Global Slump Alert

The NZ print media is still avoiding the issue of the collapse of the world economy compared to the Australian media. It led the news on Radio New Zealand although the delusionary message that NZ is somehow, by some magic, 'insulated' from the world economy is being delivered by our zombie economists – head in the sand to the last.

NZ: Reality starts to bite

Radio New Zealand,

5 June, 2012

The New Zealand share market opened lower on Tuesday, following drops on Monday in Australia and Asia and bumpy trading on Wall Street.

Disappointing employment figures from the United States, Europe's continuing state debt problem and poor manufacturing figures from several countries have contributed to share market falls.

More than 40 shares slipped in price on the New Zealand market on Tuesday compared with just eight that rose in early trading.

At 11am the NZX 50 index was 0.8% lower at 3422.

Earlier, in the United States, a dim report on new US industrial orders in April helped erase opening gains on Wall Street, sending stocks solidly in the red, before buyers came back in to wipe out the losses in afternoon trade.

The Dow Jones index edged down further to close 0.14% lower at 12,101 while the broader S&P 500 and the Nasdaq Composite rose slightly.

Trade in European markets was muted on Monday due in part to a public holiday in London, where markets will also be closed on Tuesday.

In Frankfurt, the DAX 30 fell 1.2%, but in Paris the CAC 40 added 0.1%. Madrid finished with a gain of 2.9% despite worries that Spain could be forced into seeking outside help so as to stabilise its banking system.

A currency strategist with Rankin Treasury, Derek Rankin, told Morning Report a string of woes are behind the jitters.

"There's a wall of worry out there. The Greek elections - they're talking about walking away and telling Europe they're not going to pay their money back. There's been a run on the Spanish banks."

Mr Rankin said manufacturing data last week from a number of countries indicated contraction and US jobs data is weighing on markets.

The Australian 200 Index fell almost 2% on Monday to finish at 3985, it's lowest level in nearly seven months, and markets in Asia fell amid fears that the world's major economies will fall back into recession.

An analyst with City Index in Australia, Peter Esho, said although there have been larger single day declines on the Australian market, Monday's fall was continuation of a very long losing streak.

"We're down now around ten percent from the most recent high and there doesn't seem to be anything in the near term that's going to break this downward trend.".

Global slump alert as world money contracts

Growth of the world money supply has dropped to the lowest level since the financial crisis of 2008-2009, heralding a severe economic slowdown later this year unless authorites rapidly take action.

By Ambrose Evans-Pritchard

The Telegraph,

4 June, 2012

The latest data show that the real M1 money supply – cash and overnight deposits – for China, the eurozone, Britain and the US has been contracting since the early Spring. Any further falls risk a full-blown global recession.

Clear signs of trouble are emerging in the US, until now the last bastion of strength. The New York Institute of Supply Management said its ISM business index – a proxy for business demand – flashed a "screeching halt" in May, crashing to 49.9 from 61.2 in April, where anything below 50 denotes contraction. Unemployment is rising again after grim jobs data for April and May, indicating that the economy may have fallen below stall speed.

Central bank governors and finance ministers from the G7 bloc are to hold an emergency teleconference call on Tuesday to grapple with Europe's escalating crisis. There is mounting anger in North America and Asia over the failure of the Europeans to use their vast resources to contain the brushfire in Spain.

The world money data collected by Simon Ward at Henderson Global Investors show that real M1 for the G7 economies and leading E7 emerging powers peaked at 5.1pc in November and has since plunged to 1.6pc in April. The data explain why commodity prices are falling hard, with Brent crude down to a 16-month low of under $97 a barrel.

China's money data are falling at the fastest pace since records began. The gauge – six-month real M1 – gives advance warning of economic output half a year ahead. "Europe needs to start quantitative easing [QE] immediately and China must ease policy," said Mr Ward.

The Americans may act first. Goldman Sachs expects Federal Reserve chair Ben Bernanke to open the door for QE in testimony on Thursday.

Stock markets rallied in Madrid and Milan led by bank shares on rumours of an EU plan to recapitalise banks directly with funds from the EU bail-out machinery.

Olli Rehn, the EU economics chief, said use of the European Stability Mechanism to bail out lenders was a "serious possibility", adding that it was imperative to "break the link between banks and sovereigns".

However, there is no sign yet that Germany will be willing to drop its veto on such action, viewed by Berlin as the start of debt mutualisation. Chancellor Angela Merkel crushed talk of an instant "banking union" after meeting commission president Jose Barroso, saying their could be no quick fix. She called instead for EU banking supervision as a "mid-term goal".

Her spokesman said any options that "resemble eurobonds" are for the distant future. "It's up to national governments to decide whether they want to avail themselves of aid. That also applies to Spain," he said.

Use of the ESM for bank bail-outs would meet fierce resistance in the German, Dutch and Finnish parliaments. A senior EU official said even Germany's Social Democrats are cooling on eurobonds. "They looked at the polling data and shivered. The German people are not willing to send money into a bottomless pit," he said.

Investors Brace for Slowdown

Pressure Builds for Action by Policy Makers as Global Economic Worries Deepen

WSJ,

4 June, 2012

Pressure is growing on policy makers around the world to take steps to bolster their economies as the U.S. and China show fresh signs of slowing and the fallout from Europe's debt crisis spreads.

As global economic worries deepen, policy makers around the world are feeling pressure to gird against the fallout of Europe's debt crisis. Jonathan Cheng reports on Markets Hub. Photo: AP.

Investors across financial markets have reacted with increasing alarm at the drumbeat of bad news from all corners of the world, with economies sputtering just as troubles in Europe flare anew. Concerns that Greece may be forced to exit the euro zone have joined worries that Spain may also collapse under the pressure of a high deficit and fragile banking system.

Asian markets were sharply down Monday morning. Hong Kong's Hang Seng Index dropped 2.3%, eliminating all of its 2012 gains. The strengthening yen continued to put pressure on Japanese exporters, pushing Japan's Nikkei to a fresh 2012 intraday low before pulling back slightly, 2.1% down. Australia's S&P ASX 200 hit a six-month low, crawling back to a 1.6% fall. Korea's Kospi fell 2.5%, and Singapore's Straits Times Index was 1.5% lower.

China's manufacturing data last week was surprisingly weak, but officials have signaled there are no plans to reinstate an economic stimulus on the magnitude of their four-trillion-yuan package, about $630 billion, in 2008.

Potential market land mines dot the horizon. Greece holds new elections June 17 that will largely determine its course. The Federal Reserve's rate-setting committee, scheduled for June 19 and 20, could signal leanings toward further stimulus. And on June 28 and 29, a summit of European Union leaders in Brussels will be closely watched by investors for evidence that policy makers will increase efforts to solve the region's crisis.

The European Central Bank has been reluctant to step into the crisis, insisting that governments take the lead. But political leaders have been unable to agree on solutions. Many investors worry whether anyone has the ability or the will to tackle the globe's economic woes.

Some question, for example, what ammunition the Fed has left. Interest rates are already at record lows. And with U.S. elections just months away, many investors doubt Congress will take measures to stimulate the economy. Even Germany is seeing signs of trouble as its primary trading partners slump further into the abyss.

"We are not robust enough to withstand a real European recession," said market strategist Edgar Peters, who helps oversee $18 billion at money-management firm First Quadrant in Pasadena, Calif. "I am getting less and less optimistic about this."

Some economists and strategists believe the setbacks, in the U.S. at least, may be short-lived. Michael Darda, chief economist at brokerage firm MKM Partners in Stamford, Conn., told clients last week that the U.S. economy was still growing. Others said the prospect of more help from the Fed may limit declines. Those arguments didn't lure many bargain hunters back to stocks last week.

For financial markets, 2012 is showing many of the hallmarks of 2010 and 2011—healthy gains through April that collapsed into a long and harrowing summer.

On Friday, the Dow Jones Industrial Average slipped 274.88 points, or 2.2%, to 12118.57, its lowest value since December. Stocks across Asia and Europe also slumped.

Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at Cleveland's Key Private Bank, an arm of KeyCorp. said he feared that stocks have further to fall.

"There is some doubt about whether European and global authorities can provide enough liquidity to stem the crisis," he said. "There is a risk of protracted world decline."

The Dow has given back all of this year's gains and is down 8.7% from the multiyear high of 13279.32, reached May 1. Germany's benchmark index dropped 3.4% on Friday.

The dour U.S. unemployment news Friday was bolstered with data showing that U.S. manufacturing had cooled in May, and that consumer spending rose faster than incomes in April—suggesting household finances remain strained.

The Labor Department's report was the third consecutive month of disappointing payroll gains. It followed a government report on Thursday that lowered its estimate of economic growth in the first quarter to a weak 1.9% annualized rate.

The bleak reports prompted speculation that the Fed might respond at its June meeting with such moves to spur growth as buying bonds to push down long-term interest rates. But the Fed has been sharply divided, with some policy makers advocating more action and others opposed for worry of inflation. Some Fed policy makers had said before Friday's jobs report that they would support action if the economic outlook worsened.

Adding to fears about the U.S. economy are predictions of election-year paralysis on both taxes and spending. President Barack Obama has called on Congress to pass proposals he said would boost hiring.

Congressional Republicans and GOP presidential candidate Mitt Romney say the stumbling U.S. economy shows the failure of Mr. Obama's policies.

The global troubles have revealed how closely nations and financial markets have become intertwined. European policy makers had hoped that U.S. demand would help prop up their economies while they found a solution to the growing crisis. The U.S., meanwhile, has been heavily dependent on demand from China and Europe, as has much of Asia.

Europe is dealing with the twin threats of Greece and Spain, which are compounded by its moribund policy-making and its unwinding economy.

The June 17 elections will put Greece—and the rest of the euro zone—at a crossroads. A win by the Syriza party—which opposes the terms of a bailout—could trigger a standoff: Germany and its allies would have to choose between giving Greece more money or cutting off help.

Spain is showing serious signs of trouble borrowing money—just at the moment when its banks appear to need a lot of it. Spain has already identified that troubled lender Bankia SA needs €19 billion, or about $24 billion—and it isn't clear where the government will come up with it.

If Spain can't aid its banks, it may need to turn to the euro zone for help. But the European Central Bank, despite calls from some countries for lower rates or the purchase of government bonds, indicated it was uncomfortable doing much more beyond providing unusually large quantities of liquidity to banks.

In Asia, the fear arising from Europe has exacerbated a slowdown already taking hold. Some of the biggest market rallies in years at the start of 2012 were wiped out by the end of last week as financing tightened amid fears of a global slowdown.

A wave of economic numbers Friday showed slowing trade hitting Asian economies. Hopes for a rescue from China took a hit Friday: the China purchasing managers' index fell to 50.4 in May, down from 53.3 in April and lower than expectations.

"The data is turning. Hard," Frederic Neumann, co-head of Asian economics at HSBC said in a note to clients. "The trade cycle is about to take a hit. Globally, new export orders have started to contract for the first time since December."

The impact is being felt in countries like South Korea, where exports unexpectedly fell for a third straight month in May, as manufacturing activity there also showed signs of weakness. In India, the government reported last week economic growth fell to its lowest level in nine years.

The combination of weaker exports and lower risk tolerance by investors and banks in Asia is expected to further slow economies over the coming months. On the positive side, inflationary pressures, which had been the key worry among policy makers for most of this year, have mostly abated, opening the door for more significant stimulus

Asia stocks tumble, Tokyo hits 28-year low amid global rout

Economics Times,

4 June, 2012

Asian shares tumbled on Monday, pushing the broader Tokyo market to a 28-year low, as investors extended a rout of global stocks and worried about a nightmare scenario of euro-zone breakup, U.S. economic relapse and a sharp slowdown in China.

Tokyo's broader Topix index lost 2.1 percent to 693.35, a level not seen since late 1983, as Asian markets plumbed new lows for 2012. Japan's Nikkei average fell 2 percent after last week marking its ninth straight week of losses, the longest such losing streak run in 20 years.

For article GO HERE