Global equities deep in gloom

Asian and European stock markets fell sharply again on Monday as investors worried about possible recession and a forthcoming interest-rate call in the United States, analysts said.

The Paris market fell amid anxiety and tension after an alleged $7-billion fraud was unearthed last week at French bank Société Générale.

Nervous investor sentiment would drive the direction of world stock markets this week, according to CMC Markets trader Matt Buckland.

“It’s going to be the sentiments of traders, rather than the fundamentals, that determine just how far markets come off in the near term,” he said.

In France, the CAC 40 index of leading shares dived 2,0% to 4 780,18 points, Germany’s DAX 30 tumbled 1,55% to 6 711,07 points and Britain’s FTSE 100 shed 1,96% to stand at 5 754,10.

In Asia, fresh jitters about the outlook for the world economy also seriously rattled markets, dealers said.

They added that investors fled to safe havens such as bonds and gold as markets around Asia slumped deep into the red in the wake of pre-weekend losses on Wall Street, with Shanghai plunging by about 7,2%.

Hong Kong closed down 4,25% and Singapore tumbled 3,75%. Tokyo ended down nearly 4% as Seoul lost 3,85%.

“Recent volatility continues with worries over US recession weighting,” said one London based trader.

“The focus today [Monday] is clearly on the reaction of European markets to weakness in Asia overnight, and all eyes will turn towards Wednesday evening’s Fed rate decision.”

Most traders predict that the US Federal Reserve will cut American borrowing costs on Wednesday. In an emergency move last week, the Fed slashed rates by 0,75 percentage points to 3,50% in a bid to allay US economic concerns.

Lower borrowing costs can increase company profits because they trim loan repayments while also boosting consumer income.

Market views are also mixed about whether the central bank’s efforts will be enough to prevent the US economy from slipping into recession.

“If the Fed makes another rate cut, the market will be likely to take the decision positively,” said Mizuho Research Institute senior analyst Koji Takeuchi.

“But the market may turn cautious as there are expectations that the forthcoming data may revive concerns about the US economy,” said Takeuchi.

World equities were also battered last week by fears about the health of the global financial sector after it emerged that Société Générale had a deep hole in its accounts attributed to fraudulent dealing by a lone trader.

On Monday, shares in crisis-hit Société Générale again fell heavily as French authorities seemed poised to put alleged rogue trader Jerome Kerviel under formal investigation, one step away from laying charges, over a $7-billion loss.

With the bank still under pressure over how Kerviel allegedly single-handedly covered up the losses, shares plunged 6,19% on the Paris stock exchange on Monday.

Société Générale stock has lost nearly half of its value since last May and many traders expect it to fall further, dealers said.

Sentiment remains fragile in the wake of last week’s rollercoaster performance that saw global shares slump on fears of a US recession before rebounding sharply following the emergency US rate cut and an economic stimulus plan.

However, the global rally began losing steam in Asia late on Friday.

“The turnaround in equity market sentiment on Friday in the US has been sustained today [Monday] ...
as investor optimism evaporated,” said economist Derek Halpenny at The Bank of Tokyo-Mitsubishi UFJ.

“The turnaround ... once again underlines the fragility of investor sentiment, which we believe will be sustained for some time to come, thus reinforcing the likelihood that volatility remains high.”

Later on Monday, US President George Bush was scheduled to deliver his annual State of the Union address, while key US jobs data due on Friday will be keenly awaited for fresh clues on the health of the world’s largest economy.—Sapa-AFP

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