Germany In Danger Of Q3 Recession
European stock indexes fell on Tuesday for the sixth consecutive day. Weak economic data out of Germany - the largest economy in Europe - drove the losses.
Tuesday, October 14, 2014 - 00:00
The Stoxx Europe 600 declined 0.5%, France's CAC 40 dipped 0.2 % and the DAX index from Germany slid 0.02%.
"It's a tough time for corporations," John Haynes, head of research at Investec Wealth & Investment in London, told Bloomberg. "The background economic situation hasn't been too forgiving, and they tend to have to come out and mark expectations to the market for the full year. Worries about Europe will be short-term in nature rather than more entrenched, but it's not going to be easy to see the fog."
German economy stagnates
A ZEW Institute survey on Tuesday revealed economists' sentiment reached negative territory for the first time since November 2012, according to The Wall Street Journal. ZEW President Clemens Fuest indicated a third-quarter recession is possible for Europe's biggest economy.
The survey, which compiles the opinion of some 350 economists on the future of the German economy, dropped to minus 3.6. The figure fell well short of The Wall Street Journal's estimate of 0.8. German gross domestic product dropped 0.6 % from the first quarter to the second. Two straight quarters of economic contraction qualifies as a recession.
The disappointing numbers follow a change in the International Monetary Fund's view of the eurozone economy. The organization upped the chances of European recession from about 20% in April to just shy of 40% last week.
"If uncertainty is the source for the decline, as the ZEW institute suggests, then the level of uncertainty is very similar to the one observed during the peak of the eurozone crisis," said European economist Evelyn Hermann, indicating that the current decline could be cause for alarm.
US indexes shake off overseas slump
The US stock market opened higher on Tuesday despite the growing concern in the European economy, reported Reuters. The S&P 500 gained 0.6%, the Dow grew 0.5% and the Nasdaq increased 0.9%. The S&P 500 could halt what was the biggest 3-day slide since November 2011.
American investors have placed more emphasis on corporate earnings in the third quarter than on the struggling eurozone. "I'm not sure the earnings have to be unbelievably strong but simply just reflecting some growth would help blunt the momentum of the market moving down," Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey, told Reuters.
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