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Current Futures: Dow -12.00, S&P -3.10, NASDAQ -6.75
Asian markets are trading in the red, paring the small gains posted during the Monday session. U.S. futures are currently trading under the break-even level, but posted significant declines over the last few minutes of trading.
The financial sector led the Asian market decline after North Korea tested its nuclear missile. The actions taken by the Asian country have the potential to destabilize the region, forcing investors to reduce their risky asset holdings for the safety of the U.S. dollar. In the last few years, North Korea ran a different number of missile-tests, and each time the regional financial markets had a similar reaction.
In an unusual situation, the maker of one of the most famous European supercars, Porsche, has recently found itself in a very hard financial situation. The car-company started in 2005 a program to acquire VW, another large German car producer, and until now, Porsche has bought 50% of VW’s shares, leaving just a very small free float. Consequently, VW shares almost tripled their value over the last few years, and became the world’s largest company during the credit crisis. During this period, Porsche hedged its losses with contracts in the option markets, something that helped the carmaker gain more than $20 billion in paper-profits. However, it looks like Porsche is unable to cash the contracts because it lacks the liquidity to pull such a move.
According to some analysts, Porsche controls 20% of VW’s options market, which would require $9 billion euros to exercise its rights. As a note, in 2008 Porsches’ profits were substantial smaller from the activity of production and selling of cars, than the profits earned from its financial investments.
Overnight, the Japanese Nikkei fell 93.03 points (1.00%) to 9,253.97. The Australian S&P/Asx fell 2.30 points (0.06%) to 3,735.60.
Crude oil for June delivery was recently trading at $61.40 per barrel, lower by $0.30.
Gold for June delivery was recently trading lower by $2.30 to $956.60.
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