Howard Wheeldon Comments: Weak US Data Shakes Markets Once Again - Philadelphia Inquirer

World stock markets fell further Wednesday as worries over the global economic recovery depressed investor sentiment and another batch of U.S. economic reports disappointed expectations.

In Europe, the FTSE 100 index of leading British shares was down 61.33 points, or 1.2 percent, at 5,094.62 while Germany's DAX fell 68.72 points, or 1.2 percent, to 5,866.72. The CAC-40 in France was 57.35 points, or 1.6 percent, lower at 3,433.76.

On Wall Street, the Dow Jones industrial average was down 62.89 points, or 0.6 percent, at 9,977.56 soon after the open, while the broader Standard & Poor's 500 index fell 7.5 points, or 0.5 percent, to 1,044.37.

Fragile sentiment turned decidedly negative after durable goods data came in worse than anticipated.

The Commerce Department said the sale of big-ticket items, such as aircraft, rose by only 0.3 percent in July from the previous month, way down on expectations of a 3 percent monthly rise.

Though big swings in commercial aircraft and defense sales make such statistics particularly volatile, investors were spooked about how paltry the monthly increase was.

"Not only was this report weaker than expected, but it also exacerbated the markets' current sense of heightened uncertainty," said Michael Woolfolk, an analyst at Bank of New York Mellon.

Another soft U.S. housing report kept the mood negative. The Commerce Department reported that the sale of new homes dropped 12.4 percent in July to an annual sales pace of 276,600, the lowest since records began in 1963.

The new home sales data came a day after an equivalent series for existing home sales pushed the Dow below 10,000 for the first time since early July.

Because the U.S. housing market was the catalyst behind the financial crisis and the ensuing global recession, its failure to stabilize is stoking renewed concerns about the sustainability of the U.S. recovery and reigniting talk that the Federal Reserve will have to pump more money into the economy to stave off a double-dip recession.

With U.S. economic data consistently underperforming market forecasts, there are mounting expectations that the Fed will have to do more to get the U.S. economy back on track. All eyes will be on the central bank's chairman Ben Bernanke on Friday when he outlines his latest thoughts in a speech at the annual Jackson Hole Economic Symposium.

Many analysts think Bernanke will have to introduce new measures to restore confidence in the markets.

"Despite a sharp increase in depressing news and despite general confirmation that the US economy has now run out of steam we suspect that when the current downward run in the S&P and Dow has run its course in a few days, U.S. markets will begin to be buoyed up again on the back of expectation that both the Fed and government will take action to revive the flagging economy," said Howard Wheeldon, senior strategist at BGC Partners.

Meanwhile, Japan faces the challenge of a quickly rising yen.

On Tuesday, it hit a 15-year high against the dollar and a nine-year peak against the euro and the fear is that the country's high-value exporters will find it increasingly difficult to compete in the international marketplace. Figures Wednesday showed Japanese export growth slowed for the fifth consecutive month in July.

Those concerns pushed the Nikkei 225 index to close 149.75 points, or 1.7 percent, lower at a 16-month low of 8,845.39.

In a bid to curb the yen's rise, Finance Minister Yoshihiko Noda said Wednesday that Japan will "respond appropriately when necessary." Japan has not intervened in the foreign exchange market since March 2004.

The threat of intervention seemed to dampen the yen's rise , by mid afternoon London time, the dollar was 0.4 percent higher at 84.45 yen.

Meanwhile, the euro was supported by a survey showing Germany's business confidence maintained its upward trend in August. The Ifo research institute said its business confidence index rose to 106.7 points from 106.2 in July and that companies planned to hire more people despite an anticipated drop in the recent export boom that has spurred Europe's biggest economy to surprisingly robust growth.

The strong Ifo more than compensated for Tuesday's credit rating downgrade of Ireland from Standard & Poor's. The agency lowered its rating on the country by one notch to AA- as the projected cost to the Irish government of supporting the financial sector has risen above previous estimates.

Neil MacKinnon, global macro strategist at VTB Capital, said the move was "not a surprise , draconian budget cuts have resulted in a 20 percent contraction in the Irish economy accentuated by the collapse in the property market and the reckless lending of Irish banks."

By mid afternoon London time, the euro was 0.3 percent higher at $1.2670.

Elsewhere in Asia, China's benchmark Shanghai Composite Index fell 2 percent to close at 2,596.58. Hong Kong's Hang Seng dropped 0.1 percent to 20,634.98.

Benchmark crude for October delivery was down 3 cents at $71.60 in electronic trading on the New York Mercantile Exchange. The contract fell $1.47 to settle at $71.63 on Tuesday.

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