Market Overview

With Debt Ceiling in Rear-view Mirror, Focus Turns to Weak Economy

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Legislators and U.S. citizens collectively grimaced as difficult negotiations over the raising of the debt ceiling showed little progress in the past few months. With Congress passing legislation just in time Tuesday, the focus has again turned to a weakened domestic and global economy.

Equities markets have fallen considerably over the past two weeks, as politicians bickered over a proposed deficit reduction plan. However, world markets haven't benefited from the legislation's passage yesterday, as investors scrutinized weak economic and manufacturing reports.

Indeed, the debt crisis in Europe hasn't been fully solved, and jobs still remain a difficult obstacle in the United States. While the financial system is significantly stronger than during the meltdown of 2007-8, risk-averse investors and untapped capital investment have constricted growth opportunities.

Japan's Nikkei Index closed down more than 2% Wednesday, with European stock markets showing losses just under 1%. The safety trade in gold continued, as the metal soared to a new record high above $1,670 an ounce.

Markets were further rattled Tuesday when Moody's Investors Service announced the U.S is now facing a negative outlook, and could face a downgrade within 12 to 18 months.

With tepid consumer spending in June and a gloomy outlook, growth projections by many analysts have been pushed back.

"We would expect that growth would accelerate in 2012 from the first half of the year," Steven Hess, a Moody's analyst told Reuters in an interview.

"But if it doesn't, that means that the whole process of fiscal consolidation and the plans to achieve lower deficits and lower debt ratios will be made all the more difficult.

 

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Posted-In: Growth ReutersEconomics