Stocks will likely have a calmer session today after Monday's
indiscriminate sell -off that was followed by
other global markets , particularly Japan's Nikkei Index
which is now down more than 14% year to date . Pre-open
sentiment is pointing towards positive open for the U.S. indexes.
But irrespective of how today's session unfolds, the growth
question has take center stage for stock market investors
in a way that few of us could have foreseen.
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The growth fears about the U.S. economy, stoked by Monday's
surprisingly weak manufacturing sector survey, are new and hard
to make sense of given the plethora of earlier data pointing in
the otherdirection . Weather has certainly been very erratic
lately and could be showing up in the data, but it's too early to
tell. Friday's jobs report in particular and the
service-sector ISM report later this week will give us more data
points to get a handle on the evolving U.S. economic picture.
Unlike the U.S., the Chinese data is clearly pointing to renewed
slowdown. There is some volatility in Chinese data around
the Lunar New Year , which doesn't fall on one specific date
every year. So some of the weakness in recent Chinese numbers
could be associated with that. But there is slowdown in that
economy beyond what would typically be associated with New Year
related volatility and questions about that country's financial
sector definitely represent a big downside risk. Chinese slowdown
in turn has knock-on effects on countries dependent on commodity
exports to that country. So you have legitimate question marks
about the growth momentum on the margin for countries like
Brazil, Indonesia, South Africa, and Australia.
Beyond the effects of China's growth on the rest of
the emerging markets is the ongoing turmoil in that group of
countries, supposedly as a result of the Fed's Taper decision. We
don't know at this stage how much impact the capital flight and
associated weakness in exchange rates will have on these
countries' economic growth. But we do know it will be negative as
one of the ways in which they can stabilize their exchange rates
is by tightening monetary policies. Emerging markets account for
a bigger chunk of the global economy at present and weakness
there will have a bearing on the U.S. as well as Europe and
The U.S. economy is no doubt a lot less dependent on trade than
Germany, China or even Japan, but it's not entirely immune
either. What this means is that while weakness in the emerging
markets may not be enough push the U.S. economy into a recession,
but it will have a bearing on the growth outlook, at least on
the margin . Stock market investors are trying to
size up this direct impact at present.