Fears of a US recession led to a sell-off in global equity markets on Wednesday, while rattled investors digested the latest earnings report from a Wall Street bank.
The Dow Jones Industrial Average fell 2.2 per cent overnight as weak retail sales data added to fears of further writedowns in the banking sector. Meanwhile, weak earnings from US chipmaker Intel (NASDAQ:INTC) after the Wall Street close also helped set the tone for Wednesday's losses.
Hong Kong's Hang Seng index fell 5.4 per cent - its worst day since September 2001 - as the territory's banking sector tumbled following damage to US rivals from subprime and credit market-related writedowns.
Tokyo's Nikkei 225 Average fell 3.4 per cent to a two-year low as export stocks such as Sony (NYSE:SNE) and Honda Motor (NYSE:HMC) fell on intensifying fears of weaker demand from the US.
By midday in Europe, London's FTSE 100 was down 1.5 per cent as miners slumped following sharp losses for industrial metal prices on commodity markets. Paris's CAC 40 lost 0.8 per cent and Frankfurt's Dax dropped 1.2 per cent. Futures trading indicated heavy opening losses on Wall Street, further undermining indices in Europe.
Citigroup (NYSE:C) of the US wrote off $18.1bn causing it to report on Tuesday a record $9.8bn fourth-quarter loss. Both Citi and Merrill Lynch reported plans to raise more than $20bn of fresh capital to shore up their battered balanced sheets.
Meanwhile, investors hoping for better news from JPMorgan were disappointed to hear the New York-based bank reported third-quarter earnings per share were lower than expected, and that it was "extremely cautious" entering 2008. The company was less exposed to credit and subprime markets, however, writing down only $1.3bn.
The dollar dropped to a record low against the Swiss franc and its weakest level in two and a half years against the yen on Wednesday as tumbling stock markets drove investors to the safety of low-yielding currencies.
Analysts said rising risk aversion had prompted investors to abandon carry trades, in which low-yielding currencies such as the yen and Swiss franc are sold to finance the purchase of riskier, higher-yielding assets elsewhere.
"Risk aversion is the only story in town, perhaps combined with a bit of dollar weakness," said Adam Cole at RBC Capital Markets. "The dollar is the perfect currency to sell against the yen in this environment."
The dollar fell 0.6 per cent to Y106.10 against the yen, its weakest level since May 2005, and dropped 0.4 per cent to an an all-time low of SFr1.0884 against the Swiss franc. However, the dollar was flat against the euro at $1.4810, as the single currency also suffered against the rampant yen.
Indeed, the yen rose 0.5 per cent to Y157.15 against the euro, climbed 0.7 per cent to Y207.95 against the pound and gained 1.4 per cent to Y81.86 against the higher-yielding New Zealand dollar.
Base metals extended the previous session's declines as fears of recession in the US offset expectations of strong demand in markets like China and India. Copper fell a further 2.2 per cent while zinc and nickel both declined 2.6 per cent.
The recent rally in the gold price, which saw the price climb to an historic level of $914.20 an ounce, ended as investors booked profits. The precious metal tumbled to $884.55, having ended the session in New York at $901.
Concerns about an impending recession in the US also sent oil prices to a three-week low. The Brent crude contract for February, which is due to expire today, fell $1.23 or 1.4 per cent to $89.75. The Nymex February contract declined $1.09 cents to $90.81 in after-hours trading.
The Dow Jones Industrial Average fell 2.2 per cent overnight as weak retail sales data added to fears of further writedowns in the banking sector. Meanwhile, weak earnings from US chipmaker Intel (NASDAQ:INTC) after the Wall Street close also helped set the tone for Wednesday's losses.
Hong Kong's Hang Seng index fell 5.4 per cent - its worst day since September 2001 - as the territory's banking sector tumbled following damage to US rivals from subprime and credit market-related writedowns.
Tokyo's Nikkei 225 Average fell 3.4 per cent to a two-year low as export stocks such as Sony (NYSE:SNE) and Honda Motor (NYSE:HMC) fell on intensifying fears of weaker demand from the US.
By midday in Europe, London's FTSE 100 was down 1.5 per cent as miners slumped following sharp losses for industrial metal prices on commodity markets. Paris's CAC 40 lost 0.8 per cent and Frankfurt's Dax dropped 1.2 per cent. Futures trading indicated heavy opening losses on Wall Street, further undermining indices in Europe.
Citigroup (NYSE:C) of the US wrote off $18.1bn causing it to report on Tuesday a record $9.8bn fourth-quarter loss. Both Citi and Merrill Lynch reported plans to raise more than $20bn of fresh capital to shore up their battered balanced sheets.
Meanwhile, investors hoping for better news from JPMorgan were disappointed to hear the New York-based bank reported third-quarter earnings per share were lower than expected, and that it was "extremely cautious" entering 2008. The company was less exposed to credit and subprime markets, however, writing down only $1.3bn.
The dollar dropped to a record low against the Swiss franc and its weakest level in two and a half years against the yen on Wednesday as tumbling stock markets drove investors to the safety of low-yielding currencies.
Analysts said rising risk aversion had prompted investors to abandon carry trades, in which low-yielding currencies such as the yen and Swiss franc are sold to finance the purchase of riskier, higher-yielding assets elsewhere.
"Risk aversion is the only story in town, perhaps combined with a bit of dollar weakness," said Adam Cole at RBC Capital Markets. "The dollar is the perfect currency to sell against the yen in this environment."
The dollar fell 0.6 per cent to Y106.10 against the yen, its weakest level since May 2005, and dropped 0.4 per cent to an an all-time low of SFr1.0884 against the Swiss franc. However, the dollar was flat against the euro at $1.4810, as the single currency also suffered against the rampant yen.
Indeed, the yen rose 0.5 per cent to Y157.15 against the euro, climbed 0.7 per cent to Y207.95 against the pound and gained 1.4 per cent to Y81.86 against the higher-yielding New Zealand dollar.
Base metals extended the previous session's declines as fears of recession in the US offset expectations of strong demand in markets like China and India. Copper fell a further 2.2 per cent while zinc and nickel both declined 2.6 per cent.
The recent rally in the gold price, which saw the price climb to an historic level of $914.20 an ounce, ended as investors booked profits. The precious metal tumbled to $884.55, having ended the session in New York at $901.
Concerns about an impending recession in the US also sent oil prices to a three-week low. The Brent crude contract for February, which is due to expire today, fell $1.23 or 1.4 per cent to $89.75. The Nymex February contract declined $1.09 cents to $90.81 in after-hours trading.
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