| Simon Kennedy and Andrew Mayeda |
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The worry is that five years since the world limped out of recession, central banks have virtually exhausted their stimulus arsenals if inflation and activity keeps fading. That leaves the hopes of financial markets riding on the U.S. to resume its historical role as a locomotive robust enough to pull up demand elsewhere.
“The global economy and the markets have a history of traumatic economic events,” said
The doubts remained evident across financial markets today. European stocks fell for an eighth day in the longest rout since 2003, oil fell toward
AVOIDING COMMODITIES
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“Investors have huge questions about the world right now,” said
The latest catalyst for concern was yesterday’s news that U.S. retail sales dropped 0.3% in September and wholesale prices unexpectedly fell for the first time in a year.
That added to the drumbeat of disappointing data from elsewhere, which this week alone included the weakest German investor confidence in two years and Chinese factory-gate prices dropping for a record-tying 31st month.
EUROPEAN EPICENTER
The epicenter of the economic worries is the euro area, where
Having pulled the euro-area economy out of its debt panic in 2012, Draghi has sought to boost prices by cutting interest rates to record lows, issuing cheap loans to banks and laying the groundwork to begin buying private-sector assets this month.
That leaves purchases of government debt as the last option. While Draghi says he is open to quantitative easing if necessary, it would run into opposition from
“Europe has now entered a more dangerous phase in their crisis,” said
EMERGING MARKETS
Unlike five years ago when they proved strong enough to lift the world out of its slump, emerging markets are now stumbling, too. A property slump in
Some emerging markets are being sideswiped by subpar global growth as geopolitical tensions from the
“We’re seeing an impact not only on the Russian economy, which is pretty visible, but also on European confidence indicators,” Reis said. “That is having an impact on the global economy.”
OASIS OF PROSPERITY
The biggest reason for confidence that the storm will prove short lived are signs the U.S. is again a potential oasis of prosperity even as the foreign weakness and rising dollar draw the concern of Federal Reserve officials.
Grounds for optimism include the lowest unemployment rate in six years, a deleveraging of debt by companies and households and the likelihood cheaper energy and low bond yields will support consumer spending and business investment.
“Things aren’t looking bad enough in the rest of the world to drag the U.S.,” said
BUDGET DEFICITS
The growth scare in markets comes just days after finance chiefs were urged by the
The problem is even with inflation now close to its recessionary lows by some measures, governments and central banks are almost out of ammunition, having exhausted it by swelling budget deficits and cutting interest rates in the aftermath of the financial crisis.
In addition to the ECB, the
“My concern is that the markets are looking for a ramping up of policy support elsewhere and that may not be delivered,” said
Less worried is
“It’s hard to be positive given how negative the mood is in the markets but I think sentiment is unnecessarily pessimistic,” he said.
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