While you were sleeping EU weakness, Greek concern

Friday 9th November 2012

Stocks on both sides of the Atlantic slid amid renewed concern about the impact of Europe's debt crisis on the global economy after ECB chief Mario Draghi said the euro zone economy is expected to remain weak next year.

In addition, Greece may have to wait until next week to find out if its latest package of cost-cutting measures has satisfied EU demands.

In the US, the latest clues on the outlook for corporate earnings proved disappointing yet again including from MacDonald's which reported a decline in monthly store sales for the first time in nine years.

The latest US economic data were better than anticipated but failed to lift the mood. Initial claims for state unemployment benefits fell 8,000 to a seasonally adjusted 355,000 last week, the Labor Department said.

The monthly trade gap unexpectedly narrowed in September, shrinking to US$41.55 billion, according to the Commerce Department. That's the smallest deficit since December 2010.

"This was a very encouraging report as the improvement in both export and non-petroleum import activity suggests improving demand both domestically and globally," Millan Mulraine, an economist at TD Securities in New York, told Reuters.

In afternoon trading in New York, the Dow Jones Industrial Average declined 0.33 percent, as did the Standard & Poor's 500 Index, while the Nasdaq Composite Index fell 0.56 percent.

In Europe, the Stoxx 600 Index ended the session with a 0.2 percent drop from the previous close. National benchmark indexes in Germany, France and the UK also closed lower. The euro was last 0.2 percent weaker against the greenback.

"Economic activity in the euro area is expected to remain weak," European Central Bank President Mario Draghi said in a statement at the end of the bank's policy meeting.

His comments came a day after the European Commission slashed its forecast for the euro zone to a measly 0.1 percent in 2013, down from a May estimate for 1 percent growth.

Earlier today policymakers at both the ECB and the Bank of England kept their record-low interest rates on hold, at 0.75 percent and 0.5 percent respectively.

While Greek Prime Minister Antonis Samaras secured a parliamentary majority for a package of austerity measures, EU finance ministers may not make a decision on unlocking funds for Greece until late November.

The ministers are waiting for a full report on the country's compliance with the terms of its bailout, Bloomberg News reported, citing an anonymous European Union official.

As for whether Europe's central bank is prepared to do more for Greece, Draghi told reporters: "The ECB is by and large done."

Greece's benchmark stock index shed 3.8 percent today.

BusinessDesk.co.nz

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