While you were sleeping: East Asian slowdown takes toll

Tuesday 9th October 2012

Stocks on Wall Street and in Europe retreated after the World Bank cut its growth forecast for East Asia, sparking fears the global slowdown is snowballing, and as US quarterly earnings season looms.

The World Bank trimmed this year's forecast for growth in the emerging East Asian economies amid dwindling demand for the region's exports as global powerhouses in the US and Europe tidy up their own affairs. It sees growth in the region of 7.2 percent this year from 8.3 percent in 2011, the slowest pace since 2001.

That helped push stocks lower on both sides of the Atlantic, with the Standard & Poor's 500 index down 0.4 percent to 1455.72 in afternoon trading in New York, the Dow Jones Industrial Average down 0.3 percent to 13576.7, and the Nasdaq Composite Index down 0.8 percent to 3109.84.

Germany's Dax 30 index fell 1.4 percent to 7291.21, France's Cac 40 index declined 1.5 percent to 3406.53, and Britain's FTSE 100 index decreased 0.5 percent to 5841.74.

"There is just a lot of uncertainty out there, so any little thing right now tends to be a bit of a drag. Some of it is China, some of it may be concerns about Europe again," Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois told Reuters.

The deteriorating outlook for East Asia comes a day before US third-quarter earnings season, which kicks off tomorrow when aluminium producer Alcoa reports. Analysts expect Alcoa will report a break-even result, and the stock was unchanged at US$9.09.

Investors have been cautious about the US earnings season as European leaders muddle their way through their region's debt crisis and Chinese growth slows from the heady heights of recent years. Shares of Hewlett-Packard slumped last week after the company predicted profit for fiscal 2013 will fall short of expectations.

"Some people are predicting that we may see an overall decline in earnings, so there may be some defensive posturing and profit-taking," Jankovskis said.

Across the pond Eurozone finance ministers announced a full-time 500 billion euro fund to help bail-out debt-ravaged nations is operational, while saying Spain doesn't need a rescue package. The yield on Spain's 10-year government bond has fallen to 5.71 percent from as high as 7.62 percent on July 24. The euro fell 0.5 percent to US$1.267.

"Spain is also suffering under the problem of contagion, like other countries, from speculation that's the result of the uncertainty surrounding the euro area as a whole," German Finance Minister Wolfgang Schaeuble told reporters as he arrived at a meeting in Luxembourg. "But Spain doesn't need an assistance program."

The finance ministers met in Luxembourg to discuss Spain's finances and closer cooperation on banking, ahead of German Chancellor Angela Merkel's visit to Greece tomorrow.

BusinessDesk.co.nz

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