Paris: Global Fears That US Is Soon Heading Into Recession Triggered

9 Aug

NEWS UPDATE:

 
Cabinet fears US turmoil may halt recovery

FINANCE Minister Michael Noonan has admitted the Cabinet is “very concerned” the ongoing economic turmoil in the US could prevent an Irish and worldwide recovery, after a 24-hour market bloodbath that saw billions of euro wiped off shares.

Speaking as market indexes across the globe failed to react positively to moves to halt the dual crises in the US and the eurozone, Mr Noonan said it was “too soon” to know how Ireland will be affected.

However, he conceded the Government is worried about the possibility of a double-dip recession in the US, and its resulting impact abroad, including a possible decrease in Irish exports.

“We’d be very concerned about a further dip in the US, because the US, I believe, will still lead a world recovery supported by emerging nations like China and India. That’s worrying,” he said.

Under the Irish bailout deal, the Government is obliged to make savings of at least €3.6 billion in the budget in order to reach deficit-reduction targets.

Asked if a US slump would require an even harsher budget to meet those targets, Mr Noonan replied: “It’s too soon to say what the consequences of what’s happening in America will be, because there are some positive signs in the American economy as well, and a lot of commentators would disagree that there’s a double dip recession in prospect.”

The Government is obliged to reduce the deficit to 8.6% of GDP in the budget, he said. “Now, whether we can get there on €3.6bn or slightly more is not clear yet.”

He said the Government was monitoring events in Europe and the US “very closely,” but added: “There’s nothing directly that we can do at the moment.

“From our point of view, we’re reasonably well-positioned since the renegotiation downward of the interest rate and the other [bailout changes]. But we’re always a small player in these events and we can be dragged back into difficulty by external forces.”

His comments came as markets in Europe, the US and Asia saw share prices tumble on the back of recent turmoil in the US and despite the European Central Bank’s decision to purchase bonds in Italy and Spain as investors sought to find a safe-haven for their money in gold.

The Dow Jones closed down 5.5% — its biggest one-day point fall since December 2008 — with the Nasdaq also dropping 6.9%.

In Europe, the FTSE in London fell by 3.4%, losing more than 100 points for the fourth market day in a row. Dublin’s ISEQ dropped by 4.4% compared to one day earlier, and markets in Frankfurt and Paris fell 5% and 4.7% respectively.

US President Barack Obama blamed the US crisis on the recent stand-off between Democrats and Republicans, adding people could not control “earthquakes” or “oil prices” but could control how they react to them. In a thinly veiled attack on Standard and Poor’s & decision to downgrade the US rating to AA+, he added: “No matter what some agency may say, we have always been and always will be a AAA country.”
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All the latest developments as markets, politicians and global institutions react to the ongoing crisis.

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Global financial turmoil – updates

European stock markets have plunged again as new figures from China added to fears about the prospects for the world economy.

Stock markets had fallen in value overnight following yesterday’s big falls in New York where Wall Street saw its worst trading day in almost three years.

The Hang Seng fell by 6% at one point overnight, while Tokyo’s Nikkei index fell 4%.

Both recovered some of those losses towards the close.

Main Developments:

European markets reverse early gains
Tokyo loses 1.7% to close at five-month low
US Federal Reserve to meet later
Oil prices fall in New York and London

1252 Investors are looking ahead to the US Federal Reserve meeting later today in the hope the US central bank could come up with some fresh cash to boost the US economy under its policy known as quantitative easing (QE). However, many were sceptical it has any firepower left with which to stem the tide.

1251 Most European stock markets were lower again this lunchtime in volatile trading.

After heavy falls earlier in the morning, London’s FTSE was down 0.6% and Frankfurt’s DAX was 1.5% lower.

The Paris market recovered to be just over 1% ahead by lunchtime, while Dublin’s ISEQ was also up.

1157 India’s BSE Sensex closed down 0.78%, extending the losing streak to the sixth consecutive session.

1148 The OPEC group of petroleum exporting countries has lowered its forecast for 2011 and 2012 crude oil demand.

In its monthly report, the cartel said demand for crude was expected to reach 88.14 million barrels per day in 2011, down from a previous estimate of 88.18.

For 2012, it put the figure at 89.44 mbd, down from 89.50.

1039 Greek stocks fell back, with the main index showing a loss of 3.9% to 959.32.

The Athens stock exchange opened in the green but could not hold on to the gains for more than five minutes before spiralling down.

1021 German stocks have plunged on dogged fears that slowing growth and the eurozone debt crisis will cause another recession.

The DAX showed a loss of 4.96% to 5,629.44.

Yesterday, the index of German blue-chips closed with a loss of 5.02% but it briefly nudged into positive territory early this morning before reversing direction in lock-step with other major European markets.

1014 ECB chief Jean-Claude Trichet has called on European governments, notably Italy and Spain, to ‘do their duty’ in reducing their public deficits and stabilising their finances.

‘We expect governments to do what we consider to be their work, their duty,’ Mr Trichet told Europe 1.

‘We have been extremely clear with the Italian government over recent days in asking for a number of decisions to be taken, which have been taken, and to speed up in particular a return to a normal budgetary situation,’ he said.

‘We have asked the same thing of the Spanish government.

‘We have asked European governments as a whole, 17 of them, to speed up the decisions taken on 21 July during a eurozone meeting.’

0949 Chinese inflation rate rose in July to its highest level in more than three years, as the government struggles to rein in soaring food costs.

The country’s consumer price index rose 6.5% last month compared to a year earlier, the highest level since June 2008 when it reached 7.1%.

The July reading is likely to fuel concern among policymakers anxious about inflation’s potential to trigger social unrest, and about instability in the Chinese economy at a time of renewed global financial peril.

0903 German stocks fell back in choppy early trade on fears that slowing growth and the eurozone debt crisis will cause another recession.

The DAX showed a loss of 1.5% to 5,834.59.

0900 Spanish shares slipped into the red, erasing early gains after a global stock market sell-off on concerns over global economic growth and sovereign debt.

The IBEX of leading shares was down 1.41% at 8,340.2 points. It had jumped more than 2% in opening trade but quickly ran out of steam.

0838 Borrowing costs for Spain and Italy have continued to ease on bond markets after the European Central Bank intervened in the market as part of efforts to tame the euro zone debt crisis.

The yield, or interest rate, on 10-year Italian bonds fell to 5.18%, while the Spanish rate dropped to just over 5%.

Ireland’s 10-year bond yield is just under 10.1%.

ECB president Jean-Claude Trichet told French radio this morning that the bank was actively buying bonds on the market and planned to continue doing so.

0828 Milan stocks jump 1.83% at open.

0816 Spanish shares have jumped 1.94% in opening trade as government bonds strengthened.

In the first eight minutes of trade, the Madrid market’s IBEX-35 index of leading shares climbed 1.94% to 8,623.3 points despite major losses overnight on Wall Street and in Asia.

0813 Spanish and Italian ten-year bond yields have eased sharply.

0812 German stocks slipped at the opening of trade, with the DAX index of leading shares losing 0.46% to 5,896.14 points.

Investors quickly changed track however and the DAX showed a small gain as other European markets proved more resilient.

0800 New York crude oil sank below $80 in Asian trade and its London counterpart briefly dropped under $100 as markets reeled from the US credit downgrade by Standard & Poor’s.

New York crude for delivery in September shed $2.35, or 2.89%, to $78.96 per barrel, a level it has not seen since 30 September 2010.

Oil prices had plunged $5.60, or 6.89%, to a low of $75.71 in intra-day trade before clawing back some ground.

London crude slipped $1.82, or 1.75%, to $101.92. It had earlier sunk below $100, a level the index has not breached since 8 February.

Crude prices went into freefall after the unprecedented downgrade Friday of the US’ long-term sovereign debt rating from AAA to AA+.

0757 Japanese shares ended down 1.68% at their lowest in nearly five months, although early losses narrowed ahead of a policy board meeting by the US Federal Reserve later in the day.

The Nikkei-225 index of the Tokyo Stock Exchange, which lost more than 4% in early trade, closed down 153.08 points at 8,944.48.

It was the benchmark index’s lowest close since 15 March, days after the earthquake and tsunami that tore into northeast Japan.

0750 German exports slumped in June on a monthly basis, in another sign of slowing global trade.

German exports declined by 1.2%, preliminary adjusted data released by the Destatis office showed, to €88.5bn following a revised monthly gain of 4.4% in May.

Imports were slightly higher at €77bn, and Destatis said the country’s adjusted trade surplus fell to €11.5bn from €12.9bn in May.

0745 Australian stocks have staged a stunning turnaround, bouncing from a more than 5.5% slump to end in the black on hopes the US Federal Reserve may outline plans for a new stimulus package.

The market plunged sharply at the open in reaction to carnage overnight linked to the US debt downgrade by Standard & Poor’s in the United States, and continued to fall as fear took hold.

But by mid-afternoon the losses had been reversed with the benchmark S&P/ASX 200 closing 1.2% higher at 4,034.8.

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PARIS (AP) — Oil prices tumbled to their lowest in almost a year Tuesday in Europe amid a global sell-off of equities and commodities triggered by investor fears the U.S. will soon fall into recession.

Benchmark oil for September delivery was down $2.12 to $79.19 a barrel in early afternoon time in Europe in electronic trading on the New York Mercantile Exchange. Earlier in the session, the contract fell to $78.09, the lowest since September 2010. Crude fell $5.57, or 6.4 percent, to settle at $81.31 on Monday.

In London, Brent crude was down $2.05 at $101.69 per barrel on the ICE Futures exchange.

A downgrade of U.S. debt one notch from AAA to AA+ by Standard & Poor’s announced Friday sparked investor panic this week. Oil traders often look to equities as a barometer of overall investor confidence, and Monday the Dow Jones industrials plunged 634.76 points, or 5.6 percent, the sixth-worst point decline for the Dow in the last 112 years.

Most European stock markets were sharply lower Tuesday, on the back of steep losses in Asia overnight.

By midday Germany’s DAX was down 3.3 percent at 5,724 while the CAC-40 in France was 1.1 percent lower at 3,089. The FTSE 100 index of leading British shares was down 1.8 percent at 4,976.

U.S. stocks were also poised for further falls at the open, a day after the Dow Jones industrial average fell a dizzying 634 points. Dow futures were down another 0.9 percent at 10,625 while the broader Standard & Poor’s 500 futures fell the same rate to 1,099.

“It’s clear we’re entering, or are on the precipice of, another global financial crisis,” said Richard Soultanian, an analyst with NUS Consulting. Soultanian expects crude to fall to between $55 and $60 before rebounding to the mid-$70s in the fourth quarter.

Investors will be closely watching the latest consumption forecasts from OPEC and the Department of Energy scheduled to be released later Tuesday. Traders will also be looking to the U.S. Federal Reserve to calm markets and possibly announce another round of monetary stimulus.

The Fed has already twice implemented a program of Treasury bond purchases, known as quantitative easing, since the 2008 financial crisis.

“The way prices are falling, especially on stock exchanges, they are likely to keep falling until the Fed unveils some new program,” energy consultant Cameron Hanover said in a report. “There are very few options available, but this is threatening to be a complete meltdown.”

Some analysts argue strong crude demand from developing countries such as China should help stabilize oil prices. Most companies and consumers have less debt than two years ago, which should help lower the risk of global economic growth slowing sharply, energy analyst and trader Blue Ocean Brokerage said.

“We can all take a chill pill and understand this is not the recession of 2009,” Blue Ocean said in a report. “All of this rumbling that demand can falter from here is (nonsense). The major difference today from 2009, the world is a better place financially.”

Lower commodities prices will also lower energy and food costs, freeing up consumer purchasing power and slowing inflation. Asia is a net importer of crude, and lower oil prices should give policymakers in the region more leeway to ease recent monetary tightening.

Crude has fallen 30 percent since reaching nearly $115 in May.

Still, most traders seem to be waiting for selling to subside before jumping back in.

“We have no interest in attempting to catch a falling dagger,” energy analyst and trader The Schork Group said in a report. “The adage is to buy when there is blood on the streets, but timing the bottom has led to the demise of traders far greater than ourselves.”

In other Nymex trading in September contracts, heating oil rose 0.3 cents to $2.80 a gallon while gasoline dropped 1.2 cents at $2.68 a gallon. Natural gas futures slid 3.9 cents at $3.90 per 1,000 cubic feet.

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