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January 22, 2008 10:30am
AUSTRALIAN shares have taken a battering in early trade today after European share markets plunged overnight on fears of a US recession with investors bracing for a global stock-market crash.For local share investors, financial horror has firmly set in as their wealth washes away. For retirees, their savings are shrinking as superannuation funds post huge losses. The S&P/ASX200 had plunged 210 points by 10:12am AEDT to 5376.1, or down 3.7 per cent. By 10.42 AEDT, the market had rebounded slightly to 5386.5, or down 193.9 points, down 3.5 per cent. The benchmark S&P/ASX200 index is now down more than 20 per cent from its life high of 6851.5 reached in November 2007, indicating a slip into bear market territory. Dealers said a key new plan by President George W. Bush to prevent a US recession was not enough to offset the stream of bad news from banks due to the crisis in the American housing market. "People aren't buying the US bail-out story and that feeling has been exacerbated by the weakness overnight in the Asian markets," Richard Hunter, equities analyst at broker Hargreaves Lansdown, said in London. "The other thing we have seen today is a lack of buying interest -- people are battening down the hatches while they see what happens in the US," he said, noting that Wall Street was closed yesterday for a national holiday. A credit squeeze prompted by a crisis in the US subprime, or high-risk, mortgage sector has given way to a wider malaise in the world's biggest economy, with unemployment rising and the dollar falling. Many analysts now fear that the US slowdown could damage the world economy. International Monetary Fund head Dominique Strauss-Kahn warned yesterday that "all the world's countries are suffering from the slowdown in growth in the United States, at least all developed countries". And later yesterday, Jean-Claude Juncker, the chairman of the Eurogroup finance ministers, added to the gloom. "The situation is continuing to deteriorate in the United States," Mr Juncker said after chairing a meeting in Brussels with finance ministers from the 15 countries that share the euro. "In recent months, we have always ruled out a recession in the United States, but we cannot totally rule it out today," Mr Juncker, who is both Luxembourg's prime minister and finance minister, said. World oil prices slid on deepening worries about a potential drop in energy demand owing to the weakness of the US economy, analysts said. New York's main contract, light sweet crude, shed $US1.76 to $US88.1 a barrel. The US dollar meanwhile rose strongly against the euro. Dealers said that "carry-trade" investors, who had been putting money into higher-yielding currencies, were now cutting back on those positions to the benefit of the US dollar, which still offers safe-haven qualities. But there were no safe havens for stock market investors. The main London, Paris, Frankfurt and Madrid exchanges had their biggest single day losses since the September 11, 2001, attacks on New York and Washington. London's FTSE 100 index plunged 5.48 per cent, the Paris CAC 40 lost 6.83 per cent, Frankfurt's DAX shed 7.16 per cent and Madrid fell 7.54 per cent. Other exchanges across the continent had similar losses. Hours later, the chill had spread to Latin America. In Sao Paulo, Latin's biggest market, the main Ibovespa index fell 6.6 per cent to 53,709 points, at close of trading. Argentina's Buenos Aires stock exchange closed 6.27 per cent down at 1,876.87. The nervousness in Europe and America was fuelled by falls earlier in the day across Asia, with Tokyo's benchmark index closing a hefty 3.86 per cent lower, hitting its lowest point since October 2005. Markets were reacting to the US president's plan announced last Friday for $US140 billion (97 billion euros) in temporary tax cuts and other measures to ward off a recession in the world's biggest economy. Mr Bush's package "is seen as too late and not strong enough to make an impact", Najeeb Jarhom, head of research for retail clients at Fraser Securities in Singapore, said. "It looks like the US is heading for a recession or may be already in recession, looking at the data," he said. A recession is negative growth for two consecutive quarters. Asian markets had rebounded at the end of last week on hopes for Mr Bush's stimulus plan but opened sharply down on Monday after seeing Wall Street's lack of enthusiasm for the announcement. Investors were also uneasy as it would take another day to gauge further reaction in the United States, where markets were closed for the Martin Luther King holiday. Mr Bush on Friday said his plan would be worth "around one percent" of US gross domestic product and offer tax rebates, incentives for businesses and other measures to encourage growth. Dealers said they had hoped for surprises in Bush's much-anticipated announcement, particularly on how to salvage the troubled housing market. The US economy has been hit hard by rising defaults in the "subprime" mortgage sector, in which Americans with bad credit records are struggling to pay back housing loans given to them during the housing boom.
AUSTRALIAN shares have taken a battering in early trade today after European share markets plunged overnight on fears of a US recession with investors bracing for a global stock-market crash.For local share investors, financial horror has firmly set in as their wealth washes away. For retirees, their savings are shrinking as superannuation funds post huge losses. The S&P/ASX200 had plunged 210 points by 10:12am AEDT to 5376.1, or down 3.7 per cent. By 10.42 AEDT, the market had rebounded slightly to 5386.5, or down 193.9 points, down 3.5 per cent. The benchmark S&P/ASX200 index is now down more than 20 per cent from its life high of 6851.5 reached in November 2007, indicating a slip into bear market territory. Dealers said a key new plan by President George W. Bush to prevent a US recession was not enough to offset the stream of bad news from banks due to the crisis in the American housing market. "People aren't buying the US bail-out story and that feeling has been exacerbated by the weakness overnight in the Asian markets," Richard Hunter, equities analyst at broker Hargreaves Lansdown, said in London. "The other thing we have seen today is a lack of buying interest -- people are battening down the hatches while they see what happens in the US," he said, noting that Wall Street was closed yesterday for a national holiday. A credit squeeze prompted by a crisis in the US subprime, or high-risk, mortgage sector has given way to a wider malaise in the world's biggest economy, with unemployment rising and the dollar falling. Many analysts now fear that the US slowdown could damage the world economy. International Monetary Fund head Dominique Strauss-Kahn warned yesterday that "all the world's countries are suffering from the slowdown in growth in the United States, at least all developed countries". And later yesterday, Jean-Claude Juncker, the chairman of the Eurogroup finance ministers, added to the gloom. "The situation is continuing to deteriorate in the United States," Mr Juncker said after chairing a meeting in Brussels with finance ministers from the 15 countries that share the euro. "In recent months, we have always ruled out a recession in the United States, but we cannot totally rule it out today," Mr Juncker, who is both Luxembourg's prime minister and finance minister, said. World oil prices slid on deepening worries about a potential drop in energy demand owing to the weakness of the US economy, analysts said. New York's main contract, light sweet crude, shed $US1.76 to $US88.1 a barrel. The US dollar meanwhile rose strongly against the euro. Dealers said that "carry-trade" investors, who had been putting money into higher-yielding currencies, were now cutting back on those positions to the benefit of the US dollar, which still offers safe-haven qualities. But there were no safe havens for stock market investors. The main London, Paris, Frankfurt and Madrid exchanges had their biggest single day losses since the September 11, 2001, attacks on New York and Washington. London's FTSE 100 index plunged 5.48 per cent, the Paris CAC 40 lost 6.83 per cent, Frankfurt's DAX shed 7.16 per cent and Madrid fell 7.54 per cent. Other exchanges across the continent had similar losses. Hours later, the chill had spread to Latin America. In Sao Paulo, Latin's biggest market, the main Ibovespa index fell 6.6 per cent to 53,709 points, at close of trading. Argentina's Buenos Aires stock exchange closed 6.27 per cent down at 1,876.87. The nervousness in Europe and America was fuelled by falls earlier in the day across Asia, with Tokyo's benchmark index closing a hefty 3.86 per cent lower, hitting its lowest point since October 2005. Markets were reacting to the US president's plan announced last Friday for $US140 billion (97 billion euros) in temporary tax cuts and other measures to ward off a recession in the world's biggest economy. Mr Bush's package "is seen as too late and not strong enough to make an impact", Najeeb Jarhom, head of research for retail clients at Fraser Securities in Singapore, said. "It looks like the US is heading for a recession or may be already in recession, looking at the data," he said. A recession is negative growth for two consecutive quarters. Asian markets had rebounded at the end of last week on hopes for Mr Bush's stimulus plan but opened sharply down on Monday after seeing Wall Street's lack of enthusiasm for the announcement. Investors were also uneasy as it would take another day to gauge further reaction in the United States, where markets were closed for the Martin Luther King holiday. Mr Bush on Friday said his plan would be worth "around one percent" of US gross domestic product and offer tax rebates, incentives for businesses and other measures to encourage growth. Dealers said they had hoped for surprises in Bush's much-anticipated announcement, particularly on how to salvage the troubled housing market. The US economy has been hit hard by rising defaults in the "subprime" mortgage sector, in which Americans with bad credit records are struggling to pay back housing loans given to them during the housing boom.
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