Thursday brought a raft of data pointing toward a global economic slowdown, including:
Markit PMI for Europe falling to 45.9 from 46.7 in April while the May German IFO business confidence hit a six-month low and the U.K. reported a steeper-than-expected drop in third-quarter GDP.
Meanwhile, HSBC's flash manufacturing PMI fell to 48.7 in May, the seventh-straight month below 50, the watermark for expansion or contraction.
On the home front, April durable goods excluding aircraft fell 0.6% vs. an expected gained of 0.7%.
In the accompanying video, I discuss the data -- and the state of the global economy -- with Dr. Laura Tyson, a professor at Berkeley's Haas School of Business and former top economic adviser to President Bill Clinton.
Generally speaking, Tyson isn't too concerned about China's slowdown, noting it's the intended result of policies put into place last year. Plus, Chinese Premier Wen Jiabao declared this weekend "to prevent the economy from slowing down too rapidly is of great urgency," and state policy is sure to follow suit.
Neither is Tyson overly concerned about the U.S. economy. Citing recent signs of life in the housing market, she says the U.S. economy "has momentum to continue a moderate-based recovery." (See: Don't Look Now, But Here Comes Housing!)
Then there's Europe.
Tyson, who also served on President Obama's jobs council, presumes the U.S. economy can withstand a recession in the EU. But she worries about "the possibility of some dramatic seizure of capital markets" due to a Greek exit from the euro.
"The biggest danger to the world economy is a disruptive, disorderly exit from Greece, which causes a major seizure of credit markets in Europe," Tyson says. "You can't rule out the possibility of some dramatic seizure of capital markets, that's the great risk. It's not the recession itself."
The goods news is that markets have had ample time to prepare for a Greek exit from the eurozone and U.S. banks have reduced their exposure to Europe's so-called PIIGS, Tyson notes. Still, that process has only exacerbated pressure on distressed assets and she believes Europe will need a "TARP-like program" and quantitative easing from the European Central Bank in order to prevent runs on the banks of Spain, Italy and possibly France thereafter.
"I can only assume that's what they're discussing," Tyson says of EU policymakers, adding that Germany may drop its resistance to Eurobonds if they're designed to recapitalize the banks rather than bailout Europe's distressed sovereigns. "The European stability mechanism does not have an adequate level of assets to do this in the event of a major contagion effect hitting Spain, Italy and even France," she says.
As usual, the stock market grabs the headlines (See: Botched IPO, Facebook's) but the bond market is a better indicator of investors' appetite for risk -- or lack thereof.
In recent days, yields on German, U.S., Swiss, French, Australian and Canadian bonds have traded at or near record lows as global investors seek refuge from the sovereign debts of Europe's PIIGS as well as junk bonds and emerging market debt.
"There is a pulling back from risk going on in the bond market. It's very troubling," says Ed Dempsey, Chief Investment Officer of Pension Partners. "It would seem the bond market is signaling to us there is some sort of event that is imminent [and] it seems most likely that event is coming out of Europe."
How all this plays out remains unknown, although it appears the Greek vote on June 17 may provide some clarity -- one way or another.
The latest polls show confusion and division among Greek voters, who support keeping the euro by an overwhelming 85%, but the anti-austerity leftist SYRIZA party is still leading, with 30% support.
"We want Greece to remain in the euro area while respecting its commitments," reads a statement from EU leaders after this week's summit, Bloomberg reports. "We expect that after the elections, the new Greek government will make that choice."
In other words, something's gotta give and, from the looks of things, probably will.