What Economic Recovery is Up Against
The Dow Jones Industrial Average sliding 3.2 percent, United States employment reports coming back dismal, and the euro continuing its tumble to an eight year low have shaken us recently, so what is the state of worldwide markets these days?
The coming week forebodes difficulty as finance ministers worldwide prepare new defenses to quell the spreading of the sovereign-debt crisis. European finance minsters are soon expected to sign off on a €440 billion ($527 billion) loan package for protection against the debt crisis. Meanwhile, top finance officials from the Group of 20 major industrial and developing economies are designing new rules to ensure that major banks keep money in reserve as insulation against future crises. On Monday morning the euro dropped further trading in Asia and for the first time in over eight years, the euro fell to 108.83 yen. This drove down Asian markets. Asian exporting companies that rely primarily on European customers were particularly afflicted. In morning trading, Tokyo's Nikkei Stock Average fell 3.4 percent, and Shanghai's Composite Index was down 2.1 percent, the lowest it's been in over a year.
The Dow Jones Industrial Average fell 3.2 percent, its lowest level in months, and there are fears that the U.S. economy may sink into a double-dip recession. The drama over the euro has led investors to reduce exposure to stocks, corporate bonds, commodities and currencies like the euro, in favor of safer Treasure bonds and the dollar. Currently, treasury yields, which sink when investors acquire U.S. debt, are almost back to their lowest levels this year. What effects the U.S. fiscal stimulus had will fade by the end of this year, but U.S. debt is surging so further measures to jump-start the economy are likely to confront stiff opposition. While low interest rates benefit the economy, the Federal Reserve cannot continue to cut rates further, as they've already dunk to near zero percent.
The anticipated perpetuation of troubles in Europe is expected to rock markets in the foreseeable future. Furthermore, China will remain an economic concern in the near future. It is feared that a slowdown in China might factor in dropping global commodity prices. Still, some are still able to remain positive. This has been called a good entry point for stock buyers as the Standard & Poor's 500-stock index is currently low and stocks are cheap, but it is expected to climb 22 percent between now and the end of the year. Other economists are looking for the labor market to keep recovering throughout the rest of the year, and many are unafraid of a double-dip recession.
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