For the most part over the last few months markets have had to contend with only one concern at a time. If it was the European debt crisis, concerns about it would subside before concerns about rising inflation flared up again, and inflation concerns would die down before economic reports would bring worries about slowing economies or uprisings in the Middle East.
Late last week, over the weekend, and yesterday, several of the worries, the worsening euro-zone debt crisis, the slowing U.S. economy, inflation concerns, and pessimistic forecasts for China and Japan, the world’s 2nd and 3rd largest economies, hit the headlines at the same time.
In response, markets in the U.S. closed down sharply Friday and again yesterday. European markets closed down Friday and another 2% yesterday. Asian markets fell more than 2% Sunday night.
They’re trying to bounce back, but the recoveries so far are anemic. Last night the DJ Asia-Pacific Index bounced back just 0.2%, and individual markets gained back similar small fractions. European markets are bouncing back fractionally so far today, and the pre-open indicators are pointing to the U.S. market being up some this morning.
Investors will have to keep their fingers crossed, as the jam-up of negative news has not gone away.
China’s market bucked the fractionally positive Asian trend last night, closing down fractionally, at its lowest level in four months on growing concerns about an economic slowdown in China, the world’s 2nd largest economy. Goldman Sachs has lowered its forecast for China’s economic growth (GDP) for both 2011 and 2012. A strategist at Bank of China added to the deteriorating outlook saying, “There is now increasing evidence that China’s economy is entering a period of stagflation – prices continue to rise but economic growth slows. That will prompt analysts and investors to revise down their earnings forecasts.”
Last week Japan, the world’s 3rd largest economy, reported it has been in a recession (negative GDP) since the 4th quarter of last year, and the earthquake/tsunami disaster in March makes matters worse.
And the recent economic reports in the U.S. have made it increasingly clear that economic growth in the world’s largest economy is slowing at a surprising pace even before the Fed’s QE2 stimulus efforts are scheduled to end next month.
In Europe the report that Germany’s business climate index held steady in May at April’s level, and that the scheduled revision of Germany’s 1st quarter GDP remained the same as originally reported, at 1.5%, has European markets encouraged and bouncing back up some this morning.
But the problems that caused the additional sell-off of recent days have not gone away or even subsided. .
In Greece, the main opposition party says it will not back the government’s new austerity proposals, which lowers hope that the measures would be accepted and be enough to convince the EU and IMF to release the next batch of bailout loans Greece needs to meet its next set of debt obligations. If Greece fails to get the additional loans and follows the other plan being proposed, of partially restructuring its debt so that bond-holders will take a hit, Moody’s rating service says that would constitute a default on its debts, which could badly hit the other euro countries.
Meanwhile, Moody’s put 14 British banks including Lloyds Banking Group, and the Royal Bank of Scotland on review for possible downgrades.
Yet, although markets in Asia and Europe have clearly broken beneath their 50-day moving averages, and in some Asian markets below their long-term 200-day moving averages, in the U.S. it’s a more mixed picture.
While the S&P has broken fractionally beneath its 50-day m.a., the Dow has not even done that, recovering enough from yesterday’s intraday low to close right on the potential support at the m.a.
by Sy Harding – view the full article here:- StreetSmartPost