December 4, 2021

Stocks and Bonds: Global Markets Tumble on Continued Worries Over Europe’s Debt Crisis

Markets in the United States were in line with Asian and European stocks, which fell as investors remained overwhelmed by weak economic data, and European officials met in Brussels to discuss fiscal troubles in the euro zone.

After weeks of uncertainty related to bailouts for Greece, the Italian authorities moved to rein in short-selling on the Milan stock exchange as fears mounted that Italy could become the next victim of the sovereign debt crisis.

“There is so much going on in the world that you almost need a scorecard to keep up,” Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, wrote in a research note.

“If Italy becomes more of a problem, then it could spiral out of control and cause the much-feared contagion that some have predicted,” Mr. Giddis wrote. “If that is the case, then a global economic slowdown will likely hit our shores here and take the legs out of an already wounded U.S. economy.”

The Dow Jones industrial average was down 151.44 points, or 1.20 percent, to 12,505.76. The broader Standard Poor’s 500-stock index fell 24.31 points, or 1.81 percent, to 1,319.49. The Nasdaq composite lost 57.19 points, or 2.00 percent, to 2,802.62.

Even after Monday’s losses, however, the Nasdaq and the Dow still rose about 1 percent since July 1, while the S. P. was slightly lower.

On the broader market in the United States, financial shares were down almost 3 percent, while energy and materials indexes were lower by more than 2 percent.

Brian M. Youngberg, an energy analyst for Edward Jones, said the dollar rise connected with the events in the euro zone was putting downward pressure on oil prices, which in turn was affecting energy stocks. “Everything is revolving around Europe right now in some way,” he said.

Citigroup fell 5.3 percent to $39.79; JPMorgan Chase declined 3.2 percent to $39.43, and Bank of America was down 3.27 percent at $10.35.

Google shares fell 0.89 percent to $527.28.

Alcoa was down 2.87 percent at $15.91; Caterpillar fell 2.04 percent to $108.16, and Boeing was down 2.29 percent at $73.35.

As risk aversion stepped up on Monday, United States Treasuries were trading higher. The euro fell to $1.4027 from $1.4204.

The Treasury’s benchmark 10-year note rose 28/32, to 101 23/32, and the yield fell to 2.92 percent, from 3.03 percent late Friday.

“Global issues are still outstanding,” said Jason Arnold, a financial analyst with RBC Capital Markets. “Markets were still digesting the jobs numbers from Friday, so I think that it is also a factor.” Asian markets, in particular, reacted to the United States government report that just 18,000 jobs were added in June.

In Europe, the Milan Stock Exchange fell 3.8 percent on Monday. The FTSE in London was down 1.03 percent, the CAC in Paris was down 2.71 percent and the DAX in Frankfurt was down 2.33 percent.

Another weight on sentiment was the report over the weekend that inflation in China had reached a three-year high.

“It is kind of like this cocktail of disappointing information and data,” said Stephen Wood, chief market strategist for Russell Investments.

William J. Schultz, chief investment officer for McQueen, Ball Associates, said that the debt ceiling talks and euro zone problems in particular “put this tone” to the market.

But he and other market analysts are pinning their hopes on the coming corporate reporting season for the second quarter.

“Those things are weighing, and now the hope is we are going to get earnings surprises on the positive side,” he said.

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Japanese Central Bank Cuts Growth Forecast

HONG KONG — The Bank of Japan slashed its economic growth forecast Thursday in the aftermath of the natural disasters that hit the country last month but refrained from announcing fresh steps to stimulate the economy — a sign that the central bank expects rebuilding activity to lead to solid growth again later this year.

The bank said it now expected the Japanese economy, the world’s third-largest, after those of the United States and China, to expand only 0.6 percent in the current business year, which ends March 31, 2012. That is down from the rate of 1.6 percent the bank had forecast in January.

“As a result of the disaster, the economy will inevitably continue to face strong downward pressure for the time being,” the bank said.

Corporate profits are likely to fall significantly, and private consumption and business investment will remain weak for some time, the bank added.

Bleak data published separately Thursday underlined the economic weakness created by the March 11 earthquake and tsunami and the nuclear crisis and supply chain disruptions that followed. Industrial output in March fell a record 15.3 percent from the previous month, according to the trade ministry.

“Today’s data releases provide another powerful reminder of the devastating effect of Japan’s recent disaster,” Frederic Neumann, a regional economist at HSBC in Hong Kong, commented in a research note. “While data will look better from here on, the Bank of Japan will still need to announce additional monetary easing measures this quarter to abet the recovery.”

In a bid to calm a near panic in the financial markets immediately after the earthquake, the Bank of Japan flooded the markets with liquidity and expanded a program to purchase government and corporate bonds.

This month, the bank announced a loan program totaling ¥1 trillion, or $12.2 billion, to help financial institutions in the disaster area extend reconstruction-related loans.

On Thursday, the central bank left its key interest rate at zero to 0.1 percent, as had been widely expected, in a bid to help the recovery. But it announced no additional measures, saying it wanted to assess the effect of its previous steps before taking more action.

“The B.O.J. took the decisive step of increasing asset buying in March, and actual purchases have only just begun,” Masaaki Shirakawa, the central bank governor, said, according to Reuters. “It’s important to examine the effects of the move for the time being.”

The bank also struck a positive note on the prospects for recovery later this year and raised its forecasts for growth during the financial year that starts in April 2012 to 2.9 percent, from an earlier forecast of 2 percent.

Like other forecasters, the bank expects the Japanese economy to rebound once rebuilding gets under way in earnest and power supplies and the flow of components and spare parts in the manufacturing sector get back to normal. Unlike the situation during the global financial crisis, economies elsewhere are growing, meaning that international demand for Japanese goods remains solid.

“From the beginning of autumn 2011, supply-side constraints are likely to ease,” the central bank wrote. “Moreover, efforts to restore capital stock damaged by the earthquake disaster are projected to gradually provide a boost to Japan’s economy.”

Still, the government and the central bank will need to provide support to affected areas, and the Japanese economy as a whole, for months to come.

Hampered by an aging population, high government debt and intermittent deflation, the Japanese economy is unlikely to expand much more than 1 percent per year in the medium term, even as the effects of the March disasters wane, the ratings agency Standard Poor’s said Wednesday.

That makes Japan one of the slowest-growing developed countries in the world.

Japan is also a laggard within Asia, where developing nations like China and India are expanding at rates not far off 10 percent a year.

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