The woes besetting the global equity markets will remain after the contrived crisis over the U.S. debt ceiling is settled.
Global economic growth is slowing, as indicated by the slide in stock prices from Sydney and Shanghai to European bourses and back to New York. Industrial companies are corroborating the message of economic data that the much hoped-for second-half economic rebound will fall short of the hype.
That, as least as much as the debt-ceiling drama continuing in Washington, is dragging equity prices lower. While the fiscal follies dominate the media's attention, companies say prospects for their businesses are looking worse rather than better -- a reversal of the recovery seen since the recession officially ended in mid-2009.
So, if the U.S. debt limit is increased in time to stave off a default after the putative D-Day of Aug. 2, the global economy still will be faltering.
After a 2% drop in U.S. equities sliced some $350 billion from the wealth of investors Wednesday, the slide continued as Asian markets opened Thursday with major markets around the Pacific Rim down an additional 1%. Many of these stocks are dependent upon economic growth in the U.S. and elsewhere.
U.S. reports gave an indication of the malaise besetting the economy. The Federal Reserve's Beige Book, the anecdotal compendium of economic conditions prepared for next month's meeting of the Federal Open Market Committee, showed eight of the 12 Fed districts reporting slower growth, with four reporting steady growth. That compares with seven districts showing steady growth in the Beige Book prepared for the June FOMC meeting, along with one saying growth picked up while four said things slowed down, Goldman Sachs' economists observe.
Parsing the Beige Book even more finely, RBC Capital Markets counts 125 instances of downbeat descriptions such as "slow," "weak" and "subdued" in the latest edition, up from 101 in previous Beige Book and the most since September 2010. "Back then it took the announcement of a major tax cut ($120 billion in Social Security [payroll] tax reduction) to bring back even a semblance of confidence and pick-up in economic activity," RBC economists write. "Unfortunately, magic bullets are in short supply these days," they add.
In addition, durable goods orders fell 2.1% in June, the Commerce Department reported Wednesday. While much of that reflected an 8.5% plunge in transportation orders because of the typical lumpiness of airline bookings, durable goods orders excluding defense and transportation (a proxy for corporate spending on plants and equipment) was off 0.4%. That follows tepid gains of 0.7% and 0.1% in the preceding two months, hardly encouraging given the full expensing for capital goods afforded companies this year.
Skeptical investors might properly discount squishy anecdotal descriptions such as the Fed's Beige Book or volatile data series such as durable goods orders. The Economic Cycle Research Institute, a private forecasting outfit that consistently has called turns in the economy, reported its weekly indicator fell in the latest week since December.
There still is nothing more concrete than a business' order book. So consider Emerson Electric (ticker: EMR), which led the industrial sector lower Wednesday with a 6%-plus loss after its chief executive said, "Order growth remained solid in the trailing three-month period, but we have seen a definite weakening of general business activity in June and July."
That followed downbeat outlooks from both 3M (MMM) and Corning (GLW), both of which indicated their flat-screen component businesses were weakening. That sent Corning tumbling 7% Wednesday while MMM shed that much over the past two sessions.
Getting a new flat-screen television isn't a priority when you're unemployed or facing foreclosure. So, Best Buy (BBY) plunged 3% Wednesday and ended fully one-third lower than last November's peak. Attesting to the parlous state of the labor market, payroll processor Paychex (PAYX) fell 2.5% to a 2011.
The list of losers could go on, but the point is that stocks around the globe are sending a warning signal. And that signal isn't just because of the U.S. debt ceiling.
Once that recedes from the headlines, the markets may have a momentary pop. But the real world of weakening demand will remain in the U.S. and abroad. And that, I would submit, weighs most heavily on the global markets.
Source: http://online.barrons.com
Global economic growth is slowing, as indicated by the slide in stock prices from Sydney and Shanghai to European bourses and back to New York. Industrial companies are corroborating the message of economic data that the much hoped-for second-half economic rebound will fall short of the hype.
That, as least as much as the debt-ceiling drama continuing in Washington, is dragging equity prices lower. While the fiscal follies dominate the media's attention, companies say prospects for their businesses are looking worse rather than better -- a reversal of the recovery seen since the recession officially ended in mid-2009.
So, if the U.S. debt limit is increased in time to stave off a default after the putative D-Day of Aug. 2, the global economy still will be faltering.
After a 2% drop in U.S. equities sliced some $350 billion from the wealth of investors Wednesday, the slide continued as Asian markets opened Thursday with major markets around the Pacific Rim down an additional 1%. Many of these stocks are dependent upon economic growth in the U.S. and elsewhere.
U.S. reports gave an indication of the malaise besetting the economy. The Federal Reserve's Beige Book, the anecdotal compendium of economic conditions prepared for next month's meeting of the Federal Open Market Committee, showed eight of the 12 Fed districts reporting slower growth, with four reporting steady growth. That compares with seven districts showing steady growth in the Beige Book prepared for the June FOMC meeting, along with one saying growth picked up while four said things slowed down, Goldman Sachs' economists observe.
Parsing the Beige Book even more finely, RBC Capital Markets counts 125 instances of downbeat descriptions such as "slow," "weak" and "subdued" in the latest edition, up from 101 in previous Beige Book and the most since September 2010. "Back then it took the announcement of a major tax cut ($120 billion in Social Security [payroll] tax reduction) to bring back even a semblance of confidence and pick-up in economic activity," RBC economists write. "Unfortunately, magic bullets are in short supply these days," they add.
In addition, durable goods orders fell 2.1% in June, the Commerce Department reported Wednesday. While much of that reflected an 8.5% plunge in transportation orders because of the typical lumpiness of airline bookings, durable goods orders excluding defense and transportation (a proxy for corporate spending on plants and equipment) was off 0.4%. That follows tepid gains of 0.7% and 0.1% in the preceding two months, hardly encouraging given the full expensing for capital goods afforded companies this year.
Skeptical investors might properly discount squishy anecdotal descriptions such as the Fed's Beige Book or volatile data series such as durable goods orders. The Economic Cycle Research Institute, a private forecasting outfit that consistently has called turns in the economy, reported its weekly indicator fell in the latest week since December.
There still is nothing more concrete than a business' order book. So consider Emerson Electric (ticker: EMR), which led the industrial sector lower Wednesday with a 6%-plus loss after its chief executive said, "Order growth remained solid in the trailing three-month period, but we have seen a definite weakening of general business activity in June and July."
That followed downbeat outlooks from both 3M (MMM) and Corning (GLW), both of which indicated their flat-screen component businesses were weakening. That sent Corning tumbling 7% Wednesday while MMM shed that much over the past two sessions.
Getting a new flat-screen television isn't a priority when you're unemployed or facing foreclosure. So, Best Buy (BBY) plunged 3% Wednesday and ended fully one-third lower than last November's peak. Attesting to the parlous state of the labor market, payroll processor Paychex (PAYX) fell 2.5% to a 2011.
The list of losers could go on, but the point is that stocks around the globe are sending a warning signal. And that signal isn't just because of the U.S. debt ceiling.
Once that recedes from the headlines, the markets may have a momentary pop. But the real world of weakening demand will remain in the U.S. and abroad. And that, I would submit, weighs most heavily on the global markets.
Source: http://online.barrons.com
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