The U.S. Economy and News on Europe. Crazy things going on in the Us Economy





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Published on Jul 5, 2012

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Global Markets, News on Europe and The U.S. Economy

U.S. markets opened yesterday with relatively low volume and a sluggish pace after the Independence Day holiday and after they were hit by News on Europe and news of the U.S. Economy. After a strong few days of bullish movement it seemed investors were happy to take what winnings they made and walk away from the table to wait and see what will transpire over the next couple of days with the new stack of reports due out.
The S&P 500, the Dow Jones and the Nasdaq all started the day with a straight run down before hitting against a solid line of support and slowly rebounding back up again. Despite the mid-morning rally they remained mostly flat with the S&P finishing .47% down, the Dow .36% down and the NASDAQ finishing even. Bank stocks continued to get hammered with JPMorgan Chase falling 4.2% and Bank of America Corp 3% as the Libor rate scandal continues.
News on Europe
It seems investors were pretty much unimpressed with the interest rate cuts by Europe, Britain and China. After all, pretty much everyone has been cutting rates for the last few years and we haven't seen any improvement; why should we expect now to be any different? In fact, Credit Default Swaps in the U.S. surged ahead as the President of the European Central Bank said that the further cut in interest rates would likely have a "muted" effect on the European economy. So, why do it in the first place!! So, U.S. corporates reacted accordingly picking up more CDS' that hedge against losses on corporate debit or to speculate on the creditworthiness of various companies, as they bet on the European crisis worsening and dragging down the global economy further. Already we have seen that despite this interest rate cut, Spain's 10 year borrowing cost continues to rise regardless of last week's positive news from the European Summit.
The U.S. Economy
Analysts were actually expecting a little bit of good news to come out this week with the U.S. employment data, but it seems the worsening situation in Europe has all but nullified that. News came from the Labor Department in the U.S. that unemployment insurance fell by 14,000 in the week ending June 30th, while private payrolls grew by more than 176,000. This is more than expected in both categories. In reality though, investors have tended to give more credence to the official nonfarm payrolls coming out tomorrow. Even these figures are expected to show that only 90,000 jobs were added last month, a signal that while positive, certainly does not show an underlying strength in the rebound and growth of the U.S. economy. If you couple this with news that the U.S. service sector slowed to a two and a half year low in June, it appears that the U.S. economy is continuing to spin its wheels, making little headway.
Big Picture
So, it seems that news on Europe is continuing to sap the strength of the global economy and particularly the U.S. economy. The markets fell back a little in the U.S., while the Euro fell through the floor against the U.S. dollar. It appears that any positive news that may emerge from the U.S. tonight in the form of job figures has already been nullified by the escalating crisis in Europe. It may be that central banks around the world are getting ready to stand back to back for a final showdown with this never-ending Financial crisis, while shooting interest rate blanks in the meantime. If things continue as they are, they may all have a synchronized push of the stimulus button. But, would that do any good?

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