/ 25 October 2008

Alarms ring as panicked markets dive

Asian and European leaders closed ranks on Saturday to try to bolster the confidence of shell-shocked investors fearful that the year-long global credit crunch is mutating into a worldwide recession.

Poor economic data around the world and another international barrage of corporate profit warnings and job cuts triggered a brutal sell-off in stocks from Tokyo to New York.

”The danger of a collapse [on financial markets] is far from over. Any all-clear would be wrong,” German Finance Minister Peer Steinbrueck said in an interview released on Saturday.

”We are still in a dangerous situation. I am not going to mislead anyone and say: we have got everything under control,” he told Bild am Sonntag newspaper.

The worries of political leaders were mirrored in the markets.

Seventy-nine years to the day after the 1929 crash that ushered in the Great Depression, currencies experienced extreme volatility, while oil and other commodities tumbled on fears of plummeting demand that would accompany a slowdown.

Many analysts declared that Europe was in recession after private-sector activity in the euro zone’s economy contracted at the fastest pace in at least a decade and Britain’s economy shrank 0,5% in the third quarter, much more than expected.

”The euro area has entered a deep recessionary spiral,” said Aurelio Maccario, chief euro zone economist at Italian bank UniCredit.

The financial crisis, set off by a United States housing market collapse nearly 15 months ago, claimed another victim.

PNC Financial Services Group agreed to purchase ailing Ohio-based National City in a government-supported $5,6-billion deal that will create the number five US bank by deposits.

National City has been crippled by its soured mortgage loans.

PNC was one of four regional banks that said they would receive cash infusions under a $250-billion bank recapitalisation programme that is part of the US Treasury’s wider $700-billion US financial services rescue package.

The Treasury, which has already committed half that sum to nine of the largest US banks, was studying how it could give relief to bond and mortgage insurance firms under the programme, two sources familiar with the deliberations said.

Washington may also bail out the car industry. General Motors has intensified negotiations to buy Chrysler’s auto operations, but intends to seek US government support for any deal, people familiar with the talks told Reuters.

And Citadel Investment Group, one of the world’s biggest hedge funds, reacted to market talk it had asked the US government for a cash injection by disclosing it has more than $10-billion in available credit.

Full confidence
The financial crisis has injected urgency into the Asia-Europe Meeting (Asem) of 27 EU member states and 16 Asian countries, a biennial talking shop usually shorn of substance.

Meeting in Beijing, leaders queued up to pledge cooperation to tackle the turmoil by taking ”firm, decisive and effective measures in a responsible and timely manner”.

”Through such concerted efforts, leaders expressed full confidence that the crisis could be overcome,” a statement added.

As they deliberated, the euro fell 10% against the yen at one point as traders scrambled to unwind risky bets.

Stock markets fell around the world on Friday as investors panicked. Japan’s Nikkei index ended down 9,6%, and European shares dropped 5,4% to the lowest level in more than five years.

Russia suspended trading on its stock market until at least Tuesday after the market lost more than 13% of its value.

Wall Street also ended at five-and-a-half-year lows, but the bloodbath was not as bad as expected. The Dow Jones industrial average slid 312,30 points, or 3,59%, to 8 378,95, while the Standard & Poor’s 500 Index dropped 3,45%.

”We are aware of hedge funds that are being forced to sell, and banks are forcing customers to bring margins up. Mutual funds are getting large redemptions, and exchange traders are under extreme pressure,” said Marshall Front, chairperson of Front Barnett Associates LLC in Chicago.

Commodities hit
Opec agreed to cut oil output by 1,5-million barrels per day in a bid to halt a steep slide in prices. But the price of US crude fell more than 5% to below $64 as economic gloom overshadowed the cut.

Except for gold, which rose on safe-haven buying, commodities from copper and zinc to sugar and coffee ran into heavy selling — bad news for emerging economies that are major producers.

In a bleak assessment, United Nations Secretary General Ban Ki-moon said the financial turmoil threatened to undermine all the work the United Nations has done to help the world’s poor and hungry.

”It could be the final blow that many of the poorest of the world’s poor simply cannot survive,” he told UN agency chiefs.

More bad news flowed, too, from international corporations.

US carmaker Chrysler said it was slashing about 5 000 white-collar jobs and industrial conglomerate ITT planned to cut an unspecified number of positions.

”We believe the economy is in a recession and project real GDP to grow only 1,6% in 2008 before falling 0,1% in 2009,” said Diane Vazza, head of global fixed-income research at US rating agency Standard & Poor’s.

Sony’s shares plunged to a 13-year low after it halved its profit forecast. Samsung’s quarterly earnings slumped 44%.

French carmaker PSA Peugeot Citroen said it planned ”massive” output cuts this quarter after a 5,2% fall in third-quarter sales, while Europe’s largest airline group, Air France-KLM, issued a profit warning.

The US agency that insures corporate pensions reassured worried retirees that it has enough money to pay long-term benefits, despite about $4-billion in investment losses.

”The people who depend on us should not be concerned,” Charles Millard, director of the Pension Benefit Guaranty Corporation, told a congressional hearing. – Reuters