In the US August consumer credit fell
by $8BN versus the +$5BN expected, whilst the trade deficit for the same
month narrowed to -$59BN from the $61BN seen in July. The FOMC cut the
Fed funds rate by a higher than expected 0.5% to 1.5%, yet the Dow sank
through the psychologically important 10,000 support and by a lot more.
The Dow ended the week lower by 18%, as did the S&P 500, whilst the
Nasdaq fell by a more modest 15%.
The ECB cut rates by 0.5% to 3.75%, just one week after “officially”
leaving them on hold, due to concerns over inflation, as Q208 forecast
GDP for the Euro-Zone came in at 1.4%. The Bank of England also slashed
rates by 0.5% to 4.5% as the UK Government announced a £50BN plan to
purchase preference shares in troubled banks’, effectively Nationalising
30% of the UK banking system, whilst also providing a guarantees of
about £250BN to help refinance debt (anyone’s presumably?) In a separate
move, the Bank of England will make at least £200BN available as a,
“special liquidity plan,” to enable banks to borrow if needed.
Elsewhere, Iceland’s banking system collapsed under the weight of debt,
put at $61BN in a Bloomberg article, which is 12 times the size of
Iceland’s economy. The FTSE 100 index collapsed by 18% over the week,
with the French CAC and German DAX even worse, falling by 22%
respectively.
Out East, China cut interest rates for the second time in three weeks,
joined this week by the Central Banks of South Korea, Taiwan and Hong
Kong. Bankruptcies in Japan soared by 34% annualised in September, after
the 4.2% rise seen in August, whilst machinery orders in August fell by
a hefty 13%. The Nikkei fell by 24% (not a typo) and the Hang Seng gave
up 16%.
The $US index jumped by a further 3.3% to 83, higher by 8% in the past
two weeks, whilst the Yen had its largest weekly gain in a decade,
higher by 4.6%.On the downside the commodity currencies of Oz, South
Africa and Canada were hammered by a respective 16.9%, 10.4% and 7.7%.
German 10-year bund yields rose by 7 bps to 3.99%, whilst Japanese
10-year “JGB” yields also rose by 7bps, ending the week at 1.52%. US
Treasury yields ended higher, with the 5 year yield up by 3% on the week
at 2.76%, whilst the 10 year yield was higher by 6%, ending the week at
3.86%.
The commodities complex also witnessed an ugly liquidation, including
the crude oil price, which collapsed by 17% to $78 a barrel, and 30%
lower in a fortnight. the price of Gold swung through a range of over
$100, before ending the week at $859oz, higher by 3.1%.
Next week sees trade data for the EU and for Japan, with the latter also
releasing September consumer confidence. Inflation, in the guise of CPI,
is announced for the US, the UK and for the Euro-Zone.
Was it only 1 year ago this week that the Dow peaked in nominal terms at
14198? It is now at 8451 having been only a few hundred points from the
2002 low of 7197. The most watched stock index in the World is now lower
by 40% since last years high and has unravelled 80% of the prior 5 years
of gains in just 1 year. The clueless G7 Finance Ministers meet up in
Washington this weekend and will no doubt threaten even more
interventions (with taxpayers future money) to stabilise the markets.
Judging by the past year,” Interventions = market falls.”
“If you are selling security, you have to make
sure people feel insecure”
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