Market Recap: Papandreou’s Call for Referendum Casts Shadow on Markets

Markets closed down on Wall Street today: Dow -2.48%, S&P -2.79%, Nasdaq -2.89%, Oil -2.04%, Gold -0.22%.

On the commodities front, Oil (NYSE:USO) fell to $91.29 a barrel. Precious metals also declined, with Gold (NYSE:GLD) down to $1,721.40 an ounce while Silver (NYSE:SLV) fell 3.18% to settle at $33.26.

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Today’s markets were down because:

1) Greece. Greek Prime Minister George Papandreou surprised European leaders Monday when he called for a referendum on the new aid package for Greece, putting austerity measures and potentially the nation’s membership in the euro zone to a popular vote. Should Greeks vote down the structural changes required of Greece per the terms of its bailout, it could break the deal between Greece and its troika of foreign lenders — the European Union, European Central Bank, and International Monetary Fund — leaving the country to find its own way back from recession while increasing the likelihood that its problems will infect other members of the euro zone, namely Italy. The news has befuddled European leaders from German Chancellor Angela Merkel to French President Nicolas Sarkozy, and created division within Papandreou’s own party.

2) Greece. The Institute of International Finance reaffirmed its commitment, on behalf of private banks and other institutions, to the October 27 agreement with European leaders to accept a 50% writedown on Greek government bonds following Prime Minister George Papandreou’s referendum call, which is escalating fears that the debt deal will fall through. Banks’ willingness to accept such a large haircut should evidence just how important it is that Greece accept the terms of its bailout in order to keep the country going and avoid default. Banks could be looking at even bigger writedowns if Greeks reject austerity measures and lose their bailout, leaving the industry at the center of a tug-of-war. Needless to say, the financial sector took a huge hit in trading today. Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), Citigroup (NYSE:C), RBS (NYSE:RBS), Barclays (NYSE:BCS), UBS (NYSE:UBS), Wells Fargo (NYSE:WFC), Deutsche Bank (NYSE:DB), and just about every other bank saw shares plummet today. Of course, news that Credit Suisse (NYSE:CS) would cut another 1,500 jobs while scaling back its investment banking business in order to help meet new capital requirements after reporting disappointing third-quarter results didn’t help the situation.

3) Greece. Once again, investors were ruled by their fears over the sovereign debt crisis, largely ignoring some rather positive news from the auto industry. Most U.S. automakers posted year-over-year sales gains for October, with many reporting double-digit gains. General Motors (NYSE:GM) kicked off today’s industry reports with a bang, announcing its 19th consecutive month of year-over-year gains. Kia, Hyundai, Nissan, Mercedes-Benz, Audi, Ford (NYSE:F), and Chrysler all announced gains, but given the extent of their declines in trading today, one would think their reports were more like that of Toyota (NYSE:TM), one of the few to report a decline in sales.

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