What Is Important in the Financial World (4/16/2013)

Bad economic news has spread from troubled European Union nations to Germany. The ZEW Indicator of Economic Sentiment for Germany for April showed:

In April 2013 the ZEW Indicator of Economic Sentiment for Germany has fallen by 12.2 points and is now at a level of 36.3 points. Despite its decline, the indicator currently hovers at its third highest mark within the last 24 months. The current level has only been exceeded in the two preceding months.

“Basically, the surveyed financial market experts remain confident, but are less optimistic than they have been in the previous month. The decline in economic sentiment is consistent with the release of economic data that fell short of expectations”, says ZEW President Prof. Dr. Clemens Fuest. German exports into the Eurozone as well as the rest of the world have declined, for instance. The debt crisis in the Eurozone is still unresolved and causes uncertainty.

Many economists have said Germany cannot escape the implosion of most of the rest of the region. Its exports are too concentrated there. Demand for exports from the United States and Japan probably remain modest, based on economic measures in those two countries. That leaves China, where recent data shows that its GDP growth engine has cooled.

Yahoo! Earnings Buzz

A great deal of press coverage has been given to Yahoo! Inc. (NASDAQ: YHOO) earnings. As the nation’s largest portal, based on audience, the interest is understandable. Portals, which include AOL Inc. (NYSE: AOL) and Microsoft Corp.’s (NASDAQ: MSFT) MSN, have struggled to regain their positions in the online advertising world, where they were once the primary media for marketers. And the company’s new chief executive, Marissa Mayer, will be showing off the extent to which she has changed Yahoo!’s fortunes in a very short time. It is worth remembering, however, that Yahoo! is a small company, compared to almost every other one in which earnings are considered an indication of the economic recovery. Its stock has risen from a 52-week low of $14.59 to just above $24, which is near its 52-week high. But the public corporation’s market cap is less than $28 billion. And revenue for 2013 is unlikely to be more than $5.5 billion. By the standards of the overall stock market, the Yahoo! test is modest.

Catastrophe and the Markets

The explosion at the Boston Marathon that killed three people and injured more than a hundred others will test whether events outside the immediate economy can destabilize the stock market and financial system. The catastrophe, which has been described as the most violent terrorist incident since 9/11, may be an isolated one. However, investigators have not said otherwise and may not know. The tragedy is a reminder that a number of things could cause a sharp sell-off in stocks, and most are not domestic. North Korea is first on the list. A missile launch toward South Korea or Japan might cause a military conflict, and the markets certainly would react badly. Tensions in the Middle East could cause a disruption in oil supplies or a military conflict, which, like Korea, would batter markets unsure of the wider effects.