Europe Could Face a Recession in 2012
The European Central Bank announced Wednesday morning that more than 500 European banks borrowed nearly 490 billion euro in the ECB’s largest monetary operation on record. The plan was originally unveiled on Dec. 8 in response to the region’s worsening debt crisis. Through the operation, banks were able to borrow unlimited amounts of cash — in exchange for “qualifying” collateral — for three years at below-market interest rates. Many experts expected that banks would demand closer to 300 billion euro. We view the news as positive as it provides a solution to the serious funding problems faced by Europe’s banking system.
By Arne Espe, Vice President, Mutual Fund Portfolios
This content is provided courtesy of USAA.
Although Europe appears to have solved its bank funding problems for now, it is not out of the woods yet. Due to major austerity programs (spending cuts and tax increases) undertaken by its weaker countries, we expect the continent to enter recession in 2012. Although this will dampen U.S. economic growth, we believe the U.S. will avoid recession.
This week provided further evidence of a U.S. economy that appears to be gathering steam. The index of U.S. leading economic indicators rose a higher-than-forecast 0.5% in November, implying a positive outlook for the first half of 2012.
The labor market continues to heal. Weekly initial jobless claims dropped to 364,000, a three-year low.
The U.S. housing market is showing signs of life. U.S. housing starts beat expectations increasing 9.3% month-over-month in November. Existing home sales also surprised to the upside, increasing 4% month-over-month vs. the 2.2% expected. The National Association of Home Builders housing market index improved in December, rising by 2 points to 21. All of the component indicators showed positive strength, particularly in single-family home sales. While builder confidence has been rising recently, it still is well below its historical average and only one-third of its pre-housing peak.
The S&P 500 climbed 3.79% on the week to close at 1,265. U.S. Treasury bonds declined, with the yield on the 10-year rising 0.18% to close at 2.03%.
Related posts:
No comments yet.
Be first to leave your comment!
Only registered users can comment.