Stocks Lower Ahead of G-7 Meeting
The failure of Federal Reserve chairman Ben Bernanke to outline new monetary stimulus weighed on markets Friday ahead of a meeting of finance ministers of the Group of Seven top industrialized countries where pro-growth measures are set to be discussed.
Hopes that Bernanke would use a speech Thursday to hint at another round of stimulus were not met and fueled a bout of selling in markets after a week when most stocks have managed to hold their own.
"By simply reiterating that the Fed had a 'range of tools that could be used to provide additional monetary stimulus' and would be discussing them later this month, the markets appear to be coming to the realization that the Fed could well be running out of bullets in its fight to boost the U.S. economy," said Michael Hewson, markets analyst at CMC Markets.
Investors were also unmoved by President Barack Obama's $447 billion plan for creating jobs as it's likely to prove difficult to get the proposed measures through Congress since Republicans control the House of Representatives.
In Europe, the FTSE 100 index of leading British shares was down 0.8 percent at 5,297 while Germany's DAX fell 1.5 percent to 5,327. The CAC-40 in France fell 1.7 percent at 3,032.
Wall Street was also poised for a modest retreat later after closing sharply lower Thursday in the wake of Bernanke's speech — Dow futures were down 0.1 percent a 11,214 while the broader Standard & Poor's 500 futures fell 0.2 percent to 1,178.
All eyes later will focus on the G-7 meeting of finance ministers and central bankers in the French port city of Marseille.
Though participants are indicating they want to pursue measures to lift growth, the markets remain skeptical as to what they can actually do given the budgetary constraints that are afflicting many countries, particularly in the U.S. and Europe.
"In the U.S. and the eurozone, the escalation in debt and deficits leaves little room for any substantive fiscal stimulus, thus putting the burden on monetary policy," said Neil MacKinnon, global macro strategist at VTB Capital.
As well as backing Obama's jobs package, U.S. Treasury Secretary Timothy Geithner said Europe's policymakers have to make more forceful action in dealing with the debt crisis and called on China and other emerging countries to bolster demand.
"The world economy is in the midst of the second slowdown of this recovery from the financial crisis of 2008 and 2009," Geithner wrote in the Financial Times. "The question is not whether we have the economic or financial capacity to act to strengthen growth, but whether we have the political ability to do the right things."
Geithner's views have been echoed by the new head of the International Monetary Fund Christine Lagarde.
"The key message I wish to convey today is that countries must act now — and act boldly — to steer their economies through this dangerous new phase of the recovery," she said in a speech in London ahead of her departure to Marseille.
Concerns over the state of the global economy have combined with fears over Europe's debt crisis during the past month to send financial markets spinning. The repercussions of the recent turmoil are being felt in the actions of policymakers, most notably in the European Central Bank, which on Thursday gave its biggest hint yet that further interest rate rises are off the agenda for now.
That has weighed on the euro, which has fallen to its lowest level since July on the dollar — the prospect of higher eurozone rates had been one of the main reasons why the single currency has managed to remain well-supported during the summer months even though the continent's debt crisis showed signs of spreading and deepening.
By mid-morning London time, the euro was 0.4 percent lower at $1.3833.
Earlier in the day, Asian shares struggled for gains. Japan's Nikkei 225 index swung between gains and losses before closing down 0.6 percent at 8,737.66. Sentiment was hardly helped by news that the country's economy contracted in the April-June quarter at an annual rate of 2.1 percent, worse than the initial estimate of 1.3 percent.
But the result was not unexpected, given the scope of the damage done by the March earthquake and tsunami that destroyed many of northeastern Japan's factories and businesses. Economists expect the world's No. 3 economy to pick up in the months ahead.
South Korea's Kospi fell 1.8 percent to 1,812.93. Australia's S&P/ASX 200 rose 0.2 percent to 4,194.7 and Hong Kong's Hang Seng was 0.2 percent lower at 19,866.63.
Mainland Chinese shares lost ground after the government reported that prices rose 6.2 percent from a year earlier. While that represented an easing from a 37-month high of 6.5 percent in July, it was far above the government's 4 percent target for the year.
China's National Statistics Bureau also said industrial production slowed in August, rising 13.5 percent from the year before, compared with a 14 percent increase in July.
The benchmark Shanghai Composite Index edged down less than 0.1 percent to 2,497.75 after gaining 1 percent earlier in the day while the Shenzhen Composite Index lost 0.6 percent to 1,094.03.
The reverse in stocks weighed on oil prices too. Benchmark oil for October delivery was down 62 cents to $88.43 in electronic trading on the New York Mercantile Exchange.
Source: Associated Press
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