Once again, economic concerns are dominating the markets. Last week, trading was a little stifled because of the mid-week break for the Independence Day holiday, but there was plenty of data for investors to chew over. And, indeed, after the end of the week we just had, there is plenty left to chew.
Central Bank Decisions
The European Central Bank cut its benchmark rate to 0.75% from 1%. Even during the global financial crisis, and the fallout, the ECB refused to cut rates to below 1%. The decision to do so now is rather telling. Even with the concerns, though, ECB President Mario Draghi insists that there haven’t been discussions for quantitative easing. Spanish bond yields ended last week by shooting upward through the roof. Once again, sovereign debt is center stage in eurozone concerns.
The Bank of England didn’t cut its rate, but it did expand the asset purchase program. The BOE announced that it would add another 50 billion pounds to the program, using quantitative easing in an effort to stimulate the British economy. The economy in Britain continues to move at a sluggish pace, yet inflation is still a problem. BOE officials continue to try to balance the need for stimulus with a desire to keep inflation from running out of control.
And, in a surprise move, the People’s Bank of China cut its own rate as well. Signs of a slowing Chinese economy are damping hopes that the emerging market economy will lead the global economy out of the doldrums. Instead, there are worries that another global recession could be in the offing.
US Economic Data
While there was some decent news in terms of factory orders, US economic data continues to present a deteriorating picture. One of the biggest disappointments this week was the June non-farm payrolls. Even though the economy added 80,000 jobs, it was still short of the 100,000 expected by analysts. The news closes out a disappointing second quarter, with an average gain of 75,000 jobs each month, down drastically from the 226,000 average seen in the first quarter of 2012.
Concerns about the sluggish jobs market continue to weigh on the US economy, and there are very real concerns about what could be next. The US stock market, reacting to all this disappointing news, ended the week in a rout, and investors are trying to pick up the pieces this morning. What’s happening in Europe, as well as the release of second quarter earnings data from US companies are likely to dominate the markets this week.