Tuesday, 26 July 2011

Markets fall, US economy shows slow growth

Markets predictably fell on Monday after the failure in the US to break the deadlock on deficit reduction and the debt ceiling over the weekend. Bloomberg reports:

U.S. stocks fell, pulling the Standard & Poor’s 500 Index down from a two-week high, and Treasuries and commodities declined as a political stalemate over raising the federal debt ceiling intensified.

The S&P 500 slipped 0.6 percent to 1,337.43 at 4 p.m. in New York after losing as much as 1 percent. The 30-year Treasury yield rose six basis points to 4.32 percent. Oil lost 0.7 percent, retreating for the first time in five days. The Dollar Index was little changed and gold and the Swiss franc touched records...

And just in case anyone forgot, Moody's gave a reminder that there are debt problems in Europe too.

Greece’s 10-year yield climbed 11 basis points, or 0.11 percentage point, to 14.79 after retreating from a high of 18.2 percent on July 18. Greece’s credit rating was cut three steps by Moody’s Investors Service, which said the European Union’s rescue for the nation will cause “substantial” losses for investors.

Meanwhile, the Chicago Fed reports that US economic growth was below average in June.

Led by improvements in housing-related indicators, the Chicago Fed National Activity Index increased to –0.46 in June from –0.55 in May; however, the index remained negative for the third consecutive month. Three of the four broad categories of indicators that make up the index improved in June, but only one made a positive contribution to the index.

The index’s three-month moving average, CFNAI-MA3, decreased to –0.60 in June from –0.31 in May, reaching its lowest level since October 2009. June’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the economic slack reflected in June’s CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

However, there are also signs that the US economy may already be picking up pace again. From the Dallas Fed:

Texas factory activity expanded in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.6 to 10.8, suggesting output growth picked up this month...

Indexes reflecting general business conditions improved in July. The general business activity index remained negative for the third month in a row but jumped from –17.5 to –2, suggesting only a slight worsening this month. The company outlook index rose from 7.2 in June to 11 in July, indicating manufacturers were more optimistic about their firms’ prospects for the near future. Ninety percent of respondents said their outlooks were unchanged or improved from last month.

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