Wall Street’s concerns about the pace of the recovery carried over into a new week on Monday. Japan became the latest country to report slowing growth, adding to concerns about the pace of a global recovery. The country’s economy grew 0.1 percent in the second quarter, well below the 1.2 percent growth in the first and short of expectations. The report follows reports last week that the economies of both the United States and Chinese were not growing as quickly as earlier in the year.
Also on Monday, a report showed manufacturing activity in New York rebounded slightly this month after declining sharply in July. Despite the modest gain, activity did not expand as much as had been forecast, indicating growth remains small. The Federal Reserve Bank of New York’s Empire State Manufacturing Index rose to 7.1 in August from 5.1 in July. Economists polled by Thomson Reuters forecast the index would rise to 8. The index was as high as 19.6 just two months ago.
Shortly after the open, DJIA fell 37.92 points, or 0.37 percent. S&Ps fell 4.38 points, or 0.41 percent, while Nasdaq 100 index fell 2.66 points, or 0.12 percent. European shares also fell. The FTSE 100 index in London was down 32.53 points, or 0.62 percent, while the CAC 40 in Paris fell 40.08 points, or 1.11 percent. The DAX in Frankfurt declined 29.62 points, or 0.48 percent.
The Dow Jones industrial average fell nearly 400 points over the past four trading days after the Federal Reserve took a more cautious tone about the pace of recovery and said it would start buying Treasury bonds to try and stimulate growth. Major retailers like J.C. Penney also warned that profits the rest of the year would not be as big as estimated because shoppers are cutting back on spending.
Investors snapped up Treasuries again, driving interest rates lower. The drop came because of continued concerns that the global economy will slow and mostly strong corporate earnings reported in the second quarter will not be able to hold up. The Treasury Department said Monday that China reduced its holdings of Treasury debt for a second month in June while the holdings of Japan and Britain rose. China’s holdings fell by $24 billion to $843.7 billion, a decline of 2.7 percent, the Treasury said. Total foreign holdings of Treasury securities rose $45.6 billion to a total of $4 trillion, an increase of 1.2 percent.
In Japan, the chief worry is that exports — the main reason behind the modest second-quarter increase — will be weighed down by the export-sapping appreciation in the value of the yen against the dollar. Last week, the dollar fell to a 15-year low of 84.75 yen. Slower global growth and a strong yen will hit exports in the second half, making a return to recession ever more likely. At the same time, there is no prospect of an end to deflation.
SOURCE: WALL STREET GRAND JOURNAL
