Buffeted by increasingly sour economic news, wracked by doubts and anxieties over the outcome of the eurozone crisis, and beset by a decided absence of participation, the big North American markets retreated on the week. The U.S. Federal Reserve Board did its best to liven up the party, announcing an extension of its “Operation Twist” bond-buying switcheroo, but investors just didn’t want to twist again like they did last summer.
Pessimism? There’s plenty of that floating around, clouding up the atmosphere, as U.S. manufacturing activity seems to be grinding down to a snail’s pace. The Philadelphia Fed’s bellwether mid-Atlantic manufacturing index for June fell to 52.9 from 54.0 in May, inching ever-closer to the 50 threshold that demarks expansion from contraction in the sector.
As if to add another nail to the growth coffin, purchasing managers’ manufacturing indexes in the eurozone in fact remained below 50, as business activity continued to contract all across the 17-country common currency area, including powerhouse Germany. Not surprisingly business and investor confidence marked steep declines in Germany, and eroded further in France.
And if you were thinking, just on the off chance, that there might be a ray of light from the world’s second largest economy, think again. An early survey by HSBC indicated that China’s manufacturing sector contracted again for the eighth consecutive month.
The continuing debt crisis in the eurozone saw no immediate hope for resolution, as eurozone’s political leaders bickered over how to deploy €100 billion in bailout funds to Spain’s increasingly capital-light banks. Spanish leaders meanwhile continue to deny that the bank bailout is only a prelude to a larger rescue of the Spanish fisc in the Greek way, even as the yield on Spain’s 10-year sovereign bonds rose to the crisis level of 7% last week, before pulling back slightly.
At the G20 meeting of the world’s largest economies last week, things got a little tense, as EU Commission President José Manuel Barroso sought to pass the blame for Europe’s spot of bother to the U.S. (it had to happen), even while pleading with the U.S., Canada, and other IMF members to throw more money into the IMF bailout pot so that Greece, Spain, Italy, Portugal, et al don’t actually have to ever pay the piper. Canada and the U.S., at least, still gamely resisted the sirens’ song of the beauty and wonder of eurozone debt.
The U.S. Fed, meanwhile, announced a continuation of its program to sell short-term Treasury securities and buy longer-term securities with the proceeds in an effort to cut long-term rates. The idea is to reduce borrowing costs for businesses and households in the face of slowing employment growth and reinvigorate economic growth.
Investors didn’t buy it, having expected more aggressive action from the Fed, say another round of bond buying, called quantitative easing, but that didn’t happen. And, on persistent low volumes (which tend to exacerbate market moves), markets slid precipitously on Thursday. However, spirits revived somewhat on Friday, as the European Central Bank announced it would ease loan collateral conditions for eurozone banks. But it wasn't enough, and with the exception of the Nasdaq, the major stock indexes lost ground on the week.
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