Angst returns on German recession fears and US fiscal cliff

Wednesday, November 7, 2012
By Paul Martin

Stock markets skidded across the world and investors retreated to safe-haven assets on fears that Europe’s festering crisis has spread to Germany and a bitterly-divided Washington may struggle to avert a fiscal crisis.

By Ambrose Evans-Pritchard
TelegraphUK
07 Nov 2012

Mario Draghi, the European Central Bank’s president, warned that Germany is no longer insulated from the slump in southern Europe. “The latest data suggest that these developments are now starting to affect the German economy,” he said, triggering an immediate sell-off on Europe’s bourses and pushing the euro down to almost $1.27 against the dollar.

Germany’s industrial output dropped 1.8pc in September and orders fell 3.3pc, far worse than expected. Spanish industrial output fell 7pc. Annalisa Piazza from Newedge said it was a shocking upset and implies that Germany may be in recession already.

Flight to safety pushed down yields on two-year German debt to -0.06pc, nearing the all-time low seen during the last eurozone debt spasm in July. Yields on 10-year US Treasuries fell 11 basis points to 1.63pc.

The jitters came as American voters delivere split government yet again, with the Republicans still in charge of the House of Representatives and the Democrats still shy of a 60-seat super-majority in the Senate.

Alan Greenspan, ex-chairman of the US Federal Reserve, said it is unclear whether President Barack Obama can reach a deal with Congress to head off the “fiscal cliff” in the few working days before recess in mid December. Unless the two sides agree there will be automatic tax rises and spending cuts worth $600bn or 4pc GDP at the end of the year.

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