U.S. stock indexes closed lower Monday, led by weakness in tech issues and a drop in Merck & Co. (MRK), which offered to acquire Schering-Plough (SGP) for $41.1 billion. Trading was choppy from the outset Monday as investors' economic worries held sway.
Aside from the Merck-Schering merger deal there was little in the way of corporate news, and economic news focused mainly on a World Bank report that warned of economic contraction.
On Monday, the 30-stock Dow Jones industrial average finished lower by 79.89 points, or 1.21%, at 6,547.05. The broad S&P 500 index was down 6.85 points, or 1.00%, at 676.53. The tech-heavy Nasdaq composite index shed 25.21 points, or 1.95%, to 1,268.64.
The dollar index was higher. Treasuries fell. Gold futures were lower. Oil futures were mixed.
There was some market buzz about Federal Reserve Chairman Ben Bernanke attending a White House economic briefing, notes S&P MarketScope. Bernanke is set to speak Tuesday to the Council on Foreign Relations in Washington. President Obama, who signed stem cell legislation Mondya, urged global markets to increase stimulus spending.
The World Bank said the global economy is likely to contract in 2009 for the first time since the end of World War II. Britain was forced to aid ailing banks.
The Wall Street Journal reports credit markets were seizing up again amid new anxieties about the global financial system. American International Group (AIG) said the company's collapse could cripple money market funds.
Traders also eyed news of a blockbuster deal in the pharma sector: Merck (MRK) agreed to buy Schering-Plough (SGP) for $41.1 billion.
Reuters, citing two industry sources, said top executives of leading U.S., Japanese and European banks will meet in London this month to discuss regulation and other issues key to the future of the financial system. The British government will host the meeting on Mar. 24, after a gathering of Group of 20 (G20) finance ministers in London this weekend and ahead of a summit of G20 leaders there on Apr. 2, according to the sources who declined to be identified because the meeting has not been made public.
The U.S. will press world leaders to boost emergency government spending to lift the global economy, risking a rift with European nations more concerned with revamping financial regulation. In President Barack Obama's first foray into economic diplomacy, Washington will urge the shift at a summit next month in London, U.S. officials say, as markets look for a unified plan of action from the world's most economically powerful nations. Washington's focus is at odds with France, Germany and other European nations that want the Apr. 2 G20 summit to focus on rewriting rules governing financial markets.
The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said. The World Bank's assessment is more pessimistic than an International Monetary Fund report in January predicting 0.5% global growth this year.
The Journal says credit markets are seizing up again amid new anxieties about the global financial system. Short-term credit markets are still performing better than they did last year thanks to government programs to buy commercial paper and guarantee short-term debt. But Libor, the London interbank offered rate, a common benchmark interest rate, has crept up over the past weeks, from 1.1% in mid-January to 1.3% on Friday, reflecting banks' concerns about being paid back for even short-term loans. It is still well below its peak of 4.8% last October. This time around, the economy is slipping deeper into a recession, and bond investors worry the government's repeated modifications to its financial-rescue packages are undermining the very foundations of bond investing: the right of creditors to claim their assets first if a borrower defaults.
American International Group appealed for its fourth U.S. rescue by telling regulators the company's collapse could cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers' stake in the firm. Bloomberg reported AIG needed immediate help from the Federal Reserve and Treasury to prevent a "catastrophic" collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings, according to a 21-page draft AIG presentation dated Feb. 26, labeled as "strictly confidential" and circulated among federal and state regulators.
New Jersey-based drug makers Merck and Schering-Plough announced plans to combine in a $41.1 billion cash-and-stock deal that comes six weeks after rivals Pfizer and Wyeth announced their engagement. The WSJ reported the announcements come as the world's biggest pharmaceutical companies face a litany of pressures -- from pipelines that likely won't be able to offset companies' blockbusters that will lose patent protection in the coming years to the potential of increased government pressure to lower prices.