What I’m Watching This Week – 4 June 2012

Tough week that ended with a ruthless clock cleaning…

The financial markets ended the week by providing the worst day of the year.  No escaping that reality as the unease of major economic issues continues to weigh on the markets.  When the closing bell sounded on Friday, the broader indexes finished in the negative; down 2.22% for the Dow Industrials, down 2.46% for the S&P 500, and 2.82% for the NASDAQ.   Global sentiment wasn’t much better with the FTSE 100 down 1.14% and the Hang Seng Index down .38%.

Widespread weakness and under performance ruled the week as the economic and political situation in Europe continue to endlessly dance on a razors edge.  Continued fears of a global economic slowdown are resonating more loudly now as insufficient job formation and stagnant personal earnings growth accentuate an environment that is shadowing over the U.S, Europe and emerging countries.

The Dow Jones Industrial Average has wiped out all of its 2012 gains as U.S. jobs growth during May slowed to its smallest increase in a year. All 10 industry sectors in the S&P 500 finished lower, with financial stocks taking the hardest hits. Energy stocks also are sharply lower as crude oil prices continued their sharp decline and natural gas fell to $2.32.  Gold, unsurprisingly, moved higher as the U.S. dollar reversed its recent surge following the disappointing jobs report.

Last month’s manufacturing growth in the U.S. slowed as factories adjusted back production and trimmed inventories in response to weakness in the global economy. Manufacturing activity in China slowed considerably last month, elsewhere, in Britain, the manufacturing sector shrank at its fastest pace in three years.  Canada, however, saw its best growth in eight months. All this expresses continued uncertainty and volatility. The growing recognition of political dysfunction regarding a synchronized global slowdown is startling. Where are the world’s leaders?   The U.S. congress continues to demonstrate its outright incompetence.  The G7 and IMF can show neither legitimacy nor credibility in handling these circumstances. And the G20 is whistling past the graveyard.  Effective policy making is only effective if other policy-making entities are both able and willing to actually accomplish a task at hand. I remain hopeless optimistic that a comprehensive solution will rule the day and that the world’s political class will shed the need to campaign on every solitary issue rather than resolve the problems.  Disappointingly, if the last five months are any indication of what we can expect going forward, it’s going to be a very long and hot summer.