U.S. stock futures slipped Tuesday after a three-day break as enthusiasm over the inauguration of President-elect Obama was tempered by worries about the health of the financial sector after a beating taken by European banking stocks.
S&P 500 futures fell 9 points to 839.60 and Nasdaq 100 futures dropped 10.25 points to 1,186.70. Dow industrial futures lost 80 points.
While U.S. markets were closed on Monday, banking sectors in Europe plunged as the British government announced a second bailout plan and the Royal Bank of Scotland warned that it may lose about $42 billion in 2008 as it writes down loans, risky assets, and its acquisition of ABN Amro. The British government also upped its stake in RBS to about 70% from 58%.
U.S-listed RBS shares plunged by 66% in pre-open trade.
"The problem with governments increasing their stakes in selected names is that the market then speculates that the barriers to further nationalization are lowered," said Jim Reid, a strategist at Deutsche Bank.
Worries about the U.K. government's exposure to the nation's troubled banking sector sent the British pound to historic lows versus the U.S. dollar and Japanese yen on Tuesday, analysts said. The pound traded below the $1.40 level for the first time since 2001.
The bank worries weren't limited to Europe, with Regions Financial reporting a $6.2 billion loss and State Street reporting a profit drop of over 70%.
State Street recorded $5.5 billion of unrealized after-tax losses on its investment portfolio and $3.6 billion in unrealized losses in conduits.
State Street shares slumped 23%.
Over the weekend, Obama's incoming economic adviser, Larry Summers, said the second half of a $700 billion bailout fund will come with more strings attached.
"It is apparent that more steps are needed, and the trade-off will be that the administration will expect greater willingness of those financial institutions to lend," said Cormac Weldon, head of U.S. equities at U.K. fund manager Threadneedle.
Other earnings are coming from Johnson & Johnson and after the close, International Business Machines The larger focus on Tuesday may come from Washington, D.C., as Obama delivers his inaugural address.
"President-elect Obama's inauguration speech is expected to be long on hope but short on specifics," said economists from UBS.
Oil futures meanwhile slumped, losing $2.20 to $40.37 a barrel. Three-month U.S. dollar LIBOR fell to 1.12% from 1.13%.
Asian stocks ended lower on Tuesday, also paced by a retreat in the banking sector.
The Nikkei 225 slumped 2.3% and the Hang Seng lost 1.3%.
The FTSE 100 rose 0.7% in London, and the German DAX 30 rose 0.5%, as telecoms helped compensate for weakness in the banking sector.
On Friday, U.S. stocks closed with gains heading into the three-day weekend. The Dow Jones Industrial Average rose 68 points, the S&P 500 added 6 points and the Nasdaq Composite rose 17 points.
