“Sir, this IMF Report. Global growth looks…looks…well it looks ludicrous”
Dow: 13,474, -110 (-0.81%) S&P 500: 1,441, -14 (-0.99%)
Fire up the DeLoreans. Exactly 5 years ago, the Dow Jones Industrial Average hit its all-time high of 14,164 on October 9th, 2007. A crazy time when iPhones actually weighed something, girls wore these terrible things called Uggs and the New England Patriots won championships. But in celebration of the anniversary today, the blue-chip heavy stock index suffered a triple-digit loss. Athens was rocking with unhappy Greeks after German Prime Minister Angela popped down south for the day and the IMF cut its global economic expansion forecasts, pushing the Dow down 110 points. While the National Federation of Independent Business (NFIB) reported small business optimism dipped slightly over the last month, the big market mover tomorrow will be the start to the 3rd quarter earnings season after today’s close.
Angela Merkel’s Athens visit highlights Greek debt progress
Angela Merkel, the most hated woman in Greece with a bowl cut, visited Athens for the 1st time since the debt crisis broke out in October ’09 (fellow German Pope Benedict should have let her borrow the Pope-mobile for protection from the 40K Greeks protesters). Not much was said at the diplomatic meeting, but the Greeks are trying to show the Eurozone that they’re cutting budgets & increasing taxes – austerity measures designed to reduce debt – necessary chores to earn their next allowance (€30 billion is needed in the next month or Greece will literally run out of €). They’ve made great progress in the promise to save €13 billion this year, boosting hopes that they’ll receive the next installment of bailout aid and continue limping on.
Long-term, though, progress is lackluster. The economy is suffering so much that tax revenues, which are dependent on economic activity, are falling. Greece’s long-term debt target is 120% of GDP by 2020 (meaning the total amount the government owes investors from borrowing compared to the country’s total economic production – by comparison, the US debt/GDP ratio is around 100%). But while the numerator (total government debt) keeps growing, the denominator (GDP) keeps shrinking (Greece is in a 5 year-long recession), and the IMF now thinks that debt/GDP ratio will reach 182% by the end of 2013 (up from a 161% estimate made just months ago)
IMF downgrades global GDP growth outlook from 3.6% to 3.3%
The world’s “lender of last resort” is the International Monetary Fund (IMF). If your country’s broke, the IMF has your back. The IMF makes headlines these days due to its membership in the Troika of lenders bailing out Europe, but today it released a chilling report on the global economy slowing down. Again. They revised their estimates of world GDP growth from 3.6% to 3.3% for 2012 and from 3.9% to 3.5% for 2013. Troubles in Europe, political squabbling and the US and China’s slowdown caused the revision. Investors greeted this news like they just learned Michelle Obama took over the NYSE snack station…Coke and Doritos gone –>Sunny D and rice cakes. Global economic growth is the life force of global stock markets so the news led to broad drops in equity markets internationally.
Tomorrow:
- ‘Tis the earnings season…Alcoa (AA) kicked off the next few weeks of 3rd quarter earnings reports after today’s close – shares were up nearly 1% in after-hours trading after the aluminum-producer beat analysts’ expectations (we’ll see how this bellwether affects markets tomorrow).
- The Federal Reserve‘s “Beige Book” summarizes US economic data as of late…
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Matt (617)721-6600