Concern that Europe will fail to resolve its debt crisis any time soon pushed the euro and stocks on both sides of the Atlantic lower, while fuelling appetite for US Treasuries.
Data showing that Germany's economy contracted in the latest quarter and Fitch Ratings' warning that the European Central Bank should up its game to prevent a collapse of the euro underpinned concern about the region's outlook.
The euro fell 0.7 percent to US$1.2688 in midday trading in New York, after earlier hitting US$1.2662, the lowest since September 10, 2010, according to Bloomberg News.
In afternoon trading in New York, the Dow Jones Industrial Average fell 0.37 percent and the Standard & Poor's 500 Index dipped 0.16 percent. The Nasdaq Composite Index edged 0.09 percent higher. Europe's Stoxx 600 Index ended the session with a 0.4 percent decline.
Investors piled into US Treasuries instead; a US$32 billion auction of three-year notes drew record demand. Its bid-to-cover ratio was the highest since at least 1993, when the government began releasing the data, according to Bloomberg.
"The Europe situation is really driving the market. This is clearly a cause of concern in the marketplace," Larry Milstein, head of government and agency trading at RW Pressprich & Co in New York, told Reuters.
While Germany's economy grew 3 percent last year from 2010, it contracted by about 0.25 percent in the fourth quarter from the prior three months, according to the country's Federal Statistical Office. Another contraction might follow in the first three months of 2012, some economists forecast.
Separately, the European Union lowered euro-area growth to 0.1 percent in the third quarter, from 0.2 percent estimated earlier.
“Nothing has really been done to stimulate growth in Europe,” Madelynn Matlock, who helps oversee about US$14.5 billion at Huntington Asset Advisors in Cincinnati, told Bloomberg.
“Without growth, you can’t fix this issue. If Germany slows down, then, you start to have a real problem on how to make that happen. There’s more risk on the earnings side as to how companies are going to come through all this.”
A Reuters poll of economists forecast that the worst is yet to come in the euro zone's debt crisis, though they expect the currency union to survive 2012 intact.
Nine out of the poll's 64 economists said the bloc had turned the corner on a sovereign debt crisis, only 10 said the euro zone would not survive the year in its current form. The rest were reasonably confident it would.
"All eyes are still on Greece. The situation looks extraordinarily bleak. The household sector is getting hammered ... the banking sector is getting pummeled to pieces," James Nixon at Societe Generale told Reuters. "But if someone keeps writing the cheques Greece will survive."
Fitch Ratings urged Europe's central bank to do more. The European Central Bank should ramp up its buying of troubled euro zone debt to support Italy and prevent a "cataclysmic" collapse of the euro, said David Riley, the head of global sovereign ratings for Fitch, at a conference in Frankfurt.
"The ECB, clearly, does need to be more actively engaged," Riley said. "It would be a less costly and risky strategy if the ECB committed more openly."
In the US, the Federal Reserve is set to release its Beige Book survey of economic conditions today.
With the American labour market finally making some headway as employers added 1.64 million workers in 2011, the best year since 2006, economists Peter Cappelli and John Silvia say there's more strength ahead in 2012.
Last year’s employment increases “are good signs for this year,” Cappelli, a labour economist and director of the Center for Human Resources at the University of Pennsylvania's Wharton School, told Bloomberg. “Manufacturing is the most important story because it has spillover effects on other industries in a way that services may not.”
(BusinessDesk)
8 Comments
“Without growth, you can’t fix this issue".
"Unlike previous authors, going back to Thomas Malthus, then later Dennis and Donella Meadows, Herman Daly, and more recently, Tim Jackson and Gus Speth—to all of whom Heinberg gives their due—he’s not just saying that economic growth should stop or that it will stop. He’s saying that it in fact has stopped, whether we like it or not. Discussion in the popular media aside, this is not a choice. Physical laws dictate that all living things must stop growing at some point and, our adamant resistance notwithstanding, the human species has reached that point".
Economists, eh? Forgot to factor in the planet, yet still their every word is hung upon. Reminds you of priests continuing to push Creation; ignorant adherence to rote-learned creed in the face of obvious fact.
Just like Rome when it finally ran out of resources to underpin its empire. Trouble is despite the history lesson the nature of human behaviour is that we will ride it to the end.
What worries me is that empires exist because they extract resources from those around them, usually to the expense of others. Perhaps our current empires have not yet finished this process. It will be interesting to see how the oil is secured without destroying the infrastructure in the process, or to see if they can keep the transit of it intact.
hehe "ignorant adherence to rote-learned creed in the face of obvious fact."
You do realise that creation, Big bang, and evolution are theories?
A fact (derived from the Latin Factum, see below) is something that has really occurred or is actually the case. The usual test for a statement of fact is verifiability, that is whether it can be shown to correspond to experience. Standard reference works are often used to check facts. Scientific facts are verified by repeatable experiments.
You're entirely entitled to your opinion, but please don't fool yourself regarding "fact" vs. theory
(unless you have conducted repeatable experiments of the big bang?)
There are theories and theories...lets split out your ideas of theories from the ones PDK is discusing.
PDK talks about Maths......we are on a round and therfore finite planet, therefore resources or materials are finite.....Maths our population and their demand for energy and in particular fossil energy is infinite ie growing at an expotential rate of about 2% per annum. Mathematical fact every 35years (or so) that population/demand doubles.....it cant go on for ever....this is a fact.
Creation isnt a theory, its a belief, ie there is absolutely no maths, physics or anything of substance behind it.
and no you dont base whether a theory is valid via experience, experiment, yes....
Beyond academia you use risk assessment to manage a situation...often you dont have the full info but enough info to make an informed decision....and what is most likely the best / safest course....
regards
and without more fossil energy you cannot grow unless you take that energy from someone else.....Currently the only way to do that is via price or a gun......the USA looks to be going the gun route......as price wont work.....they are to energy intensity dependant to compete with say the EU....
Conclusion that debt wont be paid off....or the poor will be robbed senseless and since the poor are probably 70+% of a population it cant happen...
regards
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