Recession, credit woes rattle investors

Recession fears following the biggest United States job losses in five years mixed with strains in the credit market on Monday to depress stocks and the dollar and drive investors to search for safety.

European shares got off to a poor start and Japan’s benchmark Nikkei index closed at a two-and-a-half year low.

“The real problem right now is the US, with the final toll of the subprime crisis still unknown,” said Katsuhiko Kodama, senior strategist at Toyo Securities.

Worries that the world-leading US economy is heading for or is already in recession were fuelled on Friday when the US Labour Department said 63 000 non-farm jobs had been eliminated in February, in contrast to Wall Street economists’ forecasts that 25 000 jobs would be added.

Investors have already been pricing in a decline in US growth but are not clear how far the economy will fall or how much impact it will have on other economies.

Many are waiting for the US economic slide to bottom out before moving back into riskier assets such as stocks.

In the meantime, concerns have risen again over the health of the credit market. European credit spreads set record wide levels on Friday, although they have since pulled back a bit.

The Federal Reserve announced a series of term repurchase operations on Friday totalling $200-billion to ease liquidity pressures, adding to a sense that the money markets are in poor shape.

The mix of worries hit stock markets. MSCI’s main gauge of world shares, a benchmark for many professional investors, was down 0,5% for a more than 11,5% loss since the beginning of the year.

In Europe, the pan-European FTSEurofirst 300 index was down 0,9%.
Earlier, Japan’s Nikkei finished down 250,67 points or 2% at 12 532,13, its lowest since September 1 2005. The broader TOPIX closed down 1,9% at 1 224,39.

Safety

One result was that investors sought safer assets.

Top-rated German bonds were particularly in demand. Intra-eurozone yield spreads were close to levels not seen since the euro’s inception in 1999.

Gold, also seen as a safe haven, was also up. It was priced around $977 an ounce, for a year-to-date gain of more than 17%. On currency markets, the yen and Swiss franc gained and the dollar slipped toward record lows.

“It’s a carry-over from last week’s payrolls data and the credit stories rumbling on,” said Chris Turner, head of FX strategy at ING.—Reuters

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