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Debt-Ceiling Deal Fails to Calm Global Markets Debt-Ceiling Deal Fails to Calm Global Markets

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Debt-Ceiling Deal Fails to Calm Global Markets

It’s August 2, the deadline by which the Treasury Department said the country would default without an increase in the debt ceiling. A deal to do just that passed the House last night and is expected to glide through the Senate today. Things are looking up, right?

Not so fast. U.S. stock futures are down and world stocks hit a one-month low on Tuesday, according to Reuters, suggesting that the lack of a deficit-reduction deal is far from the only thing weighing on investors’ minds. Japan’s Nikkei index, Hong Kong’s Hang Seng, and Bombay’s Sensex each fell over 1 percent on Tuesday. European stocks were also down by midday.


Data released by the Commerce Department Tuesday morning showed that consumer spending in June unexpectedly fell for the first time in two years as personal income increased just 0.1 percent, suggesting that economic growth may remain sluggish in the third quarter, according to Reuters.

Markets cheered briefly Monday morning on news that a deficit-reduction agreement was reached over the weekend, but fell within 30 minutes after data showed that manufacturing growth hit a two-year low in July. The Dow, S&P 500, and Nasdaq all closed down for the day.

The tumble suggests that investors are focused on the underlying weakness of the recovery rather than the heated debt negotiations consuming Washington. Last week was the worst week of the year for U.S. stocks after Friday brought news that the nation's Gross Domestic Product grew by only 0.4 percent in the first quarter of 2011 and 1.3 in the second, well below analysts’ expectations. The data released by the Bureau of Economic Analysis also showed that the recession was worse than originally thought.


The U.S. isn't the only country with recent news of disappointing economic growth. China and the euro zone also revealed weak performance in the manufacturing sector. And investors across the globe are watching for signs that the United States’ top AAA bond rating may be downgraded, which credit ratings agencies have warned could happen even if the U.S. avoids default.

Put it all together and investors are still nervous—and it looks like it will take more than a debt deal to calm them.

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