Struggles in Europe Lead to Low GM Earnings

Allison Kade
Posted

Ever since European Central Bank President Mario Draghi’s comment last week that the ECB was ready to “do whatever it takes to preserve the euro,” investors were hopeful that the central bank would announce new measures to counter the crisis, like buying government bonds of ailing countries.

That speculation was so strong that it improved the yields on Italian bonds earlier this week. The outcome? No such luck.

Yesterday, Draghi said that the ECB may soon step in, but would only do so under strict conditions and after struggling countries submit a request for aid. Although his comments were supposed to inspire confidence in the euro, they had the opposite effect: Disappointed investors sold stocks and demanded higher yields on government bonds from ailing countries like Spain and Italy.

The potential plan to buy ailing countries’ bonds isn’t dead yet, but the ECB is searching for a way to execute on it that will be okay with Germany, one of the most politically powerful players in the European crisis.

This ongoing crisis has contributed to General Motors’ terrible earnings results: The auto maker’s profits are down 38%, underscoring the impact of dwindling European demand for cars.

Facebook’s share are also down, dropping below the $20 mark (Facebook stock traded as high as $45 on its first day). Investors are currently worried about issues like revenue growth and Facebook’s mobile strategy.

More bad news? The number of U.S. workers filing for jobless benefits rose again last week, possibly related to layoffs in the auto industry.

But there is a bright spot in the housing market: Housing prices rose sharply between April and May, the first increase in seven months, and foreclosures seem to be slowing. Meanwhile, 30-year mortgages are below 3.5%, so buyers with good credit may be facing a historically great opportunity to buy.

Image Credit: Flickr via European Parliament

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