Thursday Morning Cheat Sheet: 3 Stories Moving Markets
Trading was broadly positive in Asia ahead of the G20 meeting set to begin on Friday. Japan’s Nikkei increased 0.50 percent on the back of strong earnings, but the broader Topix index contracted 0.2 percent as investors continued to take profits. The yen weakened slightly to 93.38 to the dollar. The Hang Seng climbed 0.85 percent on its first day back from an extended weekend, while the S&P/ASX 200 increased 0.66 percent.
But the European markets were headed in the opposite direction on Thursday, weighed down by weak economic data (more below). London’s FTSE was off 0.70 percent, Germany’s DAX was off 1.13 percent, and the FTSE 50 was off 0.96 percent, and the bad news was quick to travel across the Atlantic.
U.S. futures at 8:05 a.m.: DJIA: -0.34%, S&P 500: -0.26%, NASDAQ: -0.37%.
1) The euro zone moved deeper into recession in the fourth quarter, dragged by major economies like France and Germany performing below expectations. According to Eurostat, the statistical office of the European Union, economic output contracted 0.6 percent across the euro-area 17, and contracted 0.5 percent across the EU27, following a 0.1 percent contraction across the region in the third quarter. With France and Germany joining Spain, Italy, Greece, and others in recession territory, economists are likely to edit their predictions for when the euro zone will round the bend.
For all of 2012, EA17 GDP fell by 0.5 percent, and EU27 GDP fell by 0.3 percent, with contractions in major economies partially muted by growth in countries like Latvia, Lithuania, and Estonia. The news comes just one day after Eurostat reported that industrial production in the EA17 increased 0.7 percent and increased 0.5 percent in the EU27.
2) Europe isn’t the only region posting bad news, as preliminary data show that Japan’s economy also shrank more than expected last quarter. Reduced business investment and falling exports (despite the action of the yen) pulled fourth-quarter GDP down an annualized 0.4 percent in the world’s third-largest economy, far below estimates of economists surveyed by Bloomberg for 0.4 percent growth.
This makes for three consecutive quarters of recession for the country, which has made international waves under the leadership of Prime Minister Shinzo Abe. Facing long-term deflation and poor economic output, Abe is pushing for bold stimulus spending and accommodating monetary policy similar to the strategy employed by U.S. Federal Reserve Chairman Ben Bernanke. His efforts also include controversial efforts to weaken the yen.
3) Back in the United States, Jack Lew weathered a hearing with the Senate Finance Committee with relative grace. As President Barack Obama’s nominee for Treasury Secretary, Lew was blasted with tough questions from Republicans who were dubious about his experience and curious about a $940,000 bonus he received at Citigroup just before the bank received bailout funds.
Lew’s banking experience will continue to be a point of contention with his critics as he looks to head the institution responsible for regulating the industry, but supporters stand behind his extensive public service and their faith that he will be able to competently tackle America’s byzantine tax code.
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