World stock markets slip on recession fears
Pan Pylas (AP, 10/15/08)
World stock markets slip after 2-day rally as economic concerns mount
LONDON (AP) -- European and Asian markets mostly fell back Wednesday following a strong two-day rally amid concerns that the global efforts to restore confidence in the battered financial system will not be enough to stave off a deep recession. The FTSE 100 index of leading British shares was down 145.28 points, or 3.3 percent, at 4,248.93. Germany's DAX was 149.23 points, or 2.9 percent, lower at 5,049.96, while France's CAC-40 was 94.32 points, or 2.6 percent, down at 3,534.20.
The losses in Europe's follow similar declines in the U.S. and most Asian markets, except Japan. Wall Street is expected to start its session later lower, with Dow futures predicting a 33 point, or 0.04 point, decline to 9,239. "The rally in the global markets over the last 2 days has come to a speedy halt," said Sejal Patel, a trader at CMC Markets.
The hefty gains seen in the early part of the week were due to the unveiling of a series of bank rescue packages from governments around the world to restore confidence. On Tuesday, the U.S. government followed Europe's lead and announced it is to pump some US250 billion into shares of its leading banks, including JP Morgan Chase & Co., Bank of America Corp., Goldman Sachs Inc. and Citigroup Inc.
The long-term key is whether the flurry of activity can actually break the logjam in credit markets and the early indications are that there has been some easing in rates and spreads, with further declines Wednesday. The interbank lending rate for three-month dollar loans fell 0.09 percent to 4.55 percent, while the three-month Euro Interbank Offered Rate, or Euribor, fell almost 0.067 percentage points to 5.168 percent.
Though the rates are falling, the differential between the rate at which banks lend to each other and official central bank lending rates remain high, signalling a strong degree of mistrust still exists. In the U.S. the base central bank rate is 1.5 percent, in the euro area it is 3.75 percent and 4.50 percent in Britain. Even if lending rates between banks continue to respond to the packages announced by governments around the world -- Greece became the latest Wednesday when it unveiled a euro28 billion bank rescue plan -- they will do nothing to prevent a serious economic slowdown. "The global economy cannot realistically be expected to bounce back any time soon from the catastrophic shocks it has suffered over the past six weeks," said Stephen Lewis, an analyst at Monument Securities.
"Even if the authorities have fixed the banks so that there are no more systemic alarms, the attitudes to credit extension that prevailed before the shocks are unlikely to return," he added. The effect on the real economy was highlighted Wednesday in Britain with the news that unemployment rose by another 164,000 between June and August, to 1.79 million. The biggest rise since 1991 took the official unemployment rate up to 5.7 percent from 5.2 percent in the previous quarter.
And in Iceland, the central bank slashed its interest rates by 3.5 percent, bringing the policy rate down to 12 percent from a record high of 15.5 percent as the country struggles to deal with the impact of the global credit squeeze because of its heavyweight banking sector.
Concerns about the global economic outlook are clear also in the price of oil, which has fallen another $1.49 to $77.14, near the year lows recorded last Friday when stock markets around the world collapsed. Resource issues have also taken a hit on worries about slowing demand. Shares in Posco, the world's fourth-largest steelmaker, lost almost 8.7 percent in South Korea, while BHP Billiton Ltd, Australia's largest oil and gas producer, sank more than 4 percent.
A day after announcing billions in new spending to protect Australia's economy, Prime Minister Kevin Rudd accused Wall Street of "obscene failures" in corporate governance and blamed "extreme capitalism" for turmoil. Earlier in Asia, Hong Kong's Hang Seng Index lost 834.58 points, or nearly 5 percent, to close at 15,998.30 after rising more than 13 percent the previous two days. Markets in Australia, South Korea, China, India and Singapore also sank.
Japan's Nikkei 225 index bucked the trend, however, ending up 1.1 percent at 9,547.47. The benchmark soared 14 percent in the previous session -- its biggest single-day gain ever. In Hong Kong, Chief Executive Donald Tsang said the meltdown was even worse than the 1997 Asian financial crisis and would take a far bigger toll on the global economy.
Major exporters such as Japanese automakers slumped due to concerns over the U.S. economy, a vital market for Asian goods. Honda Motor Co. shed 5.23 percent, and Toyota Motor Corp. lost 1.88 percent. In the currency markets, the euro was stronger at $1.3645, while the dollar dipped against the yen for the first time in five days and is now trading above 101 yen.
Associated Press Business Writer Jeremiah Marquez in Hong Kong contributed to this article.
