Shares in Europe and the United States edged lower yesterday, dropping for a second straight day as investors looked for reasons to extend a recent rally amid signs of slowing economic growth.
Doubts grew over Spain’s willingness to ask for an aid package, raising new concerns about Europe’s debt crisis and the euro, while bellwether FedEx cut its profit forecast, seriously darkening the outlook for corporate earnings.
In addition, the Swiss government cut its growth forecast for this year and next.
Equities are coming off strong gains last week, when the Federal Reserve promised to keep pumping money into the US economy and the eurozone’s bailout fund got crucial backing from a German court. The S&P climbed to multi-year highs while European shares reached a 14-month peak.
Many investors said the pullback this week was to be expected as investors took profits, especially in the absence of fresh catalysts. European shares closed 0.4 per cent lower while the S&P lost 0.2 per cent. Global indexes also fell by 0.45 per cent.
“Economic data is where the immediate focus is going to be, but remember we are almost at the end of the quarter here – it is a quarter where there is some concern about earnings and the economic recovery going forward, at least in the near-term,” said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.
FedEx Corp. cited weakening global economic conditions for its reduced 2013 profit outlook. Its stock fell 2.1 per cent.
However, Apple Inc., the most valuable US company, continued its meteoric rise as consumers sign up for the new iPhone. Its shares, up more than 70 per cent so far this year, reached an all-time high and topped $700 million.
Investors are becoming worried that Spain may try to avoid accepting what would be a politically unpopular EU/IMF bailout. Requesting aid is a condition for the European Central Bank to start buying bonds of any troubled government in the eurozone.
“We take the view that delaying tactics by the Spanish government to request aid could backfire and lead to renewed upward pressure on yields, because markets are effectively assuming that an aid request is more or less a done deal,” warned Rabobank economist Elwin de Groot.
Uncertainty was evident in bond markets. German Bund prices rose by 0.28 per cent as the reversal of the recent falls continued. Meanwhile, the costs of borrowing for Italy and Spain eased.
Ten-year Spanish bond yields dipped back below the six per cent barrier that was breached on Monday, and were five basis points lower at 5.97 per cent.
The euro dropped 0.55 per cent, back below $1.306. The yen was also pressured, with speculation that the Bank of Japan might loosen policy on Wednesday following last week’s move by the US central bank.
The Dow Jones industrial average was down 2.48 points.