as its entire business model is being called into question.
There is no doubt that being a rich and powerful oil conglomerate is a sound way to turn massive profits, but in light of the uncontested spill in the Gulf of Mexico, BP could take a huge hit. Even if the spill stopped this second the EPA could, using the most conservative of estimates, slap a per-barrel penalty on BP in excess of $12 billion. After all of the federal, civil, and criminal suits are accounted for this debacle could cost the company billions more. Matt Simmons, an oil industry insider, believes that the company may be just weeks away from chapter 11 bankruptcy.
When all of this is taken into account the six-notch downgrade by Fitch is hardly surprising.
In other news, according to Bloomberg, import prices into the United States fell in May 2010 led by a huge drop in petroleum prices. Oil markets suffered their largest monthly drop since December 2008 last month, meaning the cost of shipping goods into the U.S. and the cost of the oil being imported also went down.
For the average American consumer it is nice to have a slight decrease in the price of gas and goods. However, as imports become cheaper they become more desirable for consumption. This is turn leads to an even larger flood of money out of the American economy to be spent on imported goods.
Rounding out the morning headlines, according to Bloomberg News, lawmakers in the European Parliament are now seriously considering capping bonuses for bankers on that continent. Europe has been able to take on the financial crisis with far less deterrence from the industry than we see in the United States.
In the U.S. our bankers complain about the atrocity of being held to a mere $500,000 annual salary. In Europe they have been able to cap salary, and are now nearing a cap on the bonuses, which gut company coffers and shift all profits into the hands of a few executives.