Thursday, 11 August 2011

Stocks resume fall as debt concern moves to France

The rally in stocks did not last long. From Bloomberg:

Stocks slid, dragging the Dow Jones Industrial Average to the lowest level since September 2010, and Treasuries rose for a third day amid concern the European sovereign debt crisis is worsening. The dollar climbed versus 13 of 16 major peers, with the euro losing 1.3 percent to $1.4190. Gold futures surged to a record above $1,800 an ounce.

The Dow sank 519.83 points, or 4.6 percent, to 10,719.94 at the 4 p.m. close in New York. The Standard & Poor’s 500 Index sank 4.4 percent to 1,120.76 following its biggest jump in more than two years yesterday, when it rebounded from its worst loss since 2008. The Stoxx Europe 600 Index plunged 3.8 percent as Societe Generale SA sank 15 percent. Ten-year Treasury yields, which touched an all-time low yesterday, fell 16 basis points to 2.09 percent after an auction drew a record-low yield...

France has become the focus of European sovereign debt concern.

The cost to insure French government debt against default rose to a record 175 basis points. France’s top credit grade was affirmed by S&P, Moody’s Investors Service and Fitch Ratings amid concern that Europe’s sovereign debt crisis is intensifying.

A downgrade of France's credit rating is probably not imminent but recent reports show that the French economy is already weakening. Again from Bloomberg:

Industrial output in France, the euro region’s second-biggest economy, fell more than economists estimated in June on lower production of transport materials and electronic goods.

Output from factories, mines and utilities decreased 1.6 percent from May, when it rose a revised 1.9 percent, national statistics office Insee said today. Economists had forecast a 0.7 percent fall, according to the median of 12 estimates in a Bloomberg News survey. Output rose 2.3 percent from a year earlier...

Confidence among French executives fell to the lowest in more than 1 1/2 years in July amid concern that Europe’s debt crisis may undermine economic growth, the Bank of France’s Business Sentiment Indicator showed this week...

Meanwhile, the UK economy is also weakening. Bloomberg reported on Tuesday that UK factory output and exports fell in June.

U.K. manufacturing unexpectedly fell in June and the trade gap widened, adding to evidence that the economic recovery is faltering.

Factory output declined 0.4 percent from the previous month, when it rose 1.8 percent, the Office for National Statistics said today in London...

Exports fell 4.8 percent in June from the previous month and imports declined 2.4 percent. The goods trade deficit widened to 8.87 billion pounds ($14.5 billion) from 8.47 billion pounds in May...

The weakness in the UK economy has not gone unnoticed by the BoE. From Reuters:

The Bank of England cut its growth forecasts on Wednesday, left the door open for a second bout of quantitative easing and signalled interest rates will stay at record lows for a long while to come...

The Bank forecast that inflation would peak around 5 percent later this year -- the same as it predicted in May -- before falling steadily to 1.8 percent in two years time, a shade lower than it expected three months ago...

[I]t ... cut its growth forecast for 2011, and to a lesser degree, going forward. By the fourth quarter of 2011, the Bank now sees an annual rate of growth of 2.0 percent, down from 2.5 percent in May -- translating to full-year growth for 2011 of about 1.4 percent.

China's economy, though, shows few signs of significant slowing. From AFP/CNA:

China's politically sensitive trade surplus expanded to $31.48 billion in July as exports rose by a fifth to hit a new record high, the customs agency said Wednesday.

Exports were up 20.40 percent year on year to $175.13 billion -- a fresh monthly record -- while imports rose by 22.90 percent, the agency said on its website.

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