(February 22, 2012) US markets retreated on Wednesday as markets remain skeptical about Greece’s ability to stick to tough new measures imposed by EU leaders. Investors continue to be wary about the country eventually defaulting on its debts and leaving the single-currency bloc eventually.
To begin with, the latest deal package lacks a roadmap for the country’s economic growth. The country’s economic output contracted for the fourth year on a trot, and is expected to shrink by another four percent this year. Though Greek Finance Minister Evangelos Venizelos termed the latest deal as a significant development that gives the country a new opportunity, doubts also remain over its ability to enforce new spending cut measures in a short span of time to access the latest round of funding.
Ratings agency Fitch’s decision to downgrade Athens further into junk status, from ‘CCC’ to ‘C’ – just one notch above the lowest at D, on Wednesday fuelled growing skepticism. A draft new bill, part of the bailout money deal, showed the country’s public deficit will remain high at 6.7 percent of GDP this year, missing the target of 5.4 percent by a wide margin. It is theses numbers that probably spooked the markets today, despite the bailout money being committed barely 24 hours ago.
Also Greece’s April elections remain a major flashpoint. If no parties manage a clear majority, the future of continuance of the austerity measures would become more uncertain.
The southward journey of major indexes on Wednesday was termed variously as a ‘breather’ and ‘pause’ by analysts. The Dow Jones Industrial Average shed 27 points, or 0.2 percent to close at 12,939, while the S&P 500 slipped 0.3 percent to 1,358. The NASDAQ fell 15 points, or 0.5 percent, to 2933.
Stocks were pressured in early trading on Wednesday as the HSBC China manufacturing index grew slower than expected to 49.7 in February from 48.8 a month earlier. Any reading below 50 indicates contraction, indicating the Chinese central bank may further loosen credit norms to stimulate growth. The unexpected news of European private economic activity contracting in January, as indicated by the Purchasing Managers’ Indices data, didn’t help the sentiments either.
Led by retail-giant Wal-Mart Stores Inc., which lost 2.4 percent, 20 stocks out of the 30-member DJIA closed lower.
The financial sector was hammered among the 10 major sectors on the S&P 500 while energy gained the most.
Dell Inc slipped 5.8 percent on the day, the personal computer maker’s second fall in a row, as quarterly earnings fell short of expectations.
The yield on benchmark ten-year notes fell 0.4 percent as Treasury prices gained.