World markets survive another scare

There is no escaping volatility for the global stock markets as sovereign debt concerns continued to haunt investors around the world. Global markets had another topsy-turvy week, though they did manage to rebound by the end of the week. Remarks by an official in Hungary that the country might default on its debt unnerved investors before the government swung into action to limit the damage. The Hungarian prime minister announced an economic plan that included cuts in public-sector wages. Greece's main share index hit its lowest level since March 1998 and the euro sank to a four-year low against the dollar.

Global Markets

Global Markets

Markets to sink ?

Friday’s news of a buckling US job market sent stock investors running for the exits, and next week promises to be no less stressful as investors grapple with the increasing possibility of an economic recession. The weekend will also give investors time to reflect on news US employers cut payrolls by 4,000 jobs last month.

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However, it is unlikely that there will be much clarity ahead of the anxiously-awaited Federal Reserve interest rate decision the following week, as investors debate whether and by how much the Fed will cut key interest rates. “The pendulum is going to swing between the euphoria — we’re going to get a rate cut, things are not that bad — to the world is going to end, we’re going into a recession,” said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

The Dow Jones industrial average fell 249.97 points, or 1.87 percent, to end at 13,113.38. The Standard & Poor’s 500 Index was down 25.00 points, or 1.69 percent, at 1,453.55. The Nasdaq Composite Index was down 48.62 points, or 1.86 percent, at 2,565.70.

The Dow was down 1.8 percent for the week, while the S&P 500 was down 1.4% and the Nasdaq was down 1.2%. For the S&P, it was the worst week since the beginning of August, while the Dow had its worst week since the week ending July 29. Fresh economic data will be studied warily for more signs the housing slump and subprime mess is spreading into other sectors of the economy.

“People will be nervous about all economic releases, because Friday’s jobs number showed that perhaps things are getting worse quicker than the market had previously believed,” said Eric Kuby, chief investment officer, North Star Investment Management Corp. in Chicago.

The sixth anniversary of the Sept. 11 attacks may also trigger some market unease, especially after al Qaeda leader Osama bin Laden said in a video seen by Reuters on Friday that the United States was vulnerable despite its military and economic power.

Trading volume, which has suffered from summer vacation-induced thinness in recent weeks, will likely jump as market participants return to their desks. Defensive stocks are expected to benefit as investors rejig their portfolios on the mounting evidence of a slowdown, analysts said.

“As people return they are going to be shifting to recession-resistant names such as health care, defence contractors and consumer staples,” said Thomas Nyheim, vice president at Christiana Bank & Trust in Greenville, Delaware. Among the economic data likely to garner market attention are initial jobless claims, consumer confidence, retail sales and industrial production.

As Federal Reserve Chairman Ben Bernanke said in a speech last week in Jackson Hole, Wyoming: “We will pay particularly close attention to the timeliest indicators.” Weekly jobless claims data, due on Thursday, could be more significant than usual as investors look for clues on whether the weak employment trend is here to stay.

And if Friday’s industrial production numbers come in lower and add to recession fears, Wall Street could see another negative turn, said Christiana’s Nyheim.

Global Market Analysis

Global Market Analysis (13-08-07 to 17-08-07):

1) US & EU Markets:

· In the world's financial markets, the subprime mortgage collapse may finally be contained. Stocks in the U.S. and Europe rallied after the Federal Reserve unexpectedly cut the discount rate to ease a credit crunch. Crude oil, copper and gold advanced on reduced concern that the U.S. economy, the world's largest, would slow. Three- month U.S. Treasury bill yields leapt as the safe haven of government debt faded and the dollar fell versus the euro for the first time in a week.

· European stocks advanced for the first time in four days after the U.S. Federal Reserve unexpectedly lowered the rate at which it loans money to banks to ease the effects of a rout in global credit markets.

· The biggest rally in four years for the Standard & Poor's 500 Index helped the U.S. stock market wipe out most of the week's losses after the Federal Reserve reduced the discount loan rate.

2) Asian Markets:



* Asian stocks tumbled for the fourth week, posting their biggest drop in 17 years as a deepening U.S. housing slump and spreading credit crunch cooled investor demand for equities.
* Hong Kong & South Korean stocks dropped, completing their worst week since the terrorist attacks of Sept. 11, 2001.
* Asian Stocks tumbled worst in August till day by 11-16 % on US Subprime worries and funds withdrawal by Hedge Funds.



3) Emerging Markets:



· Emerging-market stocks also fell by 6-8% during the week and 7-11 % till day in August on Global Concern.



4) Commodity Markets:



· Crude oil rose 1.4 percent in New York, the biggest gain in almost three weeks, as the U.S. Federal Reserve lowered its discount rate to prevent an economic slowdown and a hurricane bound for the Gulf of Mexico may threaten oil rigs, pipelines and refineries.

· All Non-Ferrous Metals has lost 4-8% during the week on Global Sell Off.



5) Currency Markets:



* The dollar fell versus the euro for the first time this week after the Federal Reserve cut its discount lending rate to prevent credit market losses from slowing the economy.
* Australia's central bank bought the nation's currency for the first time in six years to stem the steepest drop since it was allowed to trade freely in 1983.
* Asian currencies tumbled this week, wiping out this year's gains in the Singapore dollar and South Korean won, as losses linked to the subprime market sparked the worst five-day decline in the region's stocks since 1990.
* Indian INR faced its biggest weekly fall of 1.73 % to Rs.41.33 since May 2004 on continued selling of equities by foreign funds, particularly hedge funds, on the fears the credit squeeze in the US would spread.



6) Bond Markets:

· Two-year Treasury notes gained after the Federal Reserve cut the interest rate it charges to banks, suggesting that central bankers are moving closer to lowering borrowing costs as credit market conditions deteriorate.

· The Federal Reserve reduced the interest rate it charges banks and acknowledged for the first time that an extraordinary policy shift is needed to contain the subprime-mortgage collapse that began roiling the world's financial markets two months ago.

· The Federal Reserve's surprise interest rate reduction failed to revive demand for asset-backed commercial paper and mortgage securities, the very markets the cut was intended to help. The cut “may help add confidence that action will be taken when it's necessary, but further action is needed to actually offset the credit contraction we have had,” Ashish Shah, Global Head of Credit Strategy at Lehman Brothers Holdings Inc. said.

* China will probably raise interest rates by the end of September to cool the economy after inflation accelerated to a 10-year high and record trade surpluses pumped cash into the financial system.