The magic no longer works, as the US Federal Bank discovered this week. Its ‘twist’ operation, designed to help banks lend to the economy by issuing relatively long-term bonds to replace short-term paper, was not enough to take the markets’ collective mind off weak US home sales, eurozone nail-biting and indifferent Chinese demand.
44.8 - preliminary PMI in June for manufacturing in the eurozone - a three-year low
This left the metal markets feeling jaded, and quite a few investors pulling out their money.
The preliminary purchasing managers index (PMI) for manufacturing in the US, compiled by Markit Economics, fell to 52.9 in June from 54.0 in May, and pointed to the weakest manufacturing growth in 11 months.
A similar PMI index for manufacturing in China prepared for HSBC bank fell to 48.1 in June from 48.4 in May, staying stubbornly below 50 and at its lowest level for more than six months. And the preliminary PMI for manufac-turing in the eurozone came in at a three-year low of 44.8 in June, down from 45.1 in May.
Even confidence in Germany is falling. The IFO economic research institute in Munich found that the country’s business climate index dipped to 105.3 in June, its lowest level for two years, as well as being down from 106.9 in May.
In Japan, data designed to track the Bank of Japan’s Tanakan survey suggested that the next indicators will point to softening manufacturing output.
For good measure, the ratings agency Moody’s downgraded some 15 major US and European banks.
Summits designed to resolve the eurozone crisis are coming thick and fast, as is advice from the International Monetary Fund and elsewhere. At the start of this week, the leaders of France, Germany, Italy and Spain agreed on the need for a growth package; the end of the week would see a full EU summit.
As MRW went to press, German and French leaders were due to meet ahead of the summit, with little indication that Germany would agree to EU members ‘sharing’ other countries’ debts. The uncertainty has not been helped by reports that Cyprus had indicated that it might need a bailout.
The markets are taking increasingly less notice, although they see the summit as important. Some pessimistic observers believe that it will take something dramatic like the exit of Greece from the eurozone to concentrate politicians’ minds.