Euro Cuts Raise Concerns
At the June G-20 summit in Toronto, it was decided that countries would pursue necessary budget cuts to reduce sovereign debt. The U.S. insisted that the member nations continue to pursue growth as part of a successful formula to end the recession. The growth-trim controversy was the key discussion at the Toronto summit.
While the participants agreed to the concept, they returned home to unleash austerity cuts with little concern for growth. The avoidance of a strategy to grow alongside the debt reduction has spread beyond the euro zone as Britain, Brazil and India have joined the parade.
On Tuesday, China expressed concern that the euro zone cuts would greatly affect the country’s export balance. The U.S. has expressed the same concern ever since Greece needed assistance to meet its obligations.
In Monday’s after trade quarterly reports, IBM and Texas Instruments announced lower than expected results. The surprise announcements sent tremors thought European markers and sent the Nikkei to a 1.2 percent loss as European equities fell for a fifth straight day.
Earlier in the day, the euro had crossed the $1.30 mark and was holding at $1.3029. Nervous investors seemed to doubt the currency’s ability to handle the results of the stress tests to be revealed on Friday. The euro was trading at $1.2851 when U.S. markets opened but the slide looked to be continuing.
Director of research at Forex.com, Jane Foley, explained, “We’ve seen risk appetite claw back a fair amount and the market is questioning whether that move is valid.
China Speaks
On Tuesday, China’s Ministry of Commerce spokesperson, Yao Jian, said that the country’s export business would fall as a result of the cuts in he euro zone. China has enjoyed stellar gains in the first half of 2010.
In June, exports increased 43.9 percent in year-over-year comparisons and 48.5 percent in May comparisons. However, imports also rose dramatically and nearly nullified any growth in GDP.
Yao said that second half export growth would fall to about 16.3 percent yielding a 24.5 percent rise in GDP. That rise is modest by 2009 comparisons, but wages have been increased in certain areas and the Ministry of Commerce mentioned these changes are detrimental to the export-import ratio.
According to the International Energy Agency, China has replaced the U.S. as the world’s energy consumer. China challenged the report saying that Beijing was aggressively pursing replacement of outdated manufacturing plants.
Yao said China is expecting to begin new construction projects to meet the country’s rising consumption expenditures. With newly increased wages, demand for products has also increased and China will see a significant rise in internal sales.
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